Morning Comments 3/10/14 Full Report
Mar 10, 2014
Fundamentals – While nothing has really been settled with the Ukrainian situation, and a Crimean referendum as to aligning with Russia is scheduled for later this week, the market appears to have grown tired of the news and we are beginning the week under pressure. Tensions there should keep us from collapsing but after what has been a little more than a 30-day rally for over a$1 a bushel in wheat, we are due for a breather. Funds remain short but reduced that position in futures by around 20k contracts last week and as a percentage of the total open interest have reduced their short position by around 15%.
Technical – The wheat market has been under pressure pretty much all night and into the morning hours but realistically there has been no technical damage at this point. That said, on Friday May futures did reach up to complete a 50% retracement of the entire down swing since May of last year and reached into gap objectives between 6.58 and 6.69. Add to this we have indicators sitting in a very overbought position and we just moved through cycle dates last weekend and it would appear we have all the ingredients in place for a reaction high. If correct, we should room to reach back down against the 6.00 level between now and the end of the month.
Fundamentals – With cash markets backing away consistently last week it appeared that the only thing sustaining the corn market was the unrest between Russia and Ukraine. It would appear that we have at least partially confirmed that this morning as with no additional issues over the there, this very overbought market has pulled back. By no means is there a mad rush for the exits but without new feed every day it is pretty difficult to make a bull grow.
Over the past two months, large managed funds have moved from a near record short position to now long an estimated 170 to 190k contracts. Granted, it was the solid demand both from the ethanol and export sectors that stimulated the advance but the funds provided the power. The question now is why, after this advance and adjusting to better than expected demand and building in a little additional risk premium for the unrest overseas, why would they continue to add? For this morning at least the answer would appear to be they lack the incentive. This is not to say we cannot be provided additional incentive down the road but after just a bit more than a 20% rally since the January report lows, it would appear we have stretched the band far enough.
I would not expect the supply/demand reports later this morning to offer anything outlandish which would mean we need focus the reports that should actually have something to say, which are the quarterly grain stocks and planting intentions to be released on the 31st.
Technical – Last Friday May corn was able to reach up and complete the 50% retracement of the June/January high to low range at 5.01 ½ and reversed to post a lower close. Not exactly a key reversal but probably indicative of just how tired this bull is becoming. Overnight we did push down enough to test the low from last Thursday at 4.78 ½ and I suspect if we can now violate that level, it will have confirmed our reaction high and open the door for a run down to at least 4.58 and potentially 4.48. The next cycle date ahead lines up for the 17th and will mark the always important 270-calendar day count from the peak back on the 19th of June last year.
Fundamentals – It would appear that China is cancelling beans purchases as the numbers stack up at their ports but at this point, it looks like they are opting to cancel South American purchases. For the month of February they imported 4.8 MMT of beans versus a year ago at 2.9 MMT. Regardless, the move provides enough reason to open the prices lower this week.
The only number that would seem to matter on the reports today will be what the USDA decides to do with exports. As I covered last week, we have already sold 113 million more bushels than estimated and the question is will the government bump exports higher or wait and see how many cancellations begin to roll in? The trade believes they will only back the actual carryout number down around 7 million bushels.
Managed money continued to add to long positions last week and are pushing against record longs as a percentage of total open interest.
Technical – The bean market has rallied directly into the cycle dates that lined up over this past weekend, sit with overbought indicators and have started out the week under pressure. That said, the inside range price action so far really gives us little to latch onto to. I continue to believe we should be looking at a reaction high right here and will sit tight for a confirmation. I do not really want to step in front of this bull just yet but this may be a nice opportunity to utilize puts.
Soybean Oil – We have an inside range in May bean oil at this point in the new week and while I suspect we posted a reaction high last Friday, we still lack a confirmation. Intermediate indicators are overbought and beginning to move sideways but have yet to roll into a sell.
Soybean Meal – May meal has traded defensively overnight and into this morning but so far, that action tells us little. The daily oscillator is pointing higher so we could witness a couple more days of bounce but I continue to expect tough resistance between 458 and 462. If we cannot poke through that level by mid-week we could be presented with a sale.
Cotton – May cotton has been able to bounce a little from big reversal lower on Friday but the strength is none to impressive so far. Cycle dates line up at the end of the week so we need to remain patient and see if we are presented with a trade setup,