Schwieterman: Feeder cattle futures rally higher

Bret Crotts  |  Updated: 05/08/2012

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Corn                                              Estimated Fund Position
Trends
Short Term: Up                          Net Long Futures and Options: 49879
Long Term: Down                     Change: -3000
Overnight Trade: N +7 1/4 Z +2 1/4
Opening Calls: 5-7 Higher

The July corn made a new high for the move overnight. Basis levels continue to improve and the May – July spread continues to widen, which basically tells us that July futures are too low. The new crop continues to act as an anchor on the old crop. Planting pace was at the upper end of expectations at 71% complete, and just behind the 2010 record of 75%. Keep in mind that we had a sub-trend line yield in 2010 before you go penciling in a record yield. Plan on more bull spreading and look for the July contract to move up to $6.50.

Wheat                                            Estimated Fund Position
Trends
Short Term: Down                       Net Long Futures and Options: -72379
Long Term: Down                        Change: +1500
Overnight Trade: Chicago: N +6 3/4 KC: N +5 3/4
Opening Calls: 5-7 Higher

The wheat is seeing a decent short covering bounce. Technical indicators suggest that the rally could continue for a little while. It certainly helps that the corn was higher overnight. Long term we have to look at rallies in the wheat as a selling opportunity, especially in the December contracts since they are at a large premium to the corn.

Soybeans                                       Estimated Fund Position
Trends
Short Term: Down                        Net Long Futures and Options: 211822
Long Term: Up                               Change: -4000
Overnight Trade: N +1 3/4 X +1
Opening Calls: 1-2 Higher

Downward momentum in the soybeans has run out and the market is consolidating. The market was due for a correction, got one, and is now waiting for the May supply and demand report to get out of the way. The fundamental outlook is still improving, so buying breaks is still the best course of action. Look for a retest of the highs soon.

Live Cattle
Trend
Short Term: Up
Long Term: Down
Opening Calls: 10-30 Lower

Live cattle futures reversed early weakness to close with at least moderate gains on Monday. The lead June contract posted the most recovery, closing .90 higher for the session. Overnight activity is mostly lower, with a Higher Dollar and lower equities weighing on the cattle. Show lists appear to be slightly larger overall for the week, with our list larger than a week ago but smaller than a year ago. The market appears to be ready to buy dips, after recent selling attempts failed to hold.

Feeder Cattle
Trends
Short Term: Up
Long Term: Down
Opening Call: 30-60 Lower

Feeder cattle futures closed sharply higher in all but the May contract, which posted modest gains. The rally appeared to be technically inspired, as outside market influences were mostly negative. Overnight strength in corn futures put a halt to buying in the feeder pit. Current futures are .40-.80 lower, with the large front month premium to cash also weighing on the market. Cash index levels did improve to start the week, but remain a good 4.00 below futures heading into Tuesday.


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