Grain and soy markets have a slightly different complexion this morning compared to the first day of trading last week. At that time the doom and gloom was nearly overwhelming particularly in the corn and wheat markets, as we gapped lower and pressed into new lows for the year. This morning though there are broad smiles stretching across the face of the bulls and actually in both corn in beans, prices have gapped higher. While I am not going to claim that we can necessarily hold this strength, note that in the case of the corn market, at this point we have what is technically referred to as an island reversal. And if that can hold through midweek, the market could be telling the outlook ahead is beginning to look much brighter once again. It would appear that the prospect for 100-degree temperatures reaching as far north as the Dakotas during pollination is making the bear feel just a bit squeamish.
While little spoken of recently, one of the underlying factors in the corn market that could be lending support is the topic of Chinese corn inventory. As we know, the Chinese government has changed course this year in allowing world prices to dictate sales of government owned stocks, which in and of itself should be a possible tipoff that they are recognizing the stock pile program is rife with issues. According to the USDA, China is sitting on 109 MMT of corn, which is more than half of the world inventory (205MMT) at this time, but the major question is just how much of it is fit for livestock and/or human consumption. Conservative estimates suggest that at least 20% of this inventory at best will be suitable for industrial processing and that could be an extremely conservative estimate. Note that already in April and May, China has imported more than 1 MMT of corn each month, which sets a new record. With a livestock industry that is on the rebound, one has to imagine demand for good quality corn and other feedstuffs in that nation will continue to expand.
Of course this is report week as the USDA will release the July supply/demand estimates tomorrow. For the past several months I have commented that it would seem unlikely that the government would offer up any major surprises and have needed to eat those words each time so from now on, I am going to anticipate they will tell us something shocking each month. It would just be nice if we knew in what fashion that will come. Regardless, average trade estimates for tomorrow are as follows; Corn production of 14.525 billion using an unchanged yield of 168 bpa. The average estimate for 2015/16 corn ending stocks is 1.805 billion and then 2.205 for the 2016/17 crop year. In beans we have an average production number of 3.867 billion with a yield of 46.7, which is also unchanged from the prior. Expected 2015/16 ending stocks are pegged at 352 million with 2016/17 expected to be 287 million. All wheat production is projected to come in at 2.159 billion with expected ending stocks for 2016/17 of 1.107 billion. Possibly as interesting as anything in the report will be the world and especially the South American numbers. The current estimate for Argentine corn and beans are 27 MMT and 56.5 MMT respectively and for Brazil, 77.5 MMT for corn and 97 MMT for beans.
Life does appear to be a bit more sedate in other commodities and the financial world as well this morning. The dollar is a smidge higher but currently so are equity markets and energies. Gold is a bit lower as some of the “Brexit” jitters have evidently settled down, but I suspect it will not be the last of knee-jerk reaction concerning that. Earlier this morning the Organization for Economic Cooperation and Development (OECD) announced that they will suspend its economic indicators report until September in an effort to allow the fallout from the British vote to settle in. I am not exactly sure what additionally they will know by then, but they stated that they would not want to present “misleading or inaccurate” data. Of course no economic forecast could ever be accused for doing that. Regardless, the next report is now scheduled for the 8th of September.
Wheat – The wheat market began the session with a little strength but as the morning has drug on, buyers have not been able to sustain the momentum. That said, we are right on the cusp for turning indicators higher. Steady to higher closes today or tomorrow should be enough to confirm, which in turn should open the door for a swing to at least 4.80 and potentially 4.94. Cycle counts ahead on the 15th and the 22nd of this month.
Corn – The corn market had initially gapped higher this morning leaving a possible island reversal but alas, the bulls could not maintain the strength. Regardless, in the process we filled that gap lower that we left last week which would suggest that indeed that was little more than an exhaustion gap and possible bear trap. As with wheat, the daily indicators are on the cusp of turning higher and stable to highs closes today or tomorrow should allow that to happen. If correct, there should be potential then to rebound to at least 3.85 and potentially 3.97. Cycle counts ahead this month on the 14th and then on the 20th. That latter date will mark the completion of the 16th cycle of 90-calendar days from the August 2012 peak.
Soybeans – November beans gapped higher as well this morning and while that has been maintained thus far and prices remain higher, we do appear to be struggling. Daily indicators are still pointed lower so we may need to spend a little more time congesting in the 10.70/10.30 zone before attempting the next rebound. Cycle counts ahead on the 18th, the 29th and then a key end of cycle count out on the 9th of August.
Soybean Oil – We have follow-through buying in August bean oil this morning as well and if we can hold the strength for the close should turn indicators higher. If correct, there should be room to push back at least into the 32.00/32.50 range yet this month.
Soybean Meal – August meal remains higher at this point but appears to not have much upward momentum just yet. As with beans, this market may need to spend a few more days trying to build a base before attempting another rally.
Cotton – Buyers have returned to the cotton market again this morning and December futures have extended through 66.50 and into new highs for the swing and for the year. If we can hold this strength into the close it should confirm a breakout and open the door for a swing to major resistance up at the 68-cent level.
Courtesy of The Hightower Report:
Cattle Complex – Could see choppy to higher trade as stiff discount supports
August cattle continues to show signs of solid support in the 111.50 to 110.00 zone. With cash at $120, the discount continues to support. Average dressed steer weights for the week ending June 25th came in at 864 pounds, down from 867 the previous week and down from 872 pounds last year. Weights typically move higher at this time of the year so the drop is seen as especially supportive. Some fresh bargain hunting buying helped to support the modest gain on Friday but the market still pushed lower for the week. Cash cattle traded at $119-$120 last week, steady to $2.00 lower than the previous week. The cash trend is a negative but August already holds a stiff discount to the cash market. The USDA estimated cattle slaughter came in at 110,000 head Friday and 76,000 head for Saturday. This brought the total for last week to 513,000 head, down from 601,000 the previous week and down 7.7% from last year. Beef production for the week was 417 million pounds, down 8.8% from last year.
USDA boxed beef cutout values were down 19 cents at mid-session Friday and closed 70 cents lower at $209.35. This was up from $208.44 the prior week. The Commitments of Traders reports as of July 5th showed Non-Commercial traders were net long 32,088 contracts, an increase of 1,749 contracts for the week. Non-Commercial and Nonreportable combined traders held a net long position of 16,770 contracts, down 444 contracts. Weekly U.S. beef export sales for the week ending June 30th came in at 15,300 metric tonnes, compared with the prior 4-week average of 14,625. Cumulative sales for 2016 have reached 421,100 metric tonnes, up 6.0% from last year’s pace.
TODAY’S MARKET IDEAS:
The market bears see increasing slaughter supply ahead as a significant issue while the bulls see declining weights, a huge discount of futures to cash, firm exports and declining imports as positive forces. Support for August cattle comes in at 111.92 and 111.57, with 114.50 and 115.65 as resistance.
Pork Complex – Mixed export news and production increases; long liquidation
Short-term technical indicators are oversold but long liquidation selling remains very active and selling could intensify if support levels are violated. August hogs closed sharply lower on Friday and pushed down to the lowest level since late May. Fear of excess supply continues to pressure. While exports to China remain a positive force, May pork exports for the US were up just 5% from last year as China imports were sharply higher but Japan was down 13% and South Korea down 34%. The CME Lean Hog Index for July 6th came in at 82.91, down 33 cents from the previous session and down from 85.03 the previous week. USDA pork cutout values, released after the close Friday, came in at $89.57, up 86 cents from Thursday and up from $87.70 the previous week. The USDA estimated hog slaughter came in at 433,000 head Friday and 102,000 head for Saturday. This brought the total for last week to 1.826 million head, down from 2.115 million the previous week and down 12% from last year. Pork production for the week was down 12.3% from last year.
The Commitments of Traders reports as of July 5th showed Non-Commercial traders were net long 90,460 contracts, an increase of 3,472 contracts for the week. Non-Commercial and Nonreportable combined traders held a net long position of 71,487 contracts, up 1,895 contracts for the week. The large net spec long position combined with the recent downtrend leaves the market vulnerable to increased long liquidation selling ahead. We would note that volume jumped and open interest declined on the slide at the end of last week. Commodity Index traders held a net long position of 81,916 contracts. This represents an increase of 1,966 contracts in the net long position held by these traders. Weekly U.S. pork export sales for the week ending June 30th came in at 16,300 metric tonnes, compared with the prior 4-week average of 15,875. Cumulative sales for 2016 have reached 669,700 metric tonnes, up 7.4% from last year’s pace.
TODAY’S MARKET IDEAS:
Strong demand from China is offset by larger than expected production and from active long liquidation selling from speculators. The next downside target for August hogs is at the May lows of 78.10 and then the April lows of 77.12. Resistance is at 80.12.