Headline Risk -- April 21, 2014

April 21, 2014 06:31 AM
 

 

 

The goal of Headline Risk is to identify the markets most vulnerable to be influenced by headline-making news. And, of course, to identify the news that might influence price action in the corn, soybean, wheat, cattle and hog markets.


Each potential headline includes a rating from 1 to 10.

Each potential headline starts with a 5 rating, meaning the market is used to seeing news on the topic, but is still paying attention to development of the event. If a potential headline is given a 5 rating, it means it will take a "major happening" in the event to have an influence on price action this week. A 5 rating means a market is likely to have a neutral reaction to news from the event this week.

A potential headline with a 10 rating means I am extremely confident the event will not only have an influence on price action, I am also extremely confident it will have a bullish impact on price action

A potential headline with a 7 rating means the story is likely to influence price action and I believe it is likely to have at least a short-term bullish impact on prices.

A potential headline with a 1 rating means I am extremely confident the event will not only have an influence on price action, I am also extremely confident it will have a bearish impact on price action.

A potential headline with a 3 rating means the story is likely to influence price action and I believe it is likely to have at least a short-term bearish impact on prices.


Headlines that have the potential to impact CORN trade this week --

Ukraine-Russia conflict -- headline risk rating of 6.

The corn market is clearly "comfortable" with the ongoing conflict between Russia and Ukraine. Last week's movement of pro-Russian militants to seize some cities in eastern Ukraine, and Ukraine's efforts to take back those cities, did little to impact price action in the corn market last week. That's proof it will take a major happening in this event to have an influence on prices this week. A major happening, however, would likely include Russian President Putin positioning troops to "reclaim" regions in eastern Ukraine, which could be incentive for traders to rebuild some risk premium in corn futures, giving the potential headline-maker a slightly bullish spin for the week.

Corn planting progress -- headline risk rating of 3.

The headline-making event is USDA's Weekly Crop Progress Report released at 3:00 CT Monday afternoon. Planting progress as of April 13 was just half the five-year average planting pace at 3% done. Traders don't expect rapid planting progress was made in the week ended April 20, but they do expect progress to be just slightly behind the five-year average pace. With southern Corn Belt producers firing up planters at mid-week last week, the risk is that planting progress comes in higher than traders expect, giving the potential headline-maker a likely bearish spin for the week.

Corn demand -- headline risk rating of 7.

Export inspections of corn in the week ended April 17 were nearly 1.6 million metric tons (MMT). The shipping pace is strong enough to support at least a slight uptick in USDA's export estimate (currently 1.75 billion bushels) in the May 9 Supply & Demand Report. Any export sale this week would be incentive for old-crop corn futures to cling even tighter to the $5.00 level. Because some importers may view the setback from 2014 highs as a buying opportunity, any export sales announcement this week would be supportive, giving the potential headline-maker a likely bullish spin for the week.

Headlines that have the potential to impact SOYBEAN trade this week --

Corn planting progress -- headline risk rating of 6.

The soybean market is watching corn planting progress as closely as soybean planting progress. Because concern had been building over corn-planting delays, there had been some speculation that corn acres could slide over to soybean plantings if upper-Corn Belt growers run out of time to get all intended corn acres planted. A return of corn planting progress to the five-year average pace should erase talk that some intended corn acres would be planted to soybeans, thus giving this potential headline-maker a slightly bullish spin for the week.

Soybean planting progress -- headline risk rating of 5.

Traders will pay close attention to Monday afternoon's Weekly Crop Progress Report, but it would take planting progress well ahead of the five-year average to generate a negative price reaction. That's not going to happen.

Soybean trade -- headline risk rating of 3.

China's eyes were bigger than its stomach when it was buying beans for delivery in the 2013-14 marketing year. That has been well documented, making this a story that traders have been watching for some time as they expect China to cancel "huge" tonnages of South American and U.S. soybean buys. What erased this event's price-bearish potential and turned it into a price-bullish event was U.S. exporters unwillingness to allow China to cancel purchase agreements. Adding to the bullishness of this story was when U.S. shipping companies also would not allow China out of freight contracts to carry the bean purchases. That meant China then began to cancel South American purchases, or to divert beans to other destinations, including the United States. What gives this event a likely price-negative rating this week is I expect developments in this story to come more rapidly this week as China defaults on payments for soybeans that have already been delivered to Chinese ports.

Headlines that have the potential to impact WHEAT trade this week --

Crop Condition Ratings -- headline risk rating of 7.

Monday afternoon's Weekly Crop Condition Report for winter wheat will be the first since the spring-freeze event. Very little rain had fallen on the crop since the freeze event and April 20, when the condition ratings are delivered from crop observers. The combination of freeze damage and ongoing drought gives this event a slightly bullish risk for this week.

Weather -- headline risk rating of 3.

Scattered showers fell over the weekend and scattered showers remain in the forecast this week. Any rain in the Texas and Oklahoma Panhandles and the western half of Kansas would be a negative for wheat prices this week. What gives the weather a likely bearish slant on wheat prices this week is that forecasters see the potential for three storm fronts over the week ahead, increasing the odds that even the driest areas of the Southern Plains will catch a rain to stabilize wheat yield potential. What prevents an even lower market rating is that rain now will only stabilize yield potential... it won't do much to rebuild yield potential already lost to the drought.

Headlines that have the potential to impact HOG trade this week --

PEDV -- headline risk rating of 4.

Porcine Epidemic Diarrhea virus (PEDV) is an "old" story in the hog market that is still developing. The disease is now under the mandatory reporting program, which should make it easier to figure out how many cases are confirmed in the country in the weeks, months and years ahead. However, the pace of new cases of PEDV has slowed dramatically as temperatures have warmed up, meaning many traders believe the industry is getting the disease under control. It's not - Mother Nature is slowing the spread, not any of the industry's preventative measures. Still, the slowing pace is what makes gives this event a very slight negative influence on the market this week.

Slaughter pace -- headline risk rating of 6.

The risk is the industry has underestimated the impact of PEDV on hog supplies. Traders will watch the slaughter pace closely this week as the calendar inches closer to what is expected to be the peak-influence period of PEDV on hog supplies starting in late July. I believe industry estimates of impacts swung too far to the price-bullish side earlier this year and has already swung too far in the other direction. Confirmation of PEDV-slowed slaughter this week would be slightly bullish.

Demand -- headline risk rating of 3.

The run to all-time highs in pork product prices will show up in the meatcase this week, giving consumers a bit of sticker-shock on some of their favorite cuts of pork. Slowing consumer demand would be reflected in lower pork product prices and slower pork product movement.

Headlines that have the potential to impact CATTLE trade this week --

Packer profits -- headline risk rating of 4.

Putting money in a packer's pocket on each beef they process is the easiest way to push cash cattle prices higher. That isn't happening right now. Negative packer margins makes steady cash cattle bids a best-case scenario this week, and steady cash bids won't add bullish momentum to cattle trade this week.

April 25 Cattle on Feed Report -- headline risk rating of 7.

After the March Cattle on Feed Report delivered a "shocking" 15% increase in February calf placements over year-ago, most market-watchers are leaning to the upside on the Placements category for March. The average pre-report trade guess (not yet available) will likely be for an 8% increase in Placements, which seems a little high given total calf supplies available to the market and giving this potential headline-maker a slightly bullish spin for the week. However, if Placements come in even higher than the likely already high trade expectations (not likely, in my opinion), that would be a big-time bear-blow for the market.

 

 

 

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