Pressured dolllar brings grain price support
Corn closed 4-cents lower on the day and 26-cents lower on the week. This is the lowest weekly close since 4/24. After hitting 6-month highs last week on planting worries and a bullish USDA report, corn has since sold off over 50-cents. With the crop now in the ground and growing, the market was forced to look at demand. Weak export demand and a collapsing feed industry was too much for the corn market to handle. The chicken industry has been cutting production for over a year due to poor margins and is currently running about 5% behind a year ago.
June is the 22nd consecutive month that the hog industry has been running with negative margins. Currently, producers are losing around $30/head for a combined total of around $60 million/ week as an industry. (The Chinese producer is only losing $20/head!) The U.S. cattle feeder is currently losing around $50/ head. Cattle on Feed came in at 96% (of a year ago) as of June 1st and the Cattle Placed in Feedlots during May was 86% of a year ago. This is the lowest May Placement figure since 1996. The Dairy producer is still losing $100/ month on every cow! Okay, enough with all the bearish news. On the bright side, ethanol margins are finally improving. The recent run in gasoline prices has helped margins to improve to around 30-cents bushel. This is the best since last October. Also, there is still a good chance that we ended up losing acres this spring.
The dollar has obviously been under pressure and this has drawn in large sums of money to our markets. If this continues, we could see corn prices hold around these levels. Corn prices are about 10-cents away from a major trendline that has been intact since last Dec. The corn market should try to hold at these levels until the report. The big problem in my opinion is what happens after the report. Most people are already expecting a bullish acreage figure and still the market has broken 50-cents in only two weeks. The liquidation of animal herds is not a U.S. phenomenon but a global problem. If the report does not show a larger than expected decrease in acres and the weather outlook remains benign, corn could continue to sell-off. If corn prices start to close under these technical areas, this could trigger another round of fund liquidation.
As of Tuesday, the Commitment of Traders Report showed the funds were long 170,000 contracts (850 million bushels). If you are looking to buy some calls before the report, I would look to buy the Sep. $4.50 calls for 10-cents next week. If you have not gotten caught up on sales, give us a call early next week and we will find a strategy for you.
Old crop soybeans closed 35-cents lower on the day and 66-cents lower on the week. New crop soybeans closed 38-cents lower on the day and 70-cents lower on the week. Tight Old crop supplies and a bullish USDA report last week helped drive old crop beans up towards $13 and new crop soybeans to $11/bushel. A late start to planting and the old crop tightness has caused many analysts to estimate a low carryover again next year. Although this could certainly end up being the case, I would be very cautious on this presumption. First of all, these estimates are based on record demand projections for next year. Again, this could happen but I don't see the fundamentals (right now) to support this theory.