Heavy Lifting

The inverse correlation of feeder cattle prices to feed prices is being challenged, for regardless of whether the prices of such inputs as corn or soymeal go up or down -- feeder cattle keep powering up. FCK0 posted new swing highs today, and look to close nearer the highs than not.  The tendency for FCK0 is for a fall in prices starting anywhere from mid- to late-Feb, and break into mid- to late-March. On that note, I imagine it would be possible for this rally to pull back some.
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Oilseeds and Grains Better on the Day

Today was  a day where most commodities received a boost. The $US was lower by 70-some points basis the DXH0, equities were higher, and energies were higher - except for nat gas. The combination of these three helped push the commodity markets up, evidenced by the stronger CRB, Roger's, & Goldman indices.

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A Beautiful Bottom? … In Beans

Soybeans have been on a losing streak. Will this trend persist?

July '10 Soybeans (SN10) closed the first trading day of the year at $10.67/bushel. Today we're trading around $9.60 or so. Of the many reasons for the break, a primary one has been that the South American crop looks huge, and may very well get even bigger.
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Expectations for November USDA S/D Report

A Whiff of Weakness?

The grain and oilseed markets today continued their upward march, that is until they didn't.  Five of the most recent six trading days have seen higher intraday moves compared to the previous day with respect to SX9. Sx9 has rallied about $1.30/bushel from the swing lows made back on October 5, the catalyst for which is a slow harvest and cold snap.

Today, however, the market retreated from it's best levels of the day. And ended nearer the lows than the highs. Fund buying has been strong, but perhaps the market has become a little ahead of itself in the near term. We will watch closely to gauge if this is a sign of a better correction to come, or just a breather before the next leg up to the 200 Day Moving Average.

Bob 1.800.388.0998 

Quarterly Hogs & Pigs Estimates

One of the factors contributing to the weakness in beef has been the perception of formidable competition from declining prices in competing proteins. If we narrow the competition down to chicken, turkey, & pork, what we really find is turkey and chicken prices have rallied this year. Per the USDA's Economic Research Service indicated August y/y average retail price increases of both turkey and composite broiler to be  13.4% and 1.6%, respectively. Beef and pork have both had to endure y/y declines of 6.9% and 2.8%, respectively.

Being that pork and beef are following the same path, this Friday's September 1 Quarterly Hogs and Pigs published by the USDA may be influential to the beef market, and therefore, the live cattle futures traded at the CME Group.

I have attached the Daily Livestock Report dated 23, September, which includes estimates for the report on Friday. We'll talk about the report after it's release Friday afternoon.

Find the estimates for the report here: dlr-09-23-091

Bob

Back From Blog Holiday (& Summer Hiatus)

Hello again, All:

August tends to be a lethargic month when it comes to trading. Once Labor Day is behind us, we typically see a renewed focus on all things trading. This is why I took a hiatus in August from this blog. Now we're back in action.

I'll be coming to you shortly with a review of recent action in the markets. Then we'll talk about what's to come.

There is one trade I do see sizing up. It's a momentum trade in Natural Gas. October Natural Gas got slaughtered in the month of August, and is only now experiencing some sort of a bounce. I like working the direction of the prevailing trend when a market fisrt offers a 'semblance of a correction.

To that end ... here is the specifics of the recommendation:

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New Lows in Wheat

Indicative of lethargic demand and a lack of significant trouble for the Northern Hemisphere wheat crop development/harvest, Chicago and KC wheat futures broke into fresh new swing lows today. For the WU9, this marks an approximate 28% decrease in the price of a bushel of wheat since the end of May. This is significant. This is opportunity & risk. A lot of this move happened in just 20 or so trading days during the month of June.

Concurrently, we've seen both new-crop Corn and Soybeans fall from their highs. This "should" be supportive for the beef and pork industry, as the costs of inputs with respect to fattening up non-grass fed cattle, and hogs, has decreased notably. However, while the cattle market has reflected realtive stability, the lean hog futures have plummeted. 

Relative to a stream of Cattle on Feed reports and the more recent Cattle Inventory report, the expectations for cattle supply in Q4'09 is that of a tightening scenario that should be price supportive. Hogs, on the other hand, are more than ample. The most recent quarterly hogs and pigs report painted a picture of greater-than-expected supplies based on average pigs/litter & farrowing intentions. This, along with the influence of non-"swine-flu" on the psyches of some of our trading partners, has recently really broken the backs of any bulls. Check out the chart of LHZ9 (click to enlarge):

The LHV9 chart has an 86% correlation to two years in the past, 1970 & 2002. IF the price pattern repeats itself, the expectation is for a move down to 45 cents. IF the LHZ reacts similarly to the price patterns of 1970 & 2002 for that particular delivery month, then, in my estimation, it should continue with this weakness until early/mid August. We  shall see.

Bob

What Weather Scare?

Kind of hard to believe, but can we have a summer without a summer rally for grains/oilseeds? As I write this, CZ9 is breaking into new low territory for this entire bear market. All the wheat markets are stubbornly stuck down at the recent lows, and new-crop soybean are again toying with the idea of a down-side breakout.

I mean, typically we kill the crop three times, right? Drown it in spring, burn it in summer, and freeze it in it's final days?

Take a look at the seasonal tendencies for Dec. Corn & Wheat, and Nov.  Soybeans (courtesy MRCI, click on charts to enlarge):

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Forecasts are benign. Weather looks good. If this sort of weather carries into August, there may still be a recovery - yet not much of one.

Biggest threat to the crop at this point remains the delayed planting & subsequent crop progress.

Bob

Soybean Rally Failure

Early on in the trading session all the ducks were in a row for a Grain/Oilseed rally. The $US is under sharp pressure, energy prices are higher, commodity indices are rallying, & equities are markedly higher. So what happened to soybeans?  The old and new crop contracts put in $0.40 ranges today, rallying early & breaking late to close much nearer the lows of the day than the highs.

Whatever pulled the soybean market lower will hopefully continue and provide an opportunity for those who agree with me that there is a bear flag formation in the chart (see yesterday's post).   

Now I don't trade on hope, I trade with a clear and concise strategy.

Contact me with any questions/comments, Bob