Ahead of the Open (VIP) -- January 6, 2014

January 6, 2014 02:17 AM
 

Corn futures are called 1 to 2 cents higher as funds cover short positions.

  • Corn futures ended the overnight session 1 to 2 cents higher, which was near session highs in a quietly traded session.
  • Funds have been noted buyers, as they lighten their short exposure to the market.
  • Upside potential will be limited by ongoing concerns about Chinese corn demand. Chinese news agencies say the country rejected a total of 601,000 MT of corn and corn by-products from the U.S. in 2013 due to the presence of an unapproved GMO trait. More rejections are expected as China has increased inspections.
  • On a more supportive note is USDA's announcement that Mexico has purchased 110,600 MT of U.S. corn for 2013-14.
  • Gulf corn basis is steady to start the week, with immediate delivery standing 75 cents over March futures.

 

Soybean futures are called mixed amid bull spreading.

  • The January through July contracts ended the overnight session 1 to 5 cents higher, with deferred futures 1 to 3 cents lower amid bull spreading.
  • Many traders will return for their first full week of trade in several weeks to reestablish positions. Therefore, today could be telling of the near-term strength or weakness of the market.
  • Chinese officials confirmed two new human cases of H7N9 bird flu over the weekend. But Chinese health officials maintain the risk of a widespread outbreak remains low. Still, traders remain on guard about the impact the virus could have on feed demand.
  • After last week's much-needed rains, dry conditions have returned to Argentina. Temps are warming again, but they are not expected to be extreme. There's little to no rain in the near-term forecast. But mostly favorable conditions are expected in Brazil this week, with some light rains in the forecast.
  • Gulf soybean basis is steady, with immediate delivery standing 99 cents over January futures.

 

All wheat flavors are called 3 to 6 cents higher amid short-covering and weather concerns.

  • SRW and HRW futures ended the overnight session mostly 4 to 7 cents higher, with HRS up 1 to 4 cents.
  • Wheat is benefiting from followthrough from Friday's gains as traders note the market was overdone for the time being to the downside.
  • Traders aren't overly concerned about winterkill, but they are noting the possibility of some damage as extremely cold weather is coming at a time of reduced snowcover for much of the HRW wheat crop.
  • Meanwhile, outside markets were mostly positive overnight, but the dollar has strengthened again.
  • Also supportive is USDA's announcement that 160,000 MT of U.S. wheat was sold to an unknown buyer for 2014-15. Of the total, 128,000 MT is HRW and 32,000 MT is SRW.
  • Gulf SRW wheat basis is steady to 5 cents weaker. Immediate delivery stands $1.00 over March futures.

 

Live cattle futures are called mixed as traders reevaluate positions.

  • Live cattle futures are expected to see a choppy start following last week's sharp gains as traders reevaluate positions.
  • Pressure will be limited by arctic temps across the Plains and Midwest, which are stressing feedlots.
  • February live cattle futures moved to a new high on the monthly continuation chart last week due to record cash cattle prices.
  • The bulk of cash trade occurred at $137 last week, with February futures ending the week at a slight discount to that level.
  • Traders will be watching the boxed beef market very closely to start the week for signs of resistance to higher prices. Choice beef values ended the week at $202.41 per cwt., a level that has slowed demand in the past.
  • Live cattle have moved into overbought territory according to the Relative Strength Index, which signals a time or price correction is likely.

 

Lean hog futures are called mixed on a continuation of spreading from last week.

  • Lean hog futures are expected to see a choppy start amid spreading as traders reevaluate positions.
  • Pressure on futures will be limited by bitter cold temps that are slowing movement of hogs.
  • Due to reduced hog movement early this week, packer demand for cash supplies is expected to be strong once the weather improves, which is expected to lift cash bids.
  • However, packers have been profit margins tighten considerably, which raises question about how lasting higher cash bids will be.
  • As a result, all eyes will be on the pork cutout market early this week for indications of packer demand.
  • February lean hog futures are trading at more than a $6 premium to the cash index, signaling traders have a positive near-term bias already priced into the market.
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