Morning Comments - Full - Building a lithe Ukraine Risk Premium Again
Apr 14, 2014
Fundamentals – Overnight markets have witnessed a rebound as we begin this new and shortened week with wheat leading the charge. While the abnormally cool weather is providing support, the strength in wheat appears to have been stimulated by the flair-up in tensions in Ukraine over the weekend, with government troop squaring off against pro-Russian separatists in a number of areas. I have read reports this morning that some Ag analysts in Europe still believe financial and other uncertainties over there will lead to a reduction in both the corn and wheat production. Hard to tell if these are people with first hand knowledge or are just trying to justify a market bias. According to the Ag Ministry in Ukraine, they have shipped a total of 28.338 MMT of grain since the beginning of their marketing year, which began on the 1st of July. This compares with the same period a year ago at 20 MMT, so the unrest has not impacted the movement of grain at least. Additionally, Russia has shipped 21.488 MMT of grain during that same period which is reportedly up 47.5% over the previous year.
Domestic export inspections are estimated to fall in the 14 to 20 million bushels range.
As I have commented previously, the situation in Ukraine is far from settled and we need to expect intermittent flare-ups and market reactions from time to time. This one happened to coincide with a short-term oversold position in the market so unless this escalates, I would expect the reactions to be short-lived.
Technical – In what looks like a mini short-covering panic in the early morning hours, May what pushed up high enough to take out last weeks high, albeit briefly. This leaves our short-term picture a bit fuzzy as we did hold at the 38.2% retracement of 6.58 ½ last week and short term oscillators are oversold and trying to turn higher. There is a possibility that we could see a couple more days of offensive trade with room to poke into the 6.91 to 6.99 retracement range. That said, I continue to believe that will make a trip down to the 50% retracement at 6.38 ½ before this overall correction is complete. Cycle dates ahead on the 21st, which will mark the completion of the 2nd cycle of 90 calendar days from the October peak.
Fundamentals – While I suspect the renewed Ukrainian tensions helped support the corn market overnight as well it would appeared that wheat pulled this market along for the ride. This is not to say that the continued solid demand and most specifically, the less that ideal spring weather is not proving support. There was limited progress made across the Midwest over the weekend but It would appear that there will be little if any made for the balance of the week. There will be a planting progress report issued this afternoon and is expected to show around 2% of the corn planted nationwide vs. 7% a year ago.
Export inspections are expected to fall in the 35 to 40 million-bushel range.
Trade will be closed on Friday for Good Friday and we could be in store for a somewhat quiet week overall with a possible up bias.
I have not seen the report yet but I understand that Goldman Sachs has now turned bearish on the grain markets, regardless of the situation in Ukraine.
Technical – The overnight rebound in corn keeps May futures above the 5.00 level which we have been gelling around for the past week or so now. Short-term we sit in an oversold position and we could be in store for 3 to 5 days of strength. I am not looking for anything major but there remains a possibility that we could still make a run for the 5.20/5.30 range before we have completed this overall advance. Cycle dates ahead on the 17th and then the 24th/25th.
Fundamentals –Beans have also caught a little bounce overnight supported by the same world tensions and less that ideal weather that has boosted the grains. After two days lower and a push against support we are probably witnessing a little short-covering as well.
Export inspections are expected to be in the 8 to 11 million bushel range and tomorrow we will see the March NOPA crush report. It is expected to be in the 145/146 million bushel range, which should be supportive.
As with the other markets, we could be in store for a somewhat directionless week and as I have commented previously, we could see choppy volatile trade right through the end of the month.
Technical – On Friday, May beans pressed right down against the 14.60 support level and we have appear to have bounced from this base again. Right now this would appear to be the line in the sand and if we fail and begin closing below there, the bull party should be over. My daily oscillator is almost back into an oversold position so if we can hold stable for a couple more days, we should be poised for another rebound. I continue to believe there is potential to make a run for targets up in the 15.35/15.45 range making a run for that level into the end of cycle dates on the 5th could present a classic setup for a cycle high.
Soybean Oil – Bean oil is also a bit higher this morning and so far remains within Friday’s trading range. The indicators are just a mixed bag right here but intermediate indicators while losing momentum, are still pointed higher. Cycle dates ahead on the 22nd and then on the 5th of May.
Soybean Meal –May meal pressed down against key support at the 473 level on Friday and it we appear to be finding support here once again. My daily oscillator is very close to the oversold level and if we can hold here for a day or so, we should be positioned for another kick higher. Cycle dates ahead on the 22nd/23rd and then the 5th and if we can swing upward into either of those dates, I will be on the lookout for a high.
Cotton – Strength in the cotton this morning as well and with the daily oscillator turning higher as well, we should have a room for at least a couple days for rebound. Cycle dates ahead on the 17th and a push up into then could present us with a sale.