Daily Grain and Livestock Commentary Thursday June 05, 2008

Transcription

1 Daily Grain and Livestock Commentary Thursday June 05, 2008 DAILY SOY COMPLEX COMMENTARY BULLS MAY BE WINNING THE STRUGGLE OVER THIS SUMMER'S DIRECTION. OVERNIGHT CHANGES THROUGH 3:15 AM (CT): SOY BEANS +10.0, BEAN OIL +0.5, SOYMEAL +4.1 OVERNIGHT DEVELOPMENTS: July soybeans traded 20 1/2 cents higher overnight. Malaysian palm oil rallied by about 2.6% today despite expectations of a windfall tax on palm producers in that country. However, palm oil prices in Indonesia were lower on poor demand. NEAR-TERM MARKET FUNDAMENTALS: Soybeans rallied yesterday despite a drop in the crude oil market which pressured soy oil. The rally in soybeans continued overnight with both the soy meal and soy oil markets also participating. Crop concerns and ideas that the Argentina strike situation will help boost short-term demand for US soybeans has provided underlying support. Soy oil has been weak in recent sessions due to weakness in palm oil demand as well as weakness in crude oil according to floor traders, and soy oil has also been pressured due to selling by meal/oil spreaders. The latest phase of the strike by farmers in Argentina continues with no end in sight, and sources there report that the strike has been very effective in keeping supplies of soybeans in particular from entering the main soybean port at Rosario. Traders at the exchange there report that there has been no trade in soybeans since May 27th. Some cash market traders expect this to start diverting shipping away from Argentine waters where vessels have had a hard time finding supplies needed to load to capacity. Shipping may be diverted to ports elsewhere where business is actually being turned away due to a lack of shipping capacity. Weather is expected to be hot and wet today in most areas with hot weather pushing into remaining areas of the northwestern soybean belt by tomorrow. CASH NEWS AND TENDERS: No new tenders are scheduled today. WEATHER: Moderate to very heavy rains fell again over the past hours in a broad band across central Illinois, central Indiana and central Ohio. Moderate to occasionally heavy amounts also fell in SE Iowa and central and west central Missouri. Summer-like temperatures are expected to finally push into the northern soybean belt today and the thrust of hot air should also encompass the western soybean belt by Friday. As this broad from pushes up from the south, it will bring humid air that is expected to trigger more thunderstorms as the front sweeps from south to north into Friday. Warm and cold fronts may move back and forth across northern growing areas over the weekend and into next week which should produce ongoing rain in the northern growing areas and possibly in Iowa. TODAY'S GUIDANCE: The most important factor to start the morning may be the fact that crude oil was not sharply lower overnight. This has taken the pressure off soybean oil for now which allowed soybeans themselves to push to the top end of the trading range of the past month during the overnight session. Meal also traded higher in the overnight session which is very constructive since it indicates that the recent buying in meal has been based on more than just a reaction by spreaders to lower soy oil. The continuing ability of strikers in Argentina to keep soybeans out of export channels is providing real long term support. Traders there report that it is hard to find supplies to load onto ships waiting in Argentina which is the diametric opposite of what is occurring in the US and elsewhere. In the Pacific NW in particular, shipping is actually said to be booked to capacity in coming weeks which is now shifting export business back to more expensive loading points at the Gulf which is taking capacity at those ports to near capacity as well. If the strike in Argentina causes a longer term withdrawal of shipping from that market, it will take weeks to divert ships back to those ports after the strike is finally over. Barring a sharp break in crude oil, this may finally allow soybeans (and corn) to break out of the trading ranges

2 that have confined the market since early April. That breakout would be to the upside. Support today is near 1379 to 1380 in the July contract with temporary resistance near Look to be a buyer on corrective breaks and the Argentina situation may help support August meal and soybeans. November soybeans are already at the highest level since early March and look poised for a test of the /4 highs. 1) Long November soybean 1320/1460 bull call spread from 48 and also short the November soybean 1100 put from 47. Hold for an objective of 1473 in November soybeans and risk a total of 40 cents on the entire spread. 2) Long the August soybean oil call from 169 with an objective of 335. Risk to 94. SOYBEAN COMPLEX TECHNICAL OUTLOOK: SOYBEANS (JUL) 06/05/2008: A bullish signal was given with an upside crossover of the daily stochastics. Momentum studies are rising from mid-range, which could accelerate a move higher if resistance levels are penetrated. The market's short-term trend is positive on the close above the 9-day moving average. Market positioning is positive with the close over the 1st swing resistance. The next upside target is The next area of resistance is around /4 and 1433, while 1st support hits today at /4 and below there at /4. SOYBEAN OIL (JUL) 06/05/2008: The major trend has turned down with the cross over back below the 40-day moving average. Declining momentum studies in the neutral zone will tend to reinforce lower price action. A negative signal for trend short-term was given on a close under the 9-bar moving average. The market's close below the pivot swing number is a mildly negative setup. The next downside target is now at The next area of resistance is around and 61.45, while 1st support hits today at and below there at SOYMEAL (JUL) 06/05/2008: Momentum studies are rising from mid-range, which could accelerate a move higher if resistance levels are penetrated. The market's close above the 9-day moving average suggests the short-term trend remains positive. There could be more upside follow through since the market closed above the 2nd swing resistance. The near-term upside objective is at The next area of resistance is around and 379.5, while 1st support hits today at and below there at DAILY CORN COMMENTARY CORN HAS DIVORCED ITSELF FROM CRUDE OIL AND LOOKS POISED FOR NEW HIGHS. OVERNIGHT CHANGES THROUGH 3:15 AM (CT): CORN +2.0 OVERNIGHT DEVELOPMENTS: July corn traded 5 3/4 cents higher overnight. Crude oil was marginally higher. NEAR-TERM MARKET FUNDAMENTALS: Corn rallied yesterday after a lower open. It remained firm until late in the session before staging a sharp rally to new highs for the day in the final minutes of trade. Floor traders indicate that buying was mainly by locals and commission houses, and the rally continued overnight. Wet weather is forecast through the end of the week across most major growing areas, and this is expected to bring further

3 delays to planting at the tail end of the planting season and either delay or complicate the replanting that is now necessary in the western Corn Belt. Traders note that the focus is starting to shift to the warmer temperatures that are expected across the entire Corn Belt today and tomorrow. Hot weather is expected to last for two weeks or longer, and this may allow corn to catch up in terms of Growing Degree Days lost in May. The Food and Agriculture Organization is set to issue a joint declaration today in Rome that will address world hunger and food aid. It is unclear whether the communique will address the issue of bio-fuels which is said to have been an area of major disagreement at the conference. The USDA will issue its Export Sales Report this morning. Basis levels were higher again yesterday at the Gulf amid improved demand, as some export buying has shifted back to the Gulf due to the fact that the cheaper shipping capacity in the Pacific NW may be fully booked in coming weeks. CASH NEWS AND TENDERS: No new tenders have been reported. WEATHER: Moderate to very heavy rains fell again over the past hours in a broad band across central Illinois, central Indiana and central Ohio. Moderate to occasionally heavy amounts also fell in SE Iowa and central and west central Missouri. Summer-like temperatures are expected to finally push into the northern Corn Belt today and the thrust should also encompass the western Corn Belt by Friday. As this broad front pushes up from the south, it will bring humid air that is expected to trigger more thunderstorms as the front sweeps from south to north into Friday. Warm and cold fronts may move back and forth across the northern Corn Belt over the weekend and into next week which should keep rains in the northern growing areas and possibly in Iowa. TODAY'S GUIDANCE: Like soybeans, corn seems to be making its decision on market direction, and that decision is to move higher. Yesterday's last minute surge in corn coincided with a temporary surge in crude oil, but a look at the daily charts makes it clear that when all is said and done, corn has moved decisively higher in recent days while oil has moved decisively lower, and this may increasingly cause the corn market to shake off the impact of declines in crude prices. Look for a test of the all-time highs. Support today is at 607 to 609 in the July contract and at 637 to 638 in the December contract. Near term resistance remains at 634 in July and at new highs near 660 in December. The market is telling us that it intends to move back to the highs or higher. While uncertainty over weather swings both ways, the combination of a high-priced environment and potential loss of both acreage and yield may overwhelm the potential that warm weather may bring after 2-3 weeks. Aggressive traders should buy either July or December corn on setbacks of 4-5 cents inner day. Look for new highs in both contracts with 676 3/4 as next objective for December corn. 1) Long 6 August corn 540 puts from 8 1/2 cents each and long 1 September corn from 620. Risk a total of 18 cents and hold for now. 2) Long Dec08 corn and short Dec10 corn at +6 Dec08 with an objective of +58 Dec08. Risk 11 cents from entry. CORN TECHNICAL OUTLOOK: CORN (JUL) 06/05/2008: Positive momentum studies in the neutral zone will tend to reinforce higher price action. The close above the 9-day moving average is a positive short-term indicator for trend. The market has a slightly positive tilt with the close over the swing pivot. The near-term upside objective is at 624 1/2. The next area of resistance is around 621 and 624 1/2, while 1st support hits today at 608 and below there at 598 3/4. DAILY WHEAT COMMENTARY

4 WHEAT RESPONDING TO STRENGTH IN CORN & SOYBEANS; BASIS IS VERY WEAK. OVERNIGHT CHANGES THROUGH 3:15 AM (CT): WHEAT +6.0 OVERNIGHT DEVELOPMENTS: July wheat was 5 cents higher in overnight action. NEAR-TERM MARKET FUNDAMENTALS: Wheat rallied early in the session yesterday, but prices softened late in the session despite a late, sharp rally in corn. Overnight trade was higher in wheat, but prices remained in a very narrow range. Traders indicate that wheat is a light volume follower of corn and soybeans with harvest being the main factor influencing prices. However, harvest pressure has mainly taken its toll on the basis so far this week with a drop of 40 cents to historic low levels reported at the Gulf earlier this week. The Food and Agriculture Organization met to discuss food inflation this week in Rome and they are set to issue a final communique today. A Tunisian official said today that its wheat imports dropped in the 1st Quarter by 32.4%. This fits with a general pattern of declining imports by the large North African market. The USDA will issue its weekly Export Sales Report this morning. Basis levels were steady at the Gulf yesterday. The USDA attache in Russia pegged wheat production at 51.4 million tonnes which is up from 49.4 million tonnes last year. Exports are expected to reach 13 million tonnes for the 2008/09 season, up from 12.1 million last year. CASH NEWS AND TENDERS: Japan bought 153,000 tonnes of wheat in its weekly tender. This compares to a scheduled tender for 178,000 tonnes and it compares to only 66,000 bought last week. Pakistan is still tendering for 250,000 tonnes of wheat by June 14th. WEATHER: Warm and humid air is expected to push north as far as southern Nebraska today. Temperatures in the southern Plains should be in the 90s with temperatures in Kansas only in the 80s. Rain is expected in the northern Plains today and again tomorrow. Weather in the soft red wheat belt is expected to be dry in the south and wet in the north today with hot temperatures throughout major growing areas. TODAY'S GUIDANCE: Wheat seems to be turning into a reluctant follower of the strength in corn and soybeans. The cash market for soft red wheat is a serious drag on futures with basis levels at the Gulf trading at historic lows after dropping 40 cents to start the week. The large soft red crop and the likelihood of decent harvest weather in southern soft red growing areas should keep the pressure on. The only thing supporting wheat at this point is the fact that speculators are short. Support today is near 746 in the July contract and near 785 in December. Resistance is at 762 1/2 to 765 in July and at 814 in December. Strength in corn and soybeans may prevent a serious test of the lows in wheat. The next available strategy may be to sell July wheat if rallies in corn or soybeans can pull it up to near 778. Sell the July wheat 795 call at 11 cents with an objective of zero. Risk 6 cents from entry. WHEAT TECHNICAL OUTLOOK: WHEAT (JUL) 06/05/2008: Momentum studies are trending higher from mid-range, which should support a move higher if resistance levels are penetrated. The market's close below the 9-day moving average is an indication the short-term trend remains negative. The market's close below the pivot swing number is a mildly negative setup. The next upside target is 772 1/2. The next area of resistance is around 762 and 772 1/2, while 1st support hits today at 744 and below there at 736 1/2.

5 KC WHEAT (JUL) 06/05/2008: The daily stochastics gave a bearish indicator with a crossover down. Daily stochastics declining into oversold territory suggest the selling may be drying up soon. The close below the 9-day moving average is a negative short-term indicator for trend. The market's close below the pivot swing number is a mildly negative setup. The next downside objective is now at 779. The next area of resistance is around 800 1/2 and 809, while 1st support hits today at 785 1/2 and below there at 779. MINN WHEAT (JUL) 06/05/2008: The downside crossover (9 below 18) of the moving averages suggests a developing short-term downtrend. Daily stochastics are trending lower but have declined into oversold territory. The close below the 9-day moving average is a negative short-term indicator for trend. The market's close below the 1st swing support number suggests a moderately negative setup for today. The next downside objective is 911 1/4. The market is approaching oversold levels on an RSI reading under 30. The next area of resistance is around 958 1/2 and 985 1/4, while 1st support hits today at 921 1/2 and below there at 911 1/4. RICE (JUL) 06/05/2008: The stochastics indicators are rising from oversold levels, which is bullish and should support higher prices. A negative signal for trend short-term was given on a close under the 9-bar moving average. The outside day down is somewhat negative. The defensive setup, with the close under the 2nd swing support, could cause some early weakness. The next upside objective is The next area of resistance is around and , while 1st support hits today at and below there at DAILY TECHNICAL STATISTICS 9 DAY RSI RSI SLOW STOCH D SLOW STOCH K 20 DAY 40 DAY 50 DAY 60 DAY CLOSE GRAIN COMPLEX CNAN / CNAZ SSAN SSAX / SMAN BOAN WHAN WHAZ / RCN KWAN MWN ON Calculations based on previous session. Data collected 06/04/2008 Data sources can & do produce bad ticks. Verify before use. DAILY SWING STATISTICS Contract Support 2 Support 1 Pivot Resist 1 Resist 2 GRAIN COMPLEX CNAN8 Corn 598 1/ / /2 CNAZ8 Corn / /2 653 SSAN8 Soybeans / / / SSAX8 Soybeans / / /4 SMAN8 Soymeal BOAN8 Soybean Oil WHAN8 Wheat 736 1/ / /2 WHAZ8 Wheat / / / /2 RCN8 Rice KWAN8 KC Wheat / /2 809 MWN8 MINN Wheat 911 1/ / / / /4 ON8 Oats / / /4 390

6 Calculations based on previous session. Data collected 06/04/2008 Data sources can & do produce bad ticks. Verify before use. DAILY CATTLE COMMENTARY CHOPPY TO LOWER TRADE AHEAD AS FUTURES PREMIUMS DIMINISH; CASH WEAK Long liquidation selling from fund traders seemed to reach a peak into the midsession yesterday after aggressive selling was seen for the prior two sessions. On top of the South Korea import problems, news that 15,000 broilers were destroyed in Arkansas due to a low pathogenic type of bird flu may have also sparked some selling. For now, there is a ban on Arkansas poultry exports to Russia, and the news should have little or no impact on exports. The industry does not see an impact on poultry production as well, as it appears the disease is under control. August cattle spent most of the session under heavy selling pressure yesterday, and futures moved to the lowest level since May 22nd, but a lack of new selling interest under helped spark a bounce into the close. The market managed a bounce of about 50 points to close near unchanged on the session but near the highs of the day. Recent strength in the beef market and ideas that producers are cleaning up market-ready animals from feedlots with the aggressive sales this week may have helped support. Boxed beef cutout values at mid-session were down $0.29 and ended the session $0.66 lower at $ but still up from $ a week ago. The estimated cattle slaughter came in at 128,000 head yesterday, bringing the total for the week so far to 375,700, up from 263,000 last week (Memorial Day) but down from 382,000 a year ago. The shift in focus away from exports along with increased uncertainty over fund trader activity has led many traders to now expect a more normal seasonal bias in the cattle and beef market into the summer. This is a potentially volatile development, as August and October cattle have built enormous premiums to the June contract as compared with the normal seasonal for lower prices into the late summer and fall. Cash cattle in the southern plains traded at $94.00-$94.50 this week, down $1.50-$2.00 from last week, and this was seen as the key bearish short-term development. TODAY'S GUIDANCE: If the focus of the market shifts back to expectations of a more normal seasonal price movement into the summer, October cattle will appear significantly overvalued. August cattle are also showing a hefty premium to the cash market ($5.00) at a time of the year when they typically trade at a $4.00-$5.00 discount. Holding this premium may be more difficult if there are export concerns. Resistance for October cattle comes in at with key support back at Resistance for August cattle comes in at the zone with and as next support. Short August cattle 104 call from 225 with an objective of zero. Risk 87 points from entry. Short the June cattle 88 put from 85 with an objective of zero. Risk to 27. CATTLE COMPLEX TECHNICAL OUTLOOK: LIVE CATTLE (AUG) 06/05/2008: Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The market's close below the 9-day moving average is an indication the short-term trend remains negative. The upside closing price reversal on the daily chart is somewhat bullish. It is a mildly bullish indicator that the market closed over the pivot swing number. The next downside target is now at

7 The next area of resistance is around and , while 1st support hits today at and below there at FEEDER CATTLE (AUG) 06/05/2008: Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. A negative signal for trend short-term was given on a close under the 9-bar moving average. It is a slightly negative indicator that the close was lower than the pivot swing number. The next downside target is The next area of resistance is around and , while 1st support hits today at and below there at DAILY HOGS COMMENTARY FEAR OF FUND LIQUIDATION AND FEAR OF SLOWER CHINA DEMAND; CHOP DOWN The trade remains bearish on hogs with the belief that China is done importing pork ahead of the Olympics and concerns that the domestic market will not be able to absorb the hefty total pork supply. The sharp break in the cash market and the move by futures to trade at a stiff discount to cash suggests traders are pricing in a continued downtrend in the cash. July hogs closed sharply lower on the session yesterday but did manage a late bounce of near 60 points off of the mid-session lows. The market collapsed early in the session, and the move to the lowest level since May 5th helped spark additional stop-loss selling from speculators. The discount to cash may have helped spark the recovery bounce, but the market was lower in the past week due to much weaker than expected pork values, a steady decline in cash values of the past week and fears that the pipeline is full. Cash hogs were steady to lower yesterday and are called lower again this morning. Feeder imports from Canada for the week ending May 31st came in at 131,650 head, down from 140,523 the previous week and the lowest since February 16th. Weekly imports peaked at 163,829 on March 15th. Market hog imports from Canada totaled 38,417, up from 37,822 the previous week but still well below the peak of 95,939 that was reached on January 19th. Average weights for hogs in Iowa/So. Minnesota for the week ending May 31st came in at pounds, up from pounds the previous week but down from a year ago. Weights are the highest they have been since April 26th and normally move down at this time of the year, so the news is a bit negative. The pork cutout, released after the close yesterday, came in at $78.18, up 48 cents from Tuesday but down from $80.65 a week ago. The bounce in pork may help stabilize the cash market soon. The CME Lean Hog Index as of June 2nd came in at 76.72, down 83 cents from the previous session and down from a week before. The index is down $6.06 from $82.78 on May 6th. The estimated hog slaughter came in at 424,000 head yesterday, bringing the total for the week so far to million, up from 850,000 last week (Memorial Day) and up from million a year ago. TODAY'S GUIDANCE: The market action is bearish, but futures are pricing in higher production and a setback in demand into the summer. Our bias is to the upside, but higher weights and a weak cash trend may keep trade psychology bearish. Resistance for August hogs comes in at and with and as next support. *Hit stop at on long July hogs from PORK COMPLEX TECHNICAL OUTLOOK: LEAN HOGS (AUG) 06/05/2008: The close under the 40-day moving average indicates the longer-term trend

8 could be turning down. A positive indicator was given with the upside crossover of the 9 and 18 bar moving average. Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The market's close below the 9-day moving average is an indication the short-term trend remains negative. The swing indicator gave a moderately negative reading with the close below the 1st support number. The next downside objective is The next area of resistance is around and , while 1st support hits today at and below there at PORK BELLIES (JUL) 06/05/2008: The daily stochastics have crossed over down which is a bearish indication. Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. A negative signal for trend short-term was given on a close under the 9-bar moving average. The market's close below the 1st swing support number suggests a moderately negative setup for today. The next downside target is The next area of resistance is around and , while 1st support hits today at and below there at DAILY TECHNICAL STATISTICS 9 DAY RSI RSI SLOW STOCH D SLOW STOCH K 20 DAY 40 DAY 50 DAY 60 DAY CLOSE MEAT COMPLEX LCQ FCQ LHQ PBN Calculations based on previous session. Data collected 06/04/2008 Data sources can & do produce bad ticks. Verify before use. DAILY SWING STATISTICS Contract Support 2 Support 1 Pivot Resist 1 Resist 2 MEAT COMPLEX LCQ8 Live Cattle FCQ8 Feeder Cattle LHQ8 Lean Hogs PBN8 Pork Bellies Calculations based on previous session. Data collected 06/04/2008 Data sources can & do produce bad ticks. Verify before use. ***This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of a futures contract and/or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition. Any reproduction or retransmission of this report without the express written consent of The Hightower Report is strictly prohibited.