Morning Comments - Full - Did Someone Yell Fire?
May 02, 2014
The exchange theater was crowded and when someone yelled fire we witnessed that proverbial rush for the exits yesterday. It was not so extreme that anyone who wanted out of the door could not make it through but there were certainly a number of bumps, bruises and cuts along the way. It is estimated that funds sold somewhere between 9 and 12,000 contracts of beans, 8 to 10,000 contracts of corn and 5 to 6,000 contracts of wheat.
Fundamentals – The pressure in wheat, particularly KC was not quite as dramatic as that in corn and beans, which is understandable. The Quality Council has wrapped up tour of Kansas and yesterday afternoon published an estimated crop for that state of 261 million bushels with a yield of 33.2 b/p/a. This compares with last years’ Kansas production of 319 million bushels.
There remains potential for moisture to pass through this region during the next 10-days but it would seem obvious at this point that part of the acreage in the Texas/Oklahoma and Kansas region is beyond salvation. Lets keep in perspective that this creates a domestic issue, not a world problem and at this point is not really a surprise to the market. Taken a step further for the bean trade, this could increase bean acreage even further assuming there would be enough moisture to justify putting the seed in the ground.
The situation in Ukraine is going from bad to worse and they appear to be moving ever closer to an all out civil war. This should help maintain risk premium in the wheat and corn market but the trade appears to becoming just a bit numb to the situation.
Technical – While the pressure in July wheat yesterday was fairly heavy, and we appear to have failed against the March 20th highs, the technical picture in this market is anything but clear. With the little rebound we have seen this morning, prices actually remain higher for the week and we are well off of the low end of the current trading range down around 6.65. All that said, we sit on good end of cycle counts and indicators are close enough to the overbought zone they make the threat of a high appear realistic. After this weekend I have cycle dates ahead on the 13th, the 23rd and then the 5th of June and for now will have to remain patient looking for a more conclusive price signal.
Fundamentals – While we have seen a number of large daily swings, for July corn futures the break yesterday posted the largest single day loss since prices turned higher in January. I would never say there is any one-day of action that would "assure" that a market has reversed, but that appears to be a pretty big warning flag that troubles are ahead. Combine the long liquidation that we witnessed with a weather forecast that is generally clear through mid-to late next week for much of the corn belt and you would be hard pressed to find a reason to bring many buyers back to this market.
All that said, I do not believe we have a major washout in the corn market on the radar at this point in time. As noted yesterday, export sales were respectable and it is anticipated that the USDA will push usage higher again on the May 9th supply/demand report with a bump in the export projections. This should keep the nearby corn market supported on weakness but lets not lose sight of the fact that we have already priced this into existing levels. Additionally, the export numbers can and should be boosted but it is becoming questionable if the shipments will be able to keep pace.
Markets have stabilized overnight and I would not be surprised to see corn hold and may even try and bounce between now and the 9th but beyond there, we should be transitioning once again from a demand mindset to a supply mindset which means weather becomes the complete driving force.
Technical – The washout in the corn market pushed July futures back below the 13 and 21-day moving averages once again and this time, we are sitting on the cusp of crossing these two averages over. If, or maybe better stated, when this happens it will be the first time they have been negative since January 24th. There remains a possibility that we could try and stabilize and bounce back a bit between now and the 8th of May but for all intents and purposes, it would appear that we have a high in place for corn. If correct, this should open the door for July futures to slide down to at least 4.85 and potentially the 4.80/4.75 zone. Cycle dates ahead between the 8th/12th, the 20th/22nd and then the 29th through the 3rd of June.
Fundamentals – Reality appeared to have finally delivered the bean bulls a strong slap across the face yesterday. This happened to coincide with new $1 limit for beans and nearby futures responded by testing out half of that. Negative export sales, ships lining up in South America to load beans and meal for the US, China trying to resell cargoes where ever they can. Should anyone be surprised?
Funds have actually been reducing their positions as of late but still remain heavily committed to the long side. Prices have been able to bounce a bit overnight but it is difficult to imagine a reason that buyers will be flocking back to this market en masse without something unexpected coming in from left field.
Technical – July beans have indeed now posted an outside weekly range and we need to see if we close below the 14.60 ½ for a key weekly reversal setup. It would appear that our peak may have come just a few days ahead of the 270-calendar day cycle count this Monday. With the break yesterday I do not really want to chase a short lower today and but could be interested in a sale on a bounce early next week.
Soybean Oil – The break yesterday and the follow-through overnight, July bean oil has already reached down to complete a 78.6% retracement of the recent rally and tested the 89-day moving average. This actually pushes the short-term oscillator into the oversold zone and seeing that we sit right on the 90-calendar day cycle count from the January 31st low, we should be poised for a rebound.
Soybean Meal – While not an outside week like the bean market, July meal did suffer a sharp break lower yesterday, taking us right back down against the 13 and 21-day moving averages. These two averages remain positive as they have done so since last January but recently have been losing momentum. As with beans, I would like to see prices try and bounce just a bit early next week and if correct, I am still interested in a possible short position.
Cotton – July cotton has found a little more renewed buying interest this morning and have pushed into higher highs for this swing. Short-term we sit in an overbought position but intermediate indicators continue to point higher. I have cycle dates ahead on the 9th and then the 21st of May and believe we should press generally higher into that latter date.