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Headline Risk April 28, 2014

April 28, 2014
By: Chip Flory, Pro Farmer Pro Farmer Editorial Director
 
 

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 7.

The rating is up from last week's rating of 6. The conflict intensified over the weekend and the U.S. and the European Union are ramping up sanctions against the Russia. (Pro Farmer Today subscribers should see "First Thing Today" for more details.) Here's the risk as I see it this week: The markets seem to be underestimating the level the conflict reached over the weekend. As more in the market realize what's happening and how it might impact availability of exportable corn from the Black Sea region this year, it should at least help limit selling pressure in corn futures this week.

Corn planting progress -- headline risk rating of 6.

The rating is up from 3 last week -- which was a miss on the risk assessment. Planting progress last week failed to beat trade expectations, giving the corn market a source of support into the end of the week. The outlook for today's USDA Crop Progress Report is a mixed bag. Some expect corn planting progress to be as high at 25% for the U.S. - others see corn planting progress as low as 15% in the week ended April 27. I like a range of 17% to 20%, which I think would be viewed as slightly friendly for prices.

Corn demand -- headline risk rating of 6.

The rating is down from 7 last week. Export inspections of corn in the week ended April 24 should be solid. But, after last week's huge loadings it will be difficult to get a an inspections tally strong enough to be viewed as price friendly. Still, corn inspections should not bring pressure to prices later this morning.

Weather -- short-term headline risk rating of 6; long-term headline risk rating of 3.

That does not mean the weather will be good... it just means the bulk of this week's rains and the cold temperatures over the next two weeks have already been factored into prices. For this week I'm sticking with a slightly bullish lean on the weather based on the likelihood that extended forecasts will keep below-normal temperatures in the outlook.

Conversely, when the National Weather Service 6- to 10-day and 8- to 14-day outlooks begin to work "more normal" conditions into expectations, that will likely result in selling pressure on corn futures -- even if the forecast comes out when it's cold and raining over the entire Corn Belt! The market is looking out as far as possible at the weather... and solid indications that this spring's weather will finally "straighten out" could be a big-time negative on corn prices. (And guys... the weather will straighten out at some point.)

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

Corn planting progress -- headline risk rating of 4.

The rating is down from 6 last week when I expected corn planting progress to beat trade expectations. The reason I'm moving corn planting progress from a potential positive for soybean prices to a likely negative impact on bean prices is because I expect more talk this week that slower-than-normal corn plantings could force some acres over to soybeans. November soybean futures came within a penny of $12.50 overnight, giving more incentive to move some acres over to soybeans.

Soybean planting progress -- headline risk rating of 5.

Rating is unchanged from last week. 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. Even 0% soybean planting progress wouldn't be considered price positive... not yet, anyway.

Soybean trade -- headline risk rating of 6.

The risk rating is up from 3 last week. As expected, the latest chapter in the soybean trade story was written last week with talk of soybean and soybean meal imports into the U.S. weighing on prices early last week. Adding to pressure was uncertainty over how the detainment of three officials at the Chinese office of a Japanese grain shipping firm would impact Chinese soybean supplies. This week, the "negative risk" surrounding trade issues seems to have been replaced with optimism (at least to start the week) that China will be back to buy more beans later this summer. They will... there's no doubt about that. And even if there is confirmation of additional imports of soybeans into the U.S., I think the market has a better understanding now that it won't have much impact on the Supply & Demand balance sheet this year.

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

Crop Condition Ratings -- headline risk rating of 7.

The rating is unchanged from last week. However, last week's headline risk was overrated at 7 -- the Weekly Crop Condition Report did show the HRW crop deteriorated further, but it wasn't enough to bring much support to prices. That should change this week after the Southern Plains once again missed out on weekend rains and dust storms were more common that rain clouds. A dust storm has to put a crop-observer in a tough state of mind if they were out yesterday taking a look at crop conditions.

Weather -- headline risk rating of 3.

The rating is unchanged from last week. Again, it's not that the weather is positive for crop development, especially for the hard red winter wheat crop. But, the soft red crop is in very good condition and the cooler temps will keep the crop slowly building yield. But, the risk is that the Southern Plains does get a much-needed rain at some point this week. If it happens, that would likely pull the rug out from under wheat prices.

HRW wheat tour -- headline risk rating of 6.

New entry for wheat this week. The annual hard red winter wheat tour run by the Wheat Quality Council is this week. Tomorrow is the first day in the field and they'll be in some good wheat. We'll also get some observations of conditions from Nebraska and Colorado, which could offset some of the good-crop observations in from northeastern Kansas. Day two of the tour gets into western Kansas, where the wheat is in really tough condition. The area saw dust storms over the weekend and more high winds are possible when the scouts are in western Kansas. (Can you imagine the number of dust-storm pictures that would hit Twitter if that happens?) We'll also get observations out of Texas and Oklahoma on Wednesday. Day three is a short day for the Tour, but it will likely be a mixed bag of conditions as the scouts make their way back east and end up in Kansas City on Thursday.

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

PEDV -- headline risk rating of 4.

Risk rating is unchanged from last week. 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. Still, the slowing pace is what gives this event a very slight negative influence on the market this week.

Slaughter pace -- headline risk rating of 6.

Rating is unchanged from last week. 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.

Pork demand -- headline risk rating of 3.

Rating is unchanged from last week. Pork movement slowed last week (as expected) and at least another week of "slow" movement should be expected, likely weighing on lean hog futures this week.

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

Packer profits -- headline risk rating of 4.

Rating is unchanged from last week. Packer margins improved last week, but not enough to support cattle bids.

Slaughter pace -- headline risk of 5.

New entry this week. I just don't think the slaughter pace can surprise the market this week, neither coming in low enough to support prices or high enough to weigh on prices.

Beef demand -- headline risk rating of 6.

Traders simply do not expect strong beef demand... and because they don't expect strong demand, even resilient demand should be enough to help support live cattle prices this week as retailers start to gear up for the grilling season. However, the weather outlook calling for below-normal temps could be enough to push back stronger spring demand for whole-muscle cuts deeper into May.

Headlines that have the potential to impact all commodities trade this week --

May 2 Employment Report -- headline risk rating of 4.

Trade expectations will be available later this week. However, better weather in April should result in non-farm payroll growth of close to 200,000, which may be better than some expect, but it's still not good enough to signal the job market is back on its feet and expanding at a fast enough pace to indicate stronger consumer demand for higher-priced food items.

 

 

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