CBOT Grain Futures Calls:
July corn called 2 lower to 2 higher.
July soybeans called 1 to 4 lower.
July CBOT wheat called 2 to 4 higher.
US dollar is up 23 points at 80.40. August crude is down $.80 at $68.45. Dow futures are up 41 points.
Economic Information:
Durable goods orders expected to decline .6% in May. April orders were up 1.7%.
New home sales expected to show a 2.3% increase for the month of May (360,000 units).
Today’s Treasury auction is for $37 billion in five year notes. The market has taken this week’s amounts just fine so far.
Yesterday’s weekly API report indicated a 3.7 million barrel increase in gasoline stocks.
US Dept of Energy’s EIA weekly energy stocks report expected to show a 1.3 million barrel increase in gasoline stocks.
Weather:
Today and Thursday will see .20 to .60 inch with 65% coverage. The same amount will come again for the weekend. Next shot is yet again .20 to .60 inch Wednesday through Friday of next week. One forecaster estimates the 10 day precip totals will be 75% to 100% of normal. Overall, the forecast is considered beneficial to the crop.
Grain Market Influences:
A Senate subcommittee found that commodity index funds, the new long-only investors, pushed up futures prices in wheat last year, disrupted convergence between cash and futures, and increased costs to farmers.
Corn summary… Slightly higher trade today as the 100 point decline in the dollar and the over sold condition following the 70 cents off in just 8 days. Next week, USDA will release the quarterly stocks and the planted acreage report. The Quarterly stocks might look like a retail sales report and show us that demand was not as strong for corn as we would like to see. If that is the case, it will be bearish as the implication would mean more ending stocks than we currently think. But if it comes in line with trade expectations, then we should be in the ball park on 1.600 billion bushel old crop stocks. Then if the USDA reduces acreage like the trade expects, the market will have a firm undertone and the implications of this would be new crop end stocks sliding below 1.0 billion bushels. That would leave the Supply-Demand situation very vulnerable to any weather threat or yield loss. USDA is currently using 153 as the estimated yield. That is the 2nd highest yield in history in a year when we got it planted the 2nd latest on record. Not that we think yields will be bad, but let’s just favor the odds a little. For example, if we lost 3 bu/a yield, then the end stocks would decline to 600 million bushels. Last year in May, USDA estimates 767 million bushels stocks. The market thought that was so bullish that futures traded towards $8.00. Anything fewer than 900 million bushels is very tight and would be bullish enough to inspire a rally. We hope this happens because we would want everyone to be prepared to sell that rally. Last year we might have had a 767 end stocks estimate but after the rally, demand fell apart and we ended up with the 1.600 Billion bushels. Point being – a rally will kill demand and our clients will need to sell a good rally if it happens. In the mean time, we are trying the long side.
Soybean summary… Next week USDA is expected to release the most bullish old crop Quarterly stocks report in 20 years. Contrasting this is the chance that the USDA might report a massive increase in acres. The old crop story is a fact and it is tight. But it is old news and the S American beans are at about the same price as ours. There is no world shortage. Thus we expect the focus of the traders will be to leave the old crop story and start concentrating on the new crop. Here is the story - we expect new crop carryover will be over 300 million bushels compared to the 100-125 old crop. So basically stocks could increase 150%! S American is not only increasing 2009-10 acres, we expect normal yields. Thus world stocks are expected to increase more than 25%. Again…there is no shortage of world stocks so a 25% increase will create a plentiful supply. We would hope that the planting delays in MO, IL, IN, KY, and ND would cause concern for the crop and traders will get excited going into July weather. Another attempt to take out $11 is not out of the question. A decline to $8 by fall is realistic.
An executive with a palm oil producer estimated palm oil had 27.5% of total edible oil demand last year. He pointed out that was up from only 13.9% in 1990. On a per-hectare basis, yields of an efficient Indonesian palm oil plantation were six times higher than rapeseed (canola) yields in Canada.
Taiwan is seeking 40,000 to 60,000 tonnes of US or Brazil origin soybeans.
Wheat summary… Yields continue to be reported below expectation. This has been true in the SRW and HRW belt. MN wheat stocks were reported today at 2.9 million bushel, 75% less than last year. With prices at $7 compared to last years $25 high, it seems like a no brainer to buy wheat. Well…. Okay we will try it. We took profit on short positions yesterday and we are willing to try the long side. However, we are not very bullish. World stocks at 182 mmt are the largest since 2001 when futures were in the $2.85 range!! So we might have a friendly situation in the US yield department, but the stocks and world situation is NOT bullish.
Overnight, Jordan purchased 100,000 tonnes of wheat. Sourcing it thought to be from the Black Sea area.
Livestock Comments:
Wholesale beef closes up $.27 for choice and up $.37 for select.
Pork carcass cutout closes down $1.40.
Cash hogs are called steady.
Livestock Futures:
August Lean Hogs are called 40 to 75 lower.
Chart support 57.50 and resistance 64.00.
August Live Cattle futures 10 to 20 higher.
Chart support 81.25 and resistance 83.40.
August Feeder Cattle futures are called 10 to 20 higher.
Chart support 97.75 and resistance 100.20.
Livestock Market Influences:
Average guesses for Friday’s quarterly Hogs and Pigs report are All Hogs at 98.1%, Kept for Breeding at 97.6%, and Kept for Marketing at 98.0% of last year’s levels.
Lean hogs summary…Yesterday’s Cold Storage report results failed to support prices today. We noted in the AM commentary that though the end of May stocks of pork implied May exports were not as bad as expected, there is nothing in the way of short term fundamentals supporting this market. In fact, this afternoon’s pork cutout was down $1.40. In the past five trading days, that makes wholesale pork down $4.43. We still hold to the idea July and August futures should see $60 as “value” here and any price moves above or below that should be faded.
Live cattle summary… On the supply end we cannot say there are any big surprises going on. Slaughter from feedlots, which makes up around 80% of beef supply, has been around 4% under last year in recent weeks. That fits exactly what it should be. Slaughter from cows and bulls, making up 20% of beef production, has averaged 2% higher in recent weeks. There has been a lot of talk about dairy cow kill now that their herd buyout program is active. In the most recent week available, dairy cow kill was 36% larger than the same week last year. Countering that is the smaller beef cow kill. In the most recent week it was 18% smaller. Overall, between feedlot kills and cow/bull kills, we are running beef production around 2% smaller than last year. Keeping it simple here, supplies bulge in the summer and stay at that level through July. The bulge in supplies has happened and we are running 2% under last year.