Schwieterman: Cattle Due For A Correction, Excellent Corn Exports
07/23/2010 05:46PM
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The crude oil and the stock market have traded in very similar patterns for quite some time. The two markets don’t match each other every day, but generally if the stock market is trending higher, so is the crude oil. Right now the Dow Jones chart looks very friendly, at it looks like we should see another leg up. That means we
should also see strength in the crude oil over the next few weeks, so be prepared for higher fuel prices.
CORN:
Trend: Short Term Up – Long Term Up
Sentiment: Rain
Most of the driest areas of the eastern Corn Belt received rain this week, which seems to have put an end to the weather scare. Forecasts still call for above normal temperatures for the next two weeks, but moisture will be adequate, which eases the fears about the heat. For the week the December corn lost 22 3/7 cents.
Export sales were excellent at 614,100 MT of old crop and 540,900 MT of new crop sales. USDA will have to raise the old crop export estimate in the next supply and demand report by at least 50 million bushels.
Looking at the charts, the December corn closed just above the 100-day moving average support on Friday. Friday’s trading action suggests we will see follow through selling on Sunday night unless the forecast is much hotter and much drier. A move down to $3.70 at some point next week is likely.
This week’s commitment of traders report showed that Index funds have a record large net long position, which means that investment funds are still coming into commodity markets. Trading funds are building their net long positions rapidly. Investment money flow is a bullish factor, but it is being matched and sometimes overwhelmed by farmer/commercial selling. Do keep in mind though that the trend in the market is often dictated by the trend in the trading funds position. In other words, there should be very good support under the market next week.
Action: Unless the Sunday night forecasts are very hot and dry, sell December futures and look for a move down to $3.70.
WHEAT:
Trend: Short Term Up – Long Term Up
Sentiment:
US wheat futures chased the French milling wheat higher again this week. The September KW nearly reached the $6.25 objective, and the market is overbought, so a correction should be expected. However, the only thing that matters to the wheat market right now is the movement of the French wheat. If it keeps going up, so will the US wheat. For the week, the September KW gained 16 cents.
Export sales were poor again at 382,100 MT. Sales have to be better than that to justify the current export estimate. The run up in the wheat is based on the idea that we will have less export completion from Europe and the Black Sea region, but we sure haven’t seen any better business yet. It will have to show up soon to avoid a sharp break in prices.
Action: Use HTA’s to price 10 – 20% of next year’s wheat with the July 11 over $6.50.
SOYBEANS:
Trend: Short Term Up – Long Term Up
Sentiment: We still have heat in the forecast.
Heat and demand are keeping the soybean market supported, while moisture and large new crop ending stocks keep the bulls in check. The net result of that this week was that the November soybeans were down 3 ½ cents.
Soybean charts look good. It will probably take another dry spell to get it done, but the soybeans are in position to start another leg higher. Funds are buying, importers are buying, technical indicators are telling you to be long. All that is lacking is a supply scare. Next week’s forecasts will have a huge impact on the price trend for the rest of the growing season. A dry forecast will take the November soybeans to $10.20.
Action: Buy the November soybean $9.60 put and sell the $11.00 call.
CATTLE:
Trend: Short Term Up – Long Term Up
Sentiment: Grinding higher.
Cash cattle trade came in at $95 and the futures had a good week as well. August LC gained $1.20 and the August FC gained $2.15. The August FC made higher
highs every day this week.
I think that the cattle market can continue to move higher, but we are due for a correction. A $2 break in the October LC is likely, but it is also a buying opportunity.
This is the correction the market needs before making new contract highs.