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Closing Comments

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Closing Comments

Dollar lower and crude oil higher – but the real stories today were; 1. Massive buying in the soybean complex 2. Short covering in wheat.

Corn

Corn higher for sixth session on technical buying and short covering.
Short covering in wheat spilled into the corn complex as funds continue to clear out of their surprisingly short wheat position. In corn, open interest actually grew for the past two days – indicating that the higher prices in corn recently is not solely on short covering but new longs.
Today the old crop contracts lost ground to new crop as farmer selling of old crop weighed on the May and July futures. The May/July spread suffered under rolling of May to July as well. Basis continues to weaken in many markets as pent up selling is pressing the cash markets hard now.
Anticipated rains over the Midwest the 15 days could keep the corn planting progress at a moderate slower than earlier anticipated pace.
Brazil eliminated its 10% import tariff on corn for up to 1 mln mt to provide more supplies for its domestic users. This opens the door for the US to be a competitive supplier for Brazil. This should be supportive to corn price here.
Technically May corn closed into four month highs just under the 200 day moving average. This move has cleared swing highs of March and February – the first comparative bullish action since last June. May will likely encounter resistance in the 3.85 to 3.95 area but continued short covering in wheat/corn and sustained money flow could propel higher than anticipated (see soybeans).

Soybeans

Soybeans continue to outperform expectations on aggressive money flow into the complex.
Excessive rains in Argentina continues to provide headline fodder for soy complex buyers – the real scope of damage is yet unknown because of poor roads and questionable information. In addition, meal loading there has slowed too because you can’t load soy meal in the rain.
Stepping back from that headline, the reality is that large amounts of outside money are flowing aggressively into the soybean complex with a ‘risk on’ attitude taking open interest to the highest level in years. Today’s soybean trade volume was one of the highest in recent memory, maybe ever. To say this is an active market is an understatement.
Soy oil found new highs on strength from the palm oil market and its concern over continued production losses off El Nino weather.
Winnipeg canola futures joined the party, closing new crop at three month highs in sympathy to the soy oil and palm oil markets.
Board crush margin closed at its highest level since Christmas on the shared strength in meal and soy oil. May crush closed today at 68.3 – 10 cents higher than where it spent much of the winter.
May soybeans took out the August high at of 9.83 today. What next if the frenzy continues? Well look for front month trendline resistance in the 9.90 to 10.20 zone. If that doesn’t contain it, the market will target continuation highs around 10.50. The market has found active selling by US and South American farmers, but the reality is that sellers don’t stop rallies – only running out of buyers does.
Funds were reportedly buyers of 25,000 contracts of soybeans.

Wheat

Wheat higher on short covering – Chicago up 5 percent since Friday.
Weaker dollar and general bullish money flow sentiment in commodities provided support to the wheat market. The large short position reported by the CFTC has provided ongoing support to futures in wheat – May Minneapolis made it to new 5 month highs today.
Today’s drop in open interest highlighted that the strength has been short covering as traders exit short positions.
Global wheat fundamentals continue to lean bearish but the improved optimism of funds to own grains could trump the fundamentals for now. May Chicago cleared the March highs today closing at 4.86 ¼ and lack of interested sellers in that market now for the near future could have a front month target of 5.25 in play.

Livestock

Cattle lost ground again from long liquidation while hogs head higher on firm cash prices.
Cattle were lower following yesterday’s limit down move as the morning’s beef price posted a setback. The morning wholesale choice beef price traded $1.33 lower wile select lost $1.33. The market is fearing that the slowdown in wholesale beef demand and having more cattle for sale than last week may weigh on cash cattle later this week.
Steady to firm cash prices and higher wholesale pork values provided support to the lean hog contracts today. Mostly in front month contracts.
Cash hogs in the Midwest on Tuesday morning sold steady to $1 per cwt higher, supported by profitable packer margins and increased pork demand. Cutout was up 57 cents per cwt.

Closing Market Snapshot

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All opinions expressed in this commentary are solely those of Water Street Advisory. This data and these comments are provided for information purposes only and are not intended to be used for specific trading strategies. Although all information is believed to be reliable, we cannot guarantee its accuracy or completeness. There is significant risk of loss involved in commodity futures and options trading and may not be suitable for all investors.

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