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'Major dent' in wheat market

12/14/2012 @ 3:50pm

Wheat Commentary

Broker perspective: While the other grains were able to find a bounce today, it was wheat that struggled behind. This market continues to feel the pressure from the recent world export numbers that put a major dent in the bullishness that has been around this market. Above all, trade seen this week should prove that while news headlines like to talk about the Plains dryness, traders are simply not trading that right now. This is not to say that there is not a major reason to be concerned with dryness in the HRW areas, but until this crop comes out of dormancy trade will still keep focus on world issues rather than U.S. weather. There will certainly be a time when the U.S. dryness situation comes back into main focus, but for now we have to keep eyes on other factors. Unfortunately for the wheat bulls, this upcoming January report will not provide much of any news for the wheat market. On that report the only thing likely to catch attention will be the estimate of 2013 wheat acreage. For now, this wheat market has a chart that looks rough, and this market will need some fundamental news outside the U.S. for short-term help.

Lower U.S. dollar: Trying to argue for bullish prices in the face of the sharp downtrend in U.S. wheat seems like a hard thing to do. It was important to see the dollar reconfirm the downtrend today. That could help improve our competitiveness in the world wheat market. Until the long-term forecast changes, we cannot suggest this market needs to break further. 

Working trade:

(10/24) Sold Jan 900 call/sold Jan 900 put as a straddle for 72, risk changed to 66 from 86, objective 25. Closed 300 profit.

(12/07) Bought March Chicago 854, Risk 839, Objective 888. Closed 750 loss.

Lean Hogs Commentary

For the short term, we did see packers bid a little more aggressive for cash hogs Thursday and today than expected. As tonight’s chart shows, typically this market is in a downtrend for the remainder of the month, though. We do not feel comfortable saying cash hogs are done going down. As with cattle though, it appears the futures are looking ahead to the 2013 picture. 2013 futures, as shown by the red triangles, are pricing June futures pretty close to 2012 levels. We feel summer futures remain clearly undervalued given the supply cuts that will be hitting at that time. Additionally, keep in mind cattle slaughter, a competing meat, will be down a sharp 4% to 6% during that time. We will keep our focus on the long-term (bullish) picture. $102/$103 is a conservative upside target for June futures.

Working Trade:

(12/03) Sold Feb 87 call 1.90, risk to 3.10, objective 0.25. Closed 1.37.

(11/20) Sold June 96 put 2.35, risk 4.10, objective 0. Closed 2.37.

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