Market Watch: ‘Rain makes grain’ mentality will lead markets
By Brian Hoops
Wednesday, July 16, 2008 2:16 PM CDT
CORN
Corn closed the week of July 11 $.66-3/4 lower. The weekly export sales report showed net sales of 337,400 MT were up 4 percent from the previous week, but down 5 percent from the prior 4-week average.
Increases reported for South Korea (166,400 MT, including 110,000 MT switched from unknown destinations), Japan (113,300 MT), Saudi Arabia (84,900 MT, including 40,000 MT switched from unknown destinations), Taiwan (45,100 MT), Mexico (28,900 MT), Syria (26,400 MT, including 16,000 MT switched from unknown destinations), and Jamaica (13,500 MT), were partially offset by decreases for unknown destinations (178,000 MT).
Optional origin sales of 55,000 MT for South Korea were declared from the United States. Net sales of 306,900 MT for delivery in 2008/09 were primarily for Colombia (134,000 MT), Mexico (113,300 MT), Japan (46,700 MT), and Canada (11,200 MT).
Historically, after the Fourth of July holiday, the grain market will focus on rainfall and the “rain makes grain” mentality will set in. Hot and dry weather is needed to rally prices during the pollination period, as hot and dry weather will adversely affect yields.
However, rains will be viewed as beneficial to crop development as increased producer selling will pressure prices. Producers needs to be prepared to reward the market on rallies in the month of July and then look to re-own sales at the early stages of harvest. This market has put in a tremendous amount of premium, which can be removed quickly if weather is beneficial in July and August.
Recommendations
Hedgers: Hedged 90 percent of 2007 production at $6.15 and 40 percent of 2008 production at $6.70. Sell remaining 10 percent of 2007 production at $7.50 and buy 760 December puts on 50 percent of 2008 production.
Cash marketers: Sold 90 percent of 2007 production at $5.15. Sell 10 percent of 2007 production at $7.50. Sold 40 percent of 2008 at $6.70.
Traders: Exited long December corn for a $9,050 profit.
SOYBEANS
Soybeans closed the week $.33-1/2 lower. The weekly export sales report showed net sales of 66,400 MT were down 86 percent from the previous week and 59 percent from the prior 4-week average.
Increases for Mexico (60,000 MT), Syria (38,300 MT, including 40,000 MT switched from unknown destinations and decreases of 1,700 MT), Canada (20,800 MT), Taiwan (17,500 MT), and Japan (14,500 MT), were partially offset by decreases for Israel (55,000 MT) and unknown destinations (40,000 MT). Net sales of 222,500 MT for 2008/09 delivery were primarily for Israel (55,000 MT), China (55,000 MT), Japan (55,000 MT), and unknown destinations (55,000 MT).
As with the corn market, the “rain makes grain” mentality will prevail for soybean trading for the month of July. While it is true that there has been a tremendous amount of flood damage across the Midwest, there has also been a lot of replanting of soybeans done this summer in an attempt to seed or reseed as many acres as possible.
The technical charts look ominous as a double top was violated on the weekly charts, however, this could prove to be a bull trap. Seasonally, soybeans have reached their peak, so producers need to be prepared to increase sales as a lot of bullish news has been added to soybean prices. The market will remain sensitive to any weather news, good or bad; as the market will need every single bushel of soybeans to meet the strong demand base that has been built.
Recommendations
Hedgers: Hedged 90 percent of 2007 production at $14.25 and 50 percent of 2008 at $13.80. Long $15.00 November puts on 50 percent of 2008 production. Hedge 10 percent of 2007 production at $16.70.
Cash marketers: Sold 100 percent of 2007 production at $12.25. Sold 50 percent of 2008 at $13.80.
Traders: Stand aside.
WHEAT
For the week, Chicago wheat closed $.56-3/4 lower; Kansas City wheat $.47 3/4 lower and Minneapolis wheat $.41-1/2 lower. The weekly export sales report showed net sales of 617,100 metric tons were down 8 percent from the previous week.
Increases reported for Nigeria (100,000 MT), Chile (96,400 MT), Japan (84,200 MT), Colombia (75,500 MT), Peru (59,100 MT), the Philippines (49,500 MT), and South Africa (44,000 MT, switched from unknown destinations), were partially offset by decreases for Indonesia (4,000 MT), unknown destinations (3,900 MT), and Honduras (2,100 MT).
The winter wheat harvest stands at approximately 52 percent in the last crop progress report, slightly behind the average pace of 61 percent. Spring wheat good to excellent ratings stand at 71 percent, remaining behind last year’s rating of 79 percent. Expect the winter wheat harvest pace to reach the 70 percent mark by the week of July 7, which should indicate the end of the harvest pressure.
Seasonal lows are normally formed in the first week of July and demand should begin to improve, as foreign buyers will want to purchase the newly harvested wheat. Seasonals are higher until winter wheat seedings begin in September, as producers will begin to hedge their new crop production once seeding starts.
The one thing that could limit the upside potential of wheat is fund selling if the funds are forced to liquidate corn and beans; they will likely liquidate longs in wheat also.
Recommendations
Hedgers: Hedged 55 percent of 2008 production at $11.05 Kansas City and 30 percent of September Minneapolis $11.90. Hedge 15 percent of 2008 at $11.34 KC and/or $11.30 Minneapolis. Hedge 10 percent of 2009 production at $10.30 Kansas City.
Cash marketers: Sold 55 percent of 2008 production at $8.50 Kansas City. Sold 30 percent of 2008 spring wheat at $10.90 Minneapolis. Sell 15 percent of 2008 at $11.34 KC and/or $11.30 Minneapolis. Sell 10 percent of 2009 production at $10.30 Kansas City.
Traders: Buy December Chicago at $8.64 stop with a $8.34 SCO.
LIVE CATTLE
Live cattle ended the week $2.60 lower while feeder cattle ended $.15 higher. Cash trade volume was very light this week, meaning show lists will be carried over to next week and packers will enter the week short bought. The cash trade was lower this week, as cash traded $2 lower compared to last week. Cash trade in Nebraska came in at $158, $2 lower than the previous week.
Live trade in Kansas and Texas was $100, $1 lower compared to the previous week. Demand is slowing for beef due to the rising cost of the beef, plus higher gas prices, higher food costs and an overall weak economy looks to keep prices of beef in check. A large premium has been built into the futures market due to the high corn values.
The deferred contracts of cattle will continue to follow the lead of the corn market. Technically, the uptrend line has been broken on the October contract as illustrated on the chart. The downside needs to be protected with sales or puts.
Recommendations
Hedgers: Hedged 100 percent of summer marketing at $98.00 August. Hedged 50 percent of October marketings at $103.00. Hedged 50 percent of December marketings at $107.20. If December trades to $114, buy December 112 puts on 50 percent of marketings.
Feed costs: Producers need to have coverage through harvest in the cash market or at the money December corn and call options.
LEAN HOGS
Lean hogs closed the week $3.70 higher. After the shock of the bearish hog and pig report was digested by the market, prices stabilized and rallied into the end of the weekend on what is probably best described as a technical bounce. Hedgers are looking for opportunities to lock in profits on the deferred contracts on a rally.
Retracement levels should represent targets for producers to hedge into. The cash market should remain relatively soft through the summer as supplies are plentiful, although demand will remain strong and limit the downside. The market is in a strong seasonal downtrend until the Labor Day holiday marks a seasonal low.
Recommendations
Hedgers: Hedged 100 percent of summer marketings at $80.00 August. Hedged 50 percent of fall marketings at $75.50 December. Hedge 50 percent of fall marketings at $78.20 December.
Feed costs: Producers need to have coverage through harvest in the cash market or at the money December corn and meal call options.
Traders: Stand aside.
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