Traders Feel Rain Makes Grain, But Producers Have Concerns

June 24, 2013 12:58 AM

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are 5 to 9 cents lower, soybeans are 3 to 13 cents lower and wheat futures are 2 to 7 cents lower. Liquidity concerns in China and a "rain makes grain" attitude have markets reeling to start the week. As a result, bears should maintain the upper hand on the reopening of trade at 8:30 a.m. CT. Live cattle futures are expected to trade mixed, while lean hogs are expected to be mixed.


* Heavy rains continue. Areas of the Corn Belt received heavy rains and damaging storms over the weekend, causing washouts, ponding and localized flooding. For some areas, this was a repeat of what happened throughout the spring. While producers are struggling to finish up planting in the wettest areas and replanting efforts are now on hold for others, traders feel the rains are beneficial. This week's forecast calls for more rains through the first half of the week, while drier weather is expected from Thursday through the weekend.

The long and short of it: Producers have concerns that too much rain makes trouble. But traders have a "rain makes grain" attitude, which is price-negative to open the week.

* Cattle on Feed Report negative. All three categories in the monthly Cattle on Feed Report were on the negative side of the average pre-report trade guesses. While down 3.4% from year-ago, the total number of cattle in feedlots on June 1 came in slightly higher than anticipated thanks to greater-than-expected Placements and fewer-than-expected Marketings last month.

The long and short of it: With all three categories on the bearish side of their respective average pre-report trade guesses, the data gets a negative read. But with feedlot numbers continuing to trend well below year-ago, the report is not bearish.

* Record pork stocks, bullish beef stocks. USDA's monthly update on frozen meat inventories showed pork stocks were record-large for the end of May, while beef stocks came in well below pre-report guesses. Pork stocks as of May 31 totaled 661.786 million lbs., which was just under the average pre-report guess of 663 million pounds. Pork stocks dropped 5.6% from the end of April, but came in 4.1% greater than year-ago. Beef stocks of 478.528 million lbs. were well below the average pre-report guess of 511.5 million pounds. Beef stocks declined 6.2% from April and dropped 3.9% from year-ago.

The long and short of it: This data may cause pork demand concerns to resurface, while it should help ease some beef demand concerns.

* Can cattle repeat 2003? The cattle market bottomed the week of June 20 in 2003 and front-month futures then proceeded to rally $35 to a mid-October high. With cattle futures rallying sharply to close out last week, some are wondering if a repeat of 2003 is in the cards. From a supply standpoint, the market is definitely set up for a strong price rally. The concerns are on the demand side. Before cattle futures can string together sustained buying interest, some of the demand concerns must ease. The bullish Cold Storage data should help on that end, as it signals demand chewed through more supplies than anticipated during May. But it's going to take more than one bullish beef stocks report to completely ease demand concerns.

The long and short of it: I fully expect the cattle market to rally following months of disappointing price action. Demand will determine if the rally can rival 2003. s


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