Schwieterman: Corn recovers on tight supplies, better exports

Corn                                            Estimated Fund Position
Trends
Short Term: Down                   Net Long Futures and Options: 81406
Long Term: Down                    Change: -8000
Overnight Trade: N +6 Z +3
Opening Calls: 5-7 Higher

The corn got back what it lost yesterday and the BSE fears should go away fairly soon. Traders should be more concerned about tight supplies, rising basis, and improving exports. Bull spreading should be active today due to the old crop demand, but it will be interesting to see how much support the December contract gets from the rising soybeans. There has to be some concern that acres are being switched to soybeans regardless of the planting pace. The $5.50 - $5.56 area will be key resistance for the December contract.

Wheat                                          Estimated Fund Position
Trends
Short Term: Down                     Net Long Futures and Options: -96205
Long Term: Down                      Change: -1500
Overnight Trade: Chicago: N +5 1/2 KC: N +6 1/4
Opening Calls: 5-7 Higher

The wheat charts were beginning to look bullish yesterday until the corn fell and pulled the wheat down with it. There still isn’t much reason to buy wheat unless the corn is moving higher. Expect to see a rebound today, but we have to look at rallies in the wheat as a selling opportunity, especially in the deferred contracts.

Soybeans                                       Estimated Fund Position
Trends
Short Term: Up                             Net Long Futures and Options: 220907
Long Term: Up                              Change: +8000
Overnight Trade: N +28 3/4 X +16 3/4
Opening Calls: 20-30 Higher

It is becoming more and more apparent that USDA is underestimating old crop exports by 50-100 million bushels and therefore overstating ending stocks by an equal amount. The amount of bull spreading in the market is obviously telling us that end users fear tight supplies this summer. The $14.70 objective has been surpassed making a retest of the 2008 highs the next major upside objective.

Live Cattle
Trend
Short Term: Down
Long Term: Down
Opening Calls: 40-60 Higher

Live cattle futures imploded as rumors of a BSE case in California circulated in the last couple of hours of open outcry trade on Tuesday. The rumors were confirmed by the USDA at 2:00 pm, with a central California dairy cow the subject. The animal did not enter the food chain, with current precautions doing their job. Overnight the board has shown some recovery, with the soon to expire April contract nearly a buck higher. Some light cash trade was secured on the break, as hedgers took advantage of the selloff to secure solid basis sales at the $119 level. Key to how the market reacts could be in the hands of exports.

Feeder Cattle
Trends
Short Term: Down
Long Term: Down
Opening Call: 20-30 Higher

Feeder cattle futures closed limit lower out through the end of the year on Tuesday (see BSE above). We will be monitoring cash sales closely in coming days, as the market digests how the world is reacting to the news. That said, we fully believe that the market remains fundamentally sound, with feedyards becoming shorter and shorter on cattle as the summer grilling season approaches. As cattle feeders post losses on current marketings, replacement money is expected to become tighter. A defensive stance on feeders remains advisable.

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