Morning Comments - Full - Many questions should be answered on Monday
Mar 28, 2014
Fundamentals – The wheat market assumed the role of upside leader yesterday stimulated by concerns about Ukraine. This time though, the concerns had nothing to do with Russia. It turns out that currently Ukraine is dealing with the driest conditions since 1980 and on top of that a government representative reportedly commented that farmers are so cash strapped at this point that it could impact the amount of acres that go into production this year. Interestingly enough, 90% of the wheat there is winter so planting issues technically should have impacted corn more that wheat. Regardless, it provided the bulls with a little additional fodder as we await the reports next Monday.
The average estimate for March 1st wheat inventory is 1.042 billion bushels with a range of 985 mil to 1.115 billion. Stocks a year ago were 1.235 billion. The average estimate for wheat acreage is 56.278 million acres with a range of 54.80 to 57.71. Last year we planted 56.156. Winter acreage is expected to be down 930k with spring up 998k.
Technical – We have an interesting pattern here in the May wheat. After posting an outside higher reversal on Monday, we back tracked for two days and then yesterday, posted another outside reversal higher, all the while remaining contained within Monday’s range. This is understandably inconclusive action as much is riding on the Monday reports. I continue to feel unless there is something surprisingly friendly, this market appears to be in line for a downward correction and in fact, could fail even on positive news.
Fundamentals – It appeared that to a large extent the corn market was pulled around by wheat again yesterday but it is not that it did not have positive underlying news. Export sales were solid and ethanol margins continue to shine but these are known inputs and as I have commented previously, we are going to need some additional positive news if prices have room to push higher out of this range, particularly with the South Hemisphere corn crop looking larger.
We really have two reports to contend with over the next 2 trading days, the first of which will be the quarterly Hogs and Pigs to be issued this afternoon. The current estimates have All Hogs at 94.5% of a year ago with a range of 92 to 97%. Kept for Breeding at 99.6%, with a range of 98.9 to 100.7 and finally Kept for Market at 94% with a range of 91.2 to 96.9.
Looking out to Monday, the average estimate for March 1st inventory is 7.099 billion bushels, with a range of estimates between 6.861 to 7.54 billion. A year ago we had 5.40 billion. The average trade estimate stands at 92.75 million acres with a range of estimates between 90.5 and 94 million. Last year we planted 95.37 million. Lets keep in perspective that even if we come in at the average estimate it will be the 4th highest planted acreage number in recent history. The next supply/demand report will not be released until the 9th.
Technical – That was a solid rally in May corn yesterday and while we did not push into new highs, that was the highest close this contract has posted since the 11th of September. I think it would be beneficial to look at the spot contract right now as we are within striking distance of the early March reaction high of 4.95. With the overall action this month we have the appearance of a flat top with an ascending bottom and the old rule of thumb says to watch for a breakout to the flat side of such formations. Of course those are guidelines only and unless we have a jolt of positive news come Monday, it may be tough to justify ideas of a push higher for now. I plan to sit on my hands until then.
Fundamentals – It appeared that a few bean longs were ready to take money off the table yesterday but the selling has not really amount to much in the way of price action. Sales were a marketing year low and small but when you are this far ahead of expectations with a tight situation, any are too many.
As I commented yesterday, there are a number of people in the trade questioning the accuracy of the estimates for this last crop feeling that with the availability of beans thus far, it may have been understated. The stocks report on Monday should provide the confirmation one way or another. The average trade estimate stands at 989 million bushels with a range of estimates between 955 and 1.087 billion. Needless to say, something north of a billion would really deflate the bull balloon. The average estimate for beans stands at 81.07 million acres with a range of estimates between 78.5 to 83.6 million. Last year we planted 76.53 million and the record acreage ever planted in the U.S. is 77.5 million.
Technical – It would appear that May beans are poised to posted the 2nd higher week in a row but unless we reach up to close above 13.57 ¾, it will not be the highest daily or weekly close for this up-swing. Here are well, we have a market with an apparent flat top at the 14.60 level but if we can actually push through that mark for a breakout higher is dependent on the news we hear on Monday so we need to be patient until then. Of course, as with any report, the only thing that will really matter will be where we close for the session. Looking ahead I have cycle dates on the 11th and 23rd of April and then the important 270-calendar day cycle count from the August low sitting on the 5th of May.
Soybean Oil – I like the setup that could be developing in the oil market but need to sit tight now through the weekend. Monday will mark the 8th cycle of 90-calendar days from the April 2012 peak and will also be 2nd cycle of 90 cd from the low posted last October.
Soybean Meal – May meal did poke in a higher contract high yesterday but could not close above the previous high water mark of 472.90. While we could be looking at a possible double top, with the uncertainty of Monday in front of us other than some short-dated options I plan to sit tight.
Cotton – We have a big volatile week in the cotton market but as it stands right now, we are little changed for the week. This whole picture continues to look hazy. Short-term indicators are oversold and trying to turn up with intermediate overbought and trying to point lower. For now, I remain on the outside looking in.
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