Good Afternoon ! Friday, March 11, 2005

 Bump's Morning Market Outlook

In this issue:

  1. Early Grain Outlook
  2. The Trader's Corner   *UPDATED!
  3. Online Account Info
  4. Weekly Financial Overview
  5. Bump Tools

 

Early Grain Outlook

by Duane Lowry

Monday, March 7, 2005  

OPENING CALL:

Corn= steady-easier,     Wheat= steady-easier,     Soybeans= mixed-slightly better  

e-CBOT, night session results:    Corn= ¼ higher,     Wheat= 1 ¼ lower,     Soybeans= 2 ¾ higher

 

Weather is similar to Friday’s outlook. The focus is now on Argentina, as Brazil’s forecasts suggest the crop “is what it is”, due to the calendar ending the growing season. At the present time, little if any Argentine production potential has been lost. The lack of troublesome heat during the next 10 days should minimize Argentine stress.   

 

Wheat will be leaning easier, but watchful of any emotion that may develop in the soybean pit. The global wheat fundamentals are weakening, as EU becomes more aggressive with export offers. Overall concern for new-crop wheat is relatively minimal. Charts are rolling over and prices are currently below the level of the last C-O-T report data, suggesting we are trapping some longs above the market. Friday’s close was the lowest in the last 5 days of trade and nearly 10 cents off the highs. Significant downside potential exists during the next several weeks.

 

Corn will hover near steady, awaiting a sense for soybean direction. As with wheat, prices have been eroding during the last 5 trading sessions due to virtually no fundamental foundation for the recent price gains. Short-covering activities provided the strength and this task has been accomplished. Spillover emotional buying from the soybean pit also fueled the last several cents of the rally. General expectations towards demand and usage have virtually all number-crunchers expecting rising carryout levels. Soybeans should close lower today despite the overnight strength. If true, this should allow corn to erode during the next 2 trading sessions. The first good support is about 5 cents below Friday’s close.  

 

Soybeans will be leaning better because of overnight action. However, the overnight’s lows were made on the close. To some extent, the overnight strength is based on “the street” viewing the lack of rain and mostly dry forecast in Rio Grande as bullish. The reality is that the calendar says it is too late to impact the crop much from here forward, rain or no rain. Argentina’s situation is not dire, as rains are currently and during the next 2 days reaching 60% of the belt. Only about 20% of their soybean belt will be experiencing dryness concerns. The lack of troublesome heat during the next 10 days will also limit an adverse impact. Market rhetoric has the Brazilian crop at 54-56 mmt, or less; however, statistically it seems very difficult to get the crop below 58 mmt due to the lateness of the crop problems and the small overall area affected. Cash basis values have weakened considerably in the US and are weakening in South America. Upside momentum is waning, as recent probes to new highs during the last few days has lacked follow-through. Technicals suggest we are poised for weakness this week. A lower close today is very possible. Current levels are unsustainable.      

 

In summary, early calls are better based on overnight strength. However, the trade should want to sell any early strength. We are poised for lower closes across the floor. All Commitment-of-Traders (C-O-T) data (futures & options) is as of March 1, 2005.

 

WEATHER: The Midwest/Delta Soft Red Winter Wheat areas received 50% coverage of 1/10-1/2, locally 1 inch rains, with some 1-4 inch snows in the east. Today-tomorrow, 1/10-1/2 inch rains will produce 25% coverage. Wed-Fri, 1/10-1/3 inch precip will produce 60% coverage, with some 1-3 inch snows. The Central and Southern Plains received 10% coverage of 1/10-3/4, locally 1 ½ inch rains. The next 5 days will produce 40% coverage of 1/10-1/2 inch precip, with some 1-4 inch snows. *The Long-Range (6-10 day) Maps suggest the Midwestwill experience below to much-below temps. Precip will be normal-above in the west, normal-below in the east. The Plains will experience normal temps and normal-below precip. The Delta will experience normal temps and normal-above precip. The Southeast will experience normal-below temps and above. *The 11-15 day maps suggest the Midwestwill experience below temps and normal-below precip. The 11-15 day maps suggest the Plains will experience normal temps and normal-below precip. South America> Argentina received ¼-1 ½ inch rains, producing 45% coverage of the corn and 20% coverage of the soybeans. Through Tues, 1/4-1 ½ inch rains will produce 40% coverage of the soybeans. Late Fri, 1/2-2 ½ inch rains will produce 30% coverage of the soybeans. Temps will be mild during the next 10 days. Their 6-10 day outlook calls for normal temps and normal-above precip. Brazilreceived 35% coverage of ¼-1 ½, locally 2 ½ inch rains, favoring the north. The next 5 days will produce 40% coverage of ¼-1 1.2, locally 2 ½ inch rains, resulting in 70% coverage of the north and 10% coverage of the south.

 

CORN: Taiwan bot 60 tmt US corn for April-May shipment. Tomorrow, Taiwan will seek 60 tmt US or Argentine corn for April-May shipment. C-O-T Data: Funds are long 8,401 contracts, a reversal of 60,761 from their previous short position. (Price Move during the report period= up 4 cents.) The small traders are short 72,633 contracts, up 23,515 from the last report.

 

SUPPORT

RESISTANCE

BARGES

CK

2.12-14

2.20-22

MAR +36 K -1

ON

1.45

1.55

APRIL +31 K -4

PROFILE: May Corn> Price erosion should continue. Overall, an eventual return to contract lows seems likely.

 

SOYBEANS: Palm Oil futures were higher, up 51. Chinasoybean futures were higher, up 53. ***For those who initiated bull spreads in the July-Nov spread a few weeks ago, you may want to consider taking profits on those positions. The spread has rallied 22 cents from the 7 under level. The upside target was 25 over, and that may still occur, but we could see some easing of that spread take place first if we begin to unravel a downward turn in the market. C-O-T Data: Soybeans= Funds are long 15,119 contracts, a reversal of 24,672 from their previous short position. (Price Move during the report period= up 30 ¼ cents.) The small traders are short 38,447 contracts, up 12,989 from the last report. Soyoil= Funds are long 11,508 contracts, a reversal of 29,478 from the last report. (Price Move during the report period= up 101 points.) The small traders are long 11,230 contracts, up 4,692 from the last report. Soymeal= Funds are long 11,139 contracts, up 6,294 from last report. (Price Move during the report period= up $6.60.) The small traders are long 8,533 contracts, up 3,244 from the last report.

 

SUPPORT

RESISTANCE

BARGES

SK

5.85

6.39-41

MAR +46 K

SMK

175.00

188-92

APRIL +35K

BOK

22.00

23.50-70

 

PROFILE: MAY SOYBEANS> We are poised for weakness. MAY SOYMEAL> Current levels should be seen as a selling opportunity. Downside potential is huge. MAY SOYOIL> Creating a top at current levels. IN SUMMARY, current values should be unsustainable and seen as selling opportunities.

 

WHEAT: Egypt bot 60 tmt French wheat for April shipment. C-O-T Data: Chicago= Funds are long 13,473 contracts, a reversal of 26,751 from their previous short position. (Price move during the report period= up 17 ½ cents.) The small traders are short 7,492 contracts, up 6,529 from the last report. Kansas City= Funds are long 7,527 contracts, a reversal of 18,826 from their previous short position. (Price move during the report period= up 10 ¼ cents.) The small traders are short 5,879 contracts, up 3,018 from the last report.

 

SUPPORT

RESISTANCE

TRACK HRW

BARGE SRW

WK

3.31-33

3.41, 43-45

MAR +64 K

+88 K Mar

KWK

3.40

3.55-60

APR +64 K

 

PROFILE: CHICAGO>All objectives have been met. While it is difficult to determine how much time will be spent up here, this area can prove to be a long-lasting high. The entire Feb rally is subject to being lost during the next 2-3 months.

GLOBAL HIGHLIGHTS: After importing 10 mmt of wheat in 2005, China says they will have no need for wheat imports in 2005 except for very small volumes of varieties China doesn’t grow. Syria says they will completely withdraw their troops from Lebanon.

 

The “REAL” (Cash) Values:

 

CORN

BEANS

Chicago

+4 H

-10 K -2

Toledo

-19 K

-16 K

Cedar Rapids, IA

-17 K

-30 K

 

This newsletter is prepared from information believed to be reliable. Early Market News, Inc. does not guarantee that such information is accurate or complete and it should not be relied upon as such. Opinions expressed are subject to change without notice.

The Trader's Corner

Keep Things in Perspective-

The recent rally has been a welcome surprise to those wishing to price inventory.  We feel this may be a good (early) opportunity to sell some additional new crop production.  Please consider some hedges, option strategies, or cash (forward sales) on new crop.  We have been looking at some fenced hedges on both new crop corn and beans to set a floor and ceiling on the new crop.  Please give us a call for details on the strategies.  Currently we can lock in a floor (using options) on corn approximately 20 cents above loan and above the February average price used for some on the revenue insurance programs.  New crop beans can have a floor locking in about 70 cents above loan!    There is plenty of time in the growing season and other factors to consider in the upside of the market, but we feel this is a good time to establish some initial sales. Again please keep this in perspective as a tool in making your marketing decisions.

As we have mentioned (see below) the “historical potential” for the corn and beans market to reach lows during the summer months.  During the last 17 years the high on December corn (between March 1 and October 1) has occurred before May 1st in 10 of those years!

Please give us a call to discuss your personal “selling” needs in more detail.
weeklycorn
If you are holding old crop corn please note the chart above.  This chart show a comparison of the current market (similar carryout and stocks-to-use) and the trade in the 1998 and 2201 time frame.  Notice in these four years to lows where established in the summer months.  To add insult to injury the basis levels also lost strength during these years, and it wasn’t uncommon to have cash price below $1.60 during these years.  Cash basis was very weak in a couple of these years.  Assuming a normal growing season we feel there could be similar levels this summer as the market tries to absorb the large supply of corn.

Please give us a call for a couple of strategies to avoid this potential pitfall!

 Weekly Financial Overview

A slight correction to the upside for the dollar was seen over the past week.  This correction came as the market digested economic figures out of both the US and Europe.  Economic figures here in the US pointed towards an expanding economy with GDP figures coming in higher than expected.  Although these figures were on the plus side for the dollar, it wasn’t really dollar strength that saw the greenback advance but rather other currencies weakness.  Economic figures out of Germany pegged unemployment numbers at post World War II highs, over twice that of the US.  Also, figures showed a contracting economy in both Italy and Germany.  Along with these dismal economic realities for Europe, you have the ECB (European Central Bank) staying pat at 2%.  It seems that Europe has enough economic issues to hinder the appreciation of the EC.

 

            One reason the dollar slid lower against the EC at the end of 2005 was because of the nation’s twin deficits.  The twin deficits were the main topic in Greenspan’s address to the House Budget Committee.  After having his plea for fiscal discipline fall on deaf ears back in February, the Fed Chief reiterated the need to cut spending instead of raising taxes to balance the budget.  Traders were listening closely to his speech to see if there were any hints towards monetary policy with hawkish undertones.  Mr. Greenspan chose not to address those issues but to restate his plea for finding a solution for the budget deficit.

 

            The 30 year bonds have moved lower along with the ten year notes in anticipation of further rate hikes from the Fed.  The indices have traded in a range and are looking for fresh news to point them in the right direction.  The news that everyone is waiting for are the employment figures to be released Friday morning.  Most estimates have the NFP at 210K-225K with the unemployment rate inching up to 5.3%.  A lower NFP could be bullish bonds and indices, but bearish the dollar which would help out commodities. 

 

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