Market Snapshot, Noon CT -- Advice (VIP) -- July 23, 2013

July 23, 2013 07:02 AM
 

HOG PRODUCERS: EXIT 3RD-QTR. HEDGE COVERAGE... August lean hog futures are firming as traders work to narrow the discount the contract holds to the cash market. As a result, it's time to step out of 3rd-qtr. hedge coverage. Hog producers are advised to exit the 50% 3rd-qtr. hedges held in August lean hog futures. After this push higher, we may look to rehedge a portion of 3rd-qtr. production in October lean hog futures.

Corn futures are posting double-digit losses this morning. September is down 18 cents while the December through May contracts are roughly 14 cents lower.

  • The market views the forecast for more precip and cooler temps in the Corn Belt this week as positive for crop development and are pressing prices lower. The decline by December futures under key support at $4.90 this morning triggered sell stops and pressed prices lower.
  • Traders continue to ignore the decline in USDA's corn crop condition ratings and confirmation of slow development yesterday.
  • The market is also ignoring a daily corn sales announcement totaling 106,400 MT to Mexico. Of that total, 11,000 MT is for 2012-13 and 95,400 MT is for 2013-14.
  • Gulf basis rose 5 cents for July delivery in late morning trade. This follows a rise of 36 cents in Gulf basis for early August delivery this morning. This boost in basis may be a signal importers are using the price break to book needs.

 

August soybean futures are 40 cents lower, while deferred contracts are 15 to 22 cents lower.

  • The break by August futures below the $15.00 support level today triggered heavy selling pressure, and that contract continues to trace a bearish reversal pattern.
  • The rain that swept across eastern Iowa last evening coupled with the forecast for favorably cooler, wetter conditions in the five-day outlook has traders moving to the sell side of the market. It has reduced concern about the slight drop in the condition of the crop reported by USDA yesterday.
  • The 6- to 10-day outlook is also seen as non-threatening for crop development.
  • Rumors China may sell some state soybean reserves are adding to the negative tone this morning.
  • Increased farmer selling is weighing on interior basis levels today as the recent price rally encouraged some to clear out remaining old-crop supplies.
  • Gulf basis is unchanged in late-morning trading with the exception of October delivery, which is 2 cents stronger.

 

Chicago wheat is 7 to 9 cents lower, while Kansas City wheat is down 3 to 10 cents. Minneapolis wheat is fractionally to 2 cents lower.

  • The sell-off in the corn and soybean pits is pressing wheat futures lower.
  • Limiting the decline in Minneapolis wheat is the 2-point decline in USDA's "good" to "excellent" rating for the spring wheat crop yesterday.
  • While global wheat demand is perking up, supplies from other exporters (primarily the Black Sea region) are priced under U.S. wheat. Taiwan did tender for 97,200 MT of U.S. milling wheat overnight. But traders want to see a big tender or purchase.
  • Traders will be focusing on field reports from the Wheat Quality Council's HRS tour, which kicked off this morning. Final Day 1 results will be released this evening.
  • Gulf basis is mostly steady except for a 2 cent rise for first-half August and first-half September delivery.

 

Live cattle futures are enjoying small gains this morning, while feeder cattle futures are mostly moderately higher.

  • Cattle futures continue to benefit from spillover strength from lean hogs.
  • Some traders continue to look for seasonal strength in cash prices as well.
  • But the wholesale market is not cooperating. Choice boxed beef prices are down $1.15 to $187.83 this morning while Select is down $1.52. Movement is better than yesterday at 116 loads, however.
  • In addition, yesterday's Cold Storage report came in around 6.6 million lbs. above the average pre-report trade guess and up 2.5% from year-ago.
  • The cash trade is not established yet this week but tighter showlists in Texas and Nebraska and near steady showlists in Colorado and Kansas could keep the cash market supported.
  • Feeder cattle futures are benefiting from weaker corn prices and expectations for tighter supplies ahead.

 

Lean hog futures continue to hold gains in the front four contracts after gapping higher on the open. August futures remain sharply higher while the October through February contracts are roughly 12 to 80 cents higher.

  • Traders are still buzzing over USDA's Cold Storage Report yesterday that showed the largest month-to-month drop in frozen pork stocks on record. Frozen pork stocks as of June 30 dropped more than 94 million lbs. from the previous month and were 61 million lbs. below the average pre-report trade guess.
  • August futures led all contracts higher out of the gate as the sharp drawdown in stocks means pork demand is stronger than thought.
  • The front-month continues to trade at a discount to the cash hog index. With the cash market steady to $1 higher today, that discount is discouraging sellers and encouraging buyers.
  • Wholesale pork action is adding to buying interest today. The pork cutout rose $2.66 this morning and movement was a solid 203.5 loads.
  • Futures have attempted to fill the gaps left on the open. The gaps remain open on the August through December contracts but they have been filled in the February contract. The thinly traded April contract did not gap higher.
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