Daily Comments - Full - Almost like the old days of volatility
Mar 14, 2014
With the weekend now staring right at us, we are winding down what has been one of the more tumultuous weeks in the grain and soy trade in sometime. On the negative side we have seen bean purchases cancelations by China in the Southern hemisphere, with collapsing basis levels to go along with it. In China, with the glut of beans arriving, crush margins have come apart, also partially due to slack demand in response to problems with Avian flu, which has turned them into an exporter of protein into the Pacific rim. Domestically, recognition of the scope of death loss due to the PED virus in hogs, which has trimmed demand for both corn and meal has analysts backing down feed usage estimates. According to the National Animal Health Laboratory as of last week, there have been 4,458 reported cases of PED, and of course you have to suspect there are many that have been unreported and we are not beyond all the problems yet.
On a more positive note, ethanol margins are tremendous which should keep good support below the corn market, the heaviest cancellations for beans were in South America and we still posted a positive export sales figure for beans, albeit the lowest of the marketing year. Additionally a bean vessel ran aground at the Rosario port in Argentina, creating a bottleneck. 80% of Argentine shipments move through that port and it could be out of commission for a week but considering the number of cancellation that are occurring, this may be more of a psychological factor than a real one.
Of course the 800-pound gorilla in the room, or maybe in this case I should say the 800 pound bear, is the situation with Ukraine/Crimea/Russia. There will be a referendum vote this weekend in Crimea to determine if they wish to align with Russia and considering the 59% of their population is ethnic Russian, odds favor that will be a positive vote. There have been no reported issues outside of Crimea as far as grain trade nor the plans for spring planting but with the overall situation remains in flux, and when markets are uncertain, the will build in risk premium. The strength in the wheat market this week was tied directly to this and appeared to be the final straw that forced funds out of the short side.
As we move into next week and beyond, we should begin to hear increasing discussion about the upcoming Grain Stocks and Prospective Planting reports. The Hueber Report will release our estimates next week as well. This has already turned out to be an interesting start to 2014 with at least one Black Swan that has startled the trade. It is hard to imagine there will not be at least one more as the year progresses.
Technical – After pressing into higher highs again yesterday and almost reaching the 7.00 mark, May wheat reversed to post a lower close. Prices have rebounded overnight and while we have not quite yet turned the intermediate daily oscillator lower, I suspect it should happen within the next few days. I have cycle dates lining up today through Tuesday. While the ever present risk of additional problems in Ukraine should provide underlying support and potential for a knee-jerk rally every now and then, after a 26% rally over the past 29 trading days, we should be in line for a corrective pullback. If correct, we should have room to reach back down to at least 6.40 to an extreme of 6.10 as we move out into April.
Technical –The strength in wheat has helped to buoy the corn market but we are still lower for the week and appear to be sliding into a corrective mode. May futures have actually posted an inside trading range and next week, a push down through 4.73 should confirm that we have a reaction high in place. As it stands right now we have downside retracement targets at 4.69, 4.58 and finally 4.48. Monday the 17th will mark the 270-calendar day cycle count from the high posted on the 19th of June last year. Often times that specific count marks the completion of a swing and seeing that we have moved generally higher into the count, it increases the odds that we are staring at a reaction high.
Technical – May beans bounced enough yesterday to fill the gap that was left on Wednesday but could not sustain that strength for the close. We are a touch softer overnight but the pressure is pretty insignificant at this point. This is the first lower weekly low that beans have posted since we turned higher in February and should have confirmed as reaction high but the pressure this week has slid the daily oscillator into an oversold position. This potentially sets us up for a corrective rebound this coming week. I have cycle dates that line up between the 18th and 20th and a rebound into then could provide a setup for a classic soybean top formation.
Soybean Oil – It would appear that May bean oil will be posting the first lower weekly close in the past six weeks but we did not posted a lower low. Regardless, my intermediate daily indicator has turned south and it would appear that we have a reaction high in place. If correct, there should be room to retrace down to at least 41 cents and possible 40.15. Daily oscillators are oversold so we could be poised for a 3 to 5 day bounce.
Soybean Meal – May meal was able to grab hold at the retracement level of 434.60 and post a rally yesterday but has seen no follow-through overnight. The daily oscillator is turning higher which could present us with 3 to 5 days of corrective bounce. I have cycle dates ahead on the 20th and if we can swing a bit higher into then, could be presented with a sale.
Cotton – May cotton was able to squeak out a higher contract high yesterday but failed to hold the strength and closed down for the day. Overnight selling has not been significant but it would appear that we have should have a reaction high in place. Cycle dates line up through the weekend. A close back below 90.44 should provide confirmation.
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