Tomorrow is a USDA report day and even though markets will trade right through the report, I will get an observation out as quick as I can on phone txt and email. Once tomorrow morning's USDA S&D update passes, traders will quickly turn back to trading weather. The major forecast models are in better agreement today and have delayed a second storm system from the upcoming weekend to early next week. A cold front has produced .2-.9" of rain across the northern Plains and the northwestern Midwest overnight. The storm front is starting to weaken and rainfall across the remainder of the Midwest is expected to range from traces to .5", with coverage declining to no better than 60% of the area through Tuesday. This is going to leave eastern Midwest crops wanting more rain with heat expected to build into the weekend. Dry weather returns on Wednesday, with the next chance of rain pushed back into early next week. The forecast models agree that rain chances are best in the northwestern Midwest with .25-1.00" totals, but elsewhere, rainfall will be in a range of .2-.6". Extreme heat is indicated by the US GFS model in the 11-15 day period with limited rainfall. For crops that receive less than normal rainfall, the upcoming 2 weeks of weather will be stressful.
Report Estimates
On the demand front, the US cash market for corn remains strong as more buyers push for coverage of a limited amount of available inventories. The MGE national corn/soybean basis both rose $.01 on Friday to new highs of $.18 over July for corn and $.40 under July for soybeans. Gulf corn premiums were $.01 weaker, IL/IN processor bids were steady to $.03 firmer and PNW bids were steady. In central Illinois, cash basis for corn is quoted at $.65 above July futures, up $.05 from Thursday. Country movement picked up slightly with growers making small sales around the $6 level. The next target for grower selling interest is closer to the $6.30 level.
While it appears that the analysts at the USDA are simply willing to believe anything the Chinese government is saying, JP Morgan put out an interesting piece over the weekend that backs up why they believe China has been overstating corn production and/or understating demand. Chinese production remains the biggest unknown in our models and in the market. In terms of consumption, we think that official Chinese statistics for corn consumption have also been understated for several years. We arrived at this conclusion by analyzing statistics on soybean meal and other oilseed meal use in feed. Since China imports about 75-to-85% of its domestic soybean consumption, import statistics are likely to be more accurate than production/consumption statistics. Between 2002 and 2011, Chinese soybean meal and rapeseed meal use for feed has increased by about 9% y/y and 5% y/y, respectively. In contrast, USDA statistics suggest that Chinese corn-for-feed consumption has increased by only about 3% y/y. Anecdotal evidence suggests that Chinese farmers are moving increasingly towards feed rations produced by feed mills, indicating higher levels of meals in feed rations. However, we are doubtful that the growth rate of meal usage is so much higher relative to corn in feed for the same number of animals. Therefore, we adjust our figures to more accurately reflect our view of current and historical feeding trends in China, which lowers the level of available stocks for at least the past five years relative to USDA estimates. In 2012/13, China will need 8.0mmt of corn imports as official corn yield estimates will likely prove too optimistic. Taking imports into account, we forecast that China will have ending stocks of about 24.6mmt in 2012/13, with ending stocks demand coverage of about 45 days, relative to the USDA's estimate of 57.8mmt and 105 days.
With the USDA possibly understating calendar year 2012 Chinese soybean imports also by possibly 5mmt, many traders remain worried that soybean prices must move higher still to ration demand until the South American crop arrives next year, with potentially less than ideal US weather only adding to the problem. The 900mb of South American soybean crop production lost this past spring with require historic rationing of US new crop that some see as impossible without sharply higher prices.
The US dollar bounced significantly from overnight losses but should still be on track to lose more ground, at least into this weekend. This is what 11 of the last 12 months have done so far and would tend to suggest more of the same. If the June US dollar contract stays under 8280 overnight, that will lend support to grains mid-week when the US$ softens in price.
US Dollar Intraday Chart
Corn
Last week we showed this corn chart and how resistance was 6.00-6.06. The high was 605.4, and as you can see, that resistance looks significant. If the USDA report or weather doesn't get corn through that in the next day, you can pretty much figure out the trade will sell into it hard. If corn gets through 606 on a closing trade, 630 would be the upside target for July corn.
July Corn Intraday Chart
Beans
July beans hit our minimum target of 1410 and overshot by 35 cents. Amazing when the market is liquidating it doesn't care about anything just get me out. Then when they want it, it is relentless buying. The high for the month of May was 1449.2 and a close above that will have the world looking for the contract highs to be tested.
July DailyBean Chart
Wheat
You can tell by wheat's unwillingness to join corn and beans on the recovery rally, it is the whipping child that gets spread against. 650 is required to be cleared to change trend. Wheat seasonal selling pressure typically ends when the southern wheat harvest moves North of Hutchinson, Kansas, typically past the 4th of July.
Chicago Wheat Daily Chart
Live Cattle and Feeder Cattle
Cash cattle finished last week fully 1.00 higher at 122 in the South, and 123 in the North. Packers bid up late in the week as they were short bought, but now that they have ample inventory, expect cash to be steady at best later in the week. Choice cutouts are still hovering below 197, and packers are profitable at $24 per head. Futures will more than likely just meander and consolidate for now, but the outlook remains bullish for the last half of the year.
August Live Cattle Daily Chart
August Feeder Cattle Daily Chart
Gold did another washout move which seems to be an every other week event. If gold can stay positive above the purple line, a retest of 1620 should occur with 1670-1680 still looking possible on the daily chart.
Gold Intraday Chart
Crude
Last week I showed this chart when the purple line was at 88.00 and said that was resistance which was declining. As you can see, the purple line is crushing the market as it moved to 87, stopping it, and then now at just below 86.00. It is dropping almost a dollar a day. So that means things are coming to a head fast, both oil bottoms and pops higher through it, or a collapse under 80.00 is close at hand. The purple line should be 85.00 tomorrow, 84.25 Wednesday.
Crude Oil intraday Chart
06-11-12
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NOTE: With the exception of livestock, all trades will be entered in the electronic markets unless otherwise noted. Hedge recommendations and Trade recommendations are totally separate, and may sometimes conflict with one another. It is strongly suggested that Spec trades and Hedge trades be done in separate accounts.
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A word to the Wise
Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable to Heartland Investor Capital Management , Inc. but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK of LOSS involved in trading futures and / or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL . NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. The information contained in this newsletter is privileged, confidential and protected from disclosure. Any further disclosure or use, distribution, dissemination or copying of this message or any attachment is strictly prohibited.
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