CORN
July corn was trading 3 cents lower late in the overnight session. Outside market forces are clearly bearish with a sharp drop in metal and energy markets, a higher US dollar and a sharp break in China stock markets. The sharp set-back in the China stock market has traders nervous over the longer-term feedgrain demand from this region. The lack of a significant reason to suspect any weather problems with the US crop has added to the negative tone. The 11-15 day models show heat in the southern and eastern US and this region looks dry for the next few weeks so we can not rule out some weather concerns emerging soon. However, after a great start to the growing season and a lack of dryness for much of the Midwest, it may take time and a continued dry trend on the extended models to shift the psychology away from the bear camp. The China National Grains and Oils Information Centre believes that China corn planted area this year may increase by more than 2%. This could push production to a record high 197.5 million tonnes, up 3% from last year's record. July corn closed sharply higher on the session yesterday and near the highs of the day with funds noted as active buyers. A recovery bounce in soybeans and some strength in US equity markets helped to provide some support. The crop is 87% planted which was higher than expected with emergence at 56% as compared with 28% as the 5-year average. South Korea bought 56,000 tonnes of US corn yesterday and also bought 60,000 tonnes of optional origin corn overnight. Traders see the weather as short-term bearish force but with a dry two-week outlook for some Midwest locations, the bears are wanting to see some rain emerge in the extended forecast models soon.
WHEAT
Outside market forces look negative today with a jump in the US dollar and weakness in metal and energy markets. The market may be done following corn as a key indicator for direction as the market shifts away from a feedgrain back to a food grain for the coming season. This will only occur if there is a big corn crop. Some light crop concerns and the outlook for declining US and world ending stocks for the 2012/13 season has helped to provide support this week. The China National Grains and Oils Information Centre sees China wheat production up 2% this year to the second highest crop on record. Even with the high crop, China imported 1.12 million tonnes in the first quarter of 2012 which is almost as high as the total for 2011. Ukraine officials believe July 1st grain stocks could be a record high 12 million tonnes as compared with 5.1 million last year do to slow exports. A hot weather forecast for western Kansas just ahead and ideas that recent rains may not have been enough to avoid some further deterioration of winter wheat crop conditions helped to support the strong gains yesterday. Crops rated good to excellent in Kansas slipped to 52% from 60% last week and traders see this as a factor which might have sparked active short-covering. Spring wheat plantings reached a record fast 94% from 64% on average. Short-covering seemed to be the primary bullish force yesterday as some potential weather issues in the Black Sea region, China and Kansas have helped to provide underlying support. However, all of these areas have received some rains recently. Morocco plans to keep import duties on wheat suspended until the end of May as the country hopes to see active imports to make up for a grain crop of just 4.8 million tonnes, down 43% from the previous year.
SOYBEANS
The main feature of the US trade today could be US housing data or it could be the FOMC meeting minutes release later in the day. A sharp drop in metal and energy markets leaves outside forces bearish this morning. The sharp break in the China stock market combined with the record high net long position noted in the last COT report for soybeans and meal leaves the market vulnerable to more long liquidation selling over the near-term. Open interest has not come down much on the break and this has traders nervous of "throw-in-the-towel" type selling if outside market forces stay negative. The China National Grains and Oils Information Centre sees China soybean production down 7% this year to 13 million tonnes. The group sees 2011/12 imports of soybeans near 58 million tonnes as compared with the USDA estimate of 56 million tonnes. New crop exports are pegged at 60 million vs. USDA at 61 mmt. The selling pushed November soybeans down overnight to push to the lowest level since March 6th. July soybeans closed sharply higher on the session yesterday and near the highs of the day. Rumors that China was still in the market for old crop soybeans helped to spark the late buying. July meal led the whole complex higher late in the day closing $13.70 higher. Outside market forces were mixed and this helped to spark some of the volatile trade. Talk of a six year low in rapeseed production in Europe helped to provide some support but a lack of new export news on the daily wire and a fast start to the planting season helped to limit the advance. The soybean crop is 46% planted from 24% as the 5-year average. With a dry weather outlook for the next week, many traders see a surge in plantings into late May. The excellent weather outlook for planting helped to limit the buying in new crop November soybeans. Egypt bought 6,000 tonnes of optional origin soybean oil and 34,000 tonnes of sunoil overnight. Traders see Australia canola production for the 2012/13 season down 6.9% to 2.97 million tonnes. Last year was a record high.
CATTLE COMPLEX
The cattle market saw choppy trading early during yesterday's session but prices rose to a 3-session high led by strength in hogs and an improving demand tone for beef. The surge in beef prices this week and ideas that consumer demand during the next few months might benefit from lower gasoline prices was seen as a positive factor, A late pullback in the stock market may have helped to limit early support, however, and outside market forces are widely expected to be a negative force during the balance of this week. A rise in beef prices this week may be due to seasonally strong demand from retailers in front of the Memorial Day holiday could provide additional support to the cash market outlook, with last week's cash market already much higher than July and August futures. Cash market offers in Texas this week are at $122.00 to $123.00, compared with trades at $120.0 last week. The estimated cattle slaughter came in at 126,000 head yesterday. This brings the total for the week so far to 253,000 head, up from 245,000 head last week at this time but down from 259,000 head a year ago. Boxed beef cutout values were down 2 cents at mid-session yesterday and closed 58 cents higher at $191.61. This was up from $190.82 the prior week and is the highest beef market since March 19th.
CRUDE OIL
June crude oil prices came under heavy selling pressure during the overnight session, falling to their lowest level since early November. Some traders indicated that the crude oil market remained under pressure from uncertainty over the European debt situation and signs of slowing global growth. Meanwhile, the US supply situation showed a much larger than expected build last week, according to private industry data late Tuesday, which came in nearly five times greater than expectations for today's EIA report. The street is looking for the EIA data to show a build in the range of 1.5 to 1.75 million barrels, which compares to five year average draw of 300,000 for this week of the year. A build in today's report would mark the eighth consecutive weekly increase and keep inventories at a 21 year high.
There is substantial risk of loss to futures and options trading. Past performance is not indicative of future results.
By Donna Hughes
Lone Star Portfolio Advisors, Inc. was founded by Donna Hughes. Donna began her career in the industry in 1978 after graduating High School as a member of the Chicago Mercantile Exchange’s Inspection and Delivery Department where she was responsible for scheduling and facilitating the USDA grading and delivery for various Exchange Commodities. After 1 ½ years, she was offered a position working with George Segal, a prominent hedger in the Pork Belly market. It was through this relationship that she was mentored and taught the hedging process by working with Mr. Segal as well as other leaders of the Pork Industry. In 2004, Donna moved to Texas where her skills in the industry were utilized to help individual and corporate producers with their Risk Management Goals. Her Daily Market Commentaries are heard on the AllAgNews.com Radio Network broadcasting throughout Texas. She also contributes to magazines and periodicals including PetroEvents and Ag Monthly.
Donna created Lone Star and implemented strategic relationships with Daniels Trading and R.J. O’Brien leveraging their services to enable Lone Star to Build Lasting Relationships Thru Information, Execution and Research.
