Ahead of the Open (VIP) -- July 16, 2013

July 16, 2013 03:15 AM
 

Corn futures are called to open 10 to 15 cents higher on crop concerns.

  • Corn futures started the overnight session slightly higher but extended gains to end mostly 11 cents higher.
  • Futures are being supported by yesterday's unexpected drop in corn crop condition ratings.
  • Our weighted Crop Condition Index dropped about 3 points from last week to 371.27 (0 to 500 being perfect) scale. Crop ratings in Iowa and Nebraska declined, while Illinois and Indiana saw slight improvement.
  • Traders are concerned about the expansion of heat across the Corn Belt the next few days, although the forecast calls for milder temps by the weekend, which could limit buying interest, especially if forecasts continue to call for widespread rains.
  • Key this morning will be if funds are buyers to extend overnight gains, which is expected.
  • Gulf corn basis is steady for early July delivery, but has slipped by 5 cents for late-month delivery.

 

Soybean futures are called 18 to 25 cents higher on the drop in crop ratings.

  • Most soybean contracts posted a slight gap higher open in overnight trade but extended gains and ended the overnight session 17 to 20 cents higher.
  • Key will be whether or not funds extend long positions as futures are gaining upward momentum.
  • Futures are being supported by the drop in crop condition ratings. Traders expected yesterday's USDA ratings to reflect steady conditions from last week, but our weighted Crop Condition Index showed the soybean crop declined by 3 points.
  • Crop ratings in Iowa, Illinois and Indiana showed slight improvement from last week, but ratings in Nebraska and Ohio slipped.
  • Traders are concerned about the slow growth rate of this year's crop -- especially in the western Corn Belt. Therefore, heat across the Corn Belt the next few days leads to expectations next week's report will show further deterioration.
  • But milder temps are in the forecast by the weekend and into next week, as well as chances for widespread rains.

 

Wheat futures are called 5 to 10 cents higher on spillover from neighboring pits.

  • Following yesterday's losses, wheat futures at all three exchanges benefited from short-covering overnight to end the session mostly 4 to 7 cents higher.
  • Wheat is enjoying spillover from neighboring corn and soybean markets as well as ideas yesterday's losses were overdone.
  • Yesterday's crop condition ratings reflected a slight decline in the spring wheat crop from last week. Our weighted Crop Condition Index declined by 3 points.
  • While wheat has benefited from a recent burst in demand, traders this morning are digesting news that Russia has harvested 20 MMT of wheat so far this season of its expected 50 MMT crop.
  • Meanwhile, Japan has been substituting U.S. western white wheat with U.S. club white wheat, U.S. SRW wheat and Australian premium white white. It says USDA must complete its investigation into the GMO wheat discovery.
  • Gulf SRW wheat basis is 1 to 5 cents lower for nearby delivery.

 

Live cattle futures are called to open mixed, with feeders expected to be weaker amid profit-taking.

  • Following yesterday's slight gains, live cattle futures are expected to be mixed on a combination of followthrough buying and light profit-taking.
  • Meanwhile, after ending sharply higher yesterday, feeder cattle futures are expected to be lower due to strength in the corn market.
  • Traders in the cattle pit are still waiting for confirmation, but they believe the cash and product markets have posted near-term lows.
  • Despite moderate cash trade volume last week, this week's cattle showlist is slightly smaller than last week, which reflects a tightening supply situation. Cash cattle trade isn't expected until later in the week.
  • But traders will maintain a cautious attitude about this week's cash market unless the beef market improves. Choice values started the week 83 cents lower and Select rose 27 cents yesterday, with only 147 loads changing hands.

 

Lean hog futures are called to open mixed as traders reevaluate positions.

  • Lean hog futures slipped into yesterday's close but still posted slight gains. But the inability to hold early gains makes traders hesitant to reestablish long positions.
  • Pork cutout values slipped 55 cents yesterday to further tighten packer profit margins. Pork movement was also light as just 238.4 loads changed hands.
  • Due to the disappointing start to the week in the pork market, packers are expected to offer steady to weaker bids today.
  • But heat across the Corn Belt is adding stress to animals and could lead to another drop in carcass weights to tighten supplies.
  • August lean hog futures ended yesterday at around a $7 discount to the cash index.
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