Market Watch: wheat remains in solid downtrend
By Brian Hoops, president, Midwest Market Solutions
Monday, October 27, 2008 4:46 PM CDT
CORN
Corn closed the week of Oct. 24 $.30-1/4 lower. The weekly export sales report showed net sales of 789,600 MT were down 19 percent from the previous week, but up 4 percent from the prior 4-week average. Increases were reported for Japan (205,200 MT), Guatemala (127,400 MT), Taiwan (97,400 MT), Mexico (65,300 MT), Costa Rica (60,300 MT), Cuba (50,800 MT), Canada (39,000 MT), and the Dominican Republic (38,300 MT, including 18,000 MT switched from Colombia).
The corn harvest pace remains well behind the average harvest pace due to the late-planted conditions this spring, which has not allowed the corn crop to sufficiently dry down or to reach full maturity, and wet conditions this fall, which has prevented producers from entering some fields. Harvest as of Oct. 19 was estimated at only 29 percent completed, compared to the normal pace of 53 percent. Key states of Iowa (13 percent), Illinois (32 percent), Minnesota (19 percent) and Indiana (41 percent) continue to lag well behind normal.
Warm and windy weather will be desired through the end of November to allow farmers to harvest this year’s crop and to allow maximum natural moisture dry down. Demand remains soft compared to last year, but could improve with corn prices trading below $4.00 per bushel. Technically, corn remains in a solid downtrend. It will take a close above $4.30-1/2 to change the trend on the daily charts.
Recommendations
Hedgers: Hedged 40 percent of 2008 production at $7.30.
Cash marketers: Sold 40 percent of 2008 at $6.70.
Traders: Buy December corn at market on a close above $4.30-1/2.
SOYBEANS
Soybeans closed the week $.30-1/4 lower. The weekly export sales report showed net sales of 784,100 MT were down 24 percent from the previous week, but up 16 percent from the prior four-week average. Increases reported for China (358,000 MT, including 55,000 MT switched from unknown destinations), unknown destinations (213,000 MT), Germany (123,000 MT, including 120,000 MT switched from unknown destinations), Taiwan (46,100 MT), and Guatemala (25,800 MT), were partially offset by decreases for Japan (31,800 MT).
The USDA reported some large export sales last week. Two separate sales of 110,000 mts to China and a sale of 220,000 mts to an unknown destination were announced.
The consensus on yields seems to be good in some areas, but lower than last year in the majority of the Corn Belt. The USDA will provide two more updates on yields, one in the November report and the final number in the January report. The trade will look for lower yield estimates into both of those reports. Harvest is estimated at 67 percent completed by the USDA as of October 19, behind the average pace of 74 percent. With a wet week last week, the USDA estimates this pace slow even further.
Normally, once harvest reaches 50 percent completed, a post-harvest rally is ready to begin. A recovery in the economic sectors will be demanded for prices to sustain any type of rallies. Seasonal trends are now higher for soybeans as normally lows occur the third week of October.
Recommendations
Hedgers: Hedged 50 percent of 2008 at $15.20. Hedge 10 percent of 2008 production at $16.70. Long March 1,400 calls on 25 percent of 2008 production.
Cash marketers: Sold 50 percent of 2008 at $13.80.
Traders: Buy November soybeans at market on a close above $9.56-1/2.
WHEAT
For the week, Chicago wheat closed $.50 lower; Kansas City wheat, $.50-1/2 lower; and Minneapolis wheat, $.38-1/2 lower. The weekly export sales report showed net sales of 383,900 metric tons were down 12 percent from the previous week and 19 percent from the prior 4-week average. Increases reported for Guatemala (60,100 MT), Egypt (60,000 MT), Panama (55,900 MT), Nigeria (49,200 MT), Mexico (49,200 MT), Chile (33,800 MT), Spain (25,000 MT), and the Philippines (25,000 MT), were partially offset by decreases for unknown destinations (17,500 MT). Net sales of 3,000 MT for delivery in 2009/10 were for Mexico.
Overall export forecasts remain approximately 31 percent below last year’s export pace. Wheat is heavily dependent upon export business for price direction, so wheat values should remain under pressure as wheat will seek a price level that will stimulate better demand trends. This week, Egypt purchased 175,000 mts of wheat from France, snubbing the U.S., and Japan canceled its weekly tender offer.
Winter wheat harvest is nearly finished, as the USDA estimated seedings at 79 percent completed as of Oct. 19. Key states stand like this: Nebraska is 96 percent seeded, Kansas is 81 percent, Oklahoma 82 percent and Texas is 77 percent seeded. Heavy moisture last week should be excellent for the newly seeded wheat, as it will be able to grow quickly before entering into dormancy.
Technically, wheat remains in a solid downtrend and prices will need to close above $6.04-1/2 to break out of the downtrend.
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 wheat at market if it closes above $6.04 1/4.
LIVE CATTLE
Live cattle ended the week $5.00 lower, while feeder cattle ended $4.65 lower. The cash trade occurred last week at steady to slightly higher money. Cash traded in the North at $138, was $4 lower compared to the previous week. Live trade in Kansas and Texas occurred at $91, steady to $1 higher than the previous week.
The stock market remains volatile, but has shown signs of stabilizing. This should have a calming effect on the cash and futures markets as traders will anticipate the worst is over for the economy. If the stock market can stabilize and recover, look for the cattle market to find support and shorts will cover positions, giving the market a much needed short-covering rally. Technically, the charts are solidly lower and to the technical trend following funds, this means to continue to sell major rallies. December needs to close above $96.30 to turn the technical trend higher.
Recommendations
Hedgers: Hedged 50 percent of October marketings at $103.00. Hedged 50 percent of December marketings at $107.20. Cover December hedges on a close above $92.82.
Feed costs: Producers need to have coverage through harvest in the cash market or at the money March corn call
options.
Traders: Buy December at market if there is a close above $92.82
LEAN HOGS
Lean hogs closed the week $2.20 lower. The hog market is similar to the cattle market in terms of anticipating the sluggish economy will have a negative effect on consumer demand for pork. Demand, particularly export demand, has slowed over the last six months, while the supplies of pork have remained large. As the economy continues to struggle, it is likely demand for pork will remain soft until next spring when the grilling season begins and will stimulate fresh demand.
Technically, weekly charts are finding support for prices between $50 and $55. If the stock market can stabilize, this support level should hold and provide a tradable bottom. Charts remain in a firm downtrend, and December will need a close above $61.52 to change the trend of the market.
Recommendations
Hedgers: Hedged 100 percent of fall marketings at $75.85 December. Lift hedges on a close above $59.32.
Feed costs: Producers need to have coverage through harvest in the cash market or at the money March corn and meal call options.
Traders: Buy December at market if there is a close above $59.32
See more at www.midwestmarketsolutions.com
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