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Wheat traders eye world weather
Broker Perspective: Wheat closed out the week’s trading in the same manner as it traded the whole week, a sharply higher move on fund liquidation. We estimated that the funds have liquidated 16,000 contracts of short positions in the past four trading session alone. They were estimated to have bought 6,000 contracts today by noon. The reason for the aggressive buying continues to be macro market fear liquidation and weather fears. The forecast continues to have the plains endure some hot temperatures over the weekend and again late next week. Rain prospects look limited. Most the crop has matured enough that crop damage potential should be limited. Like we wrote yesterday the trade’s knee jerk reaction is to buy the weather story first and analyze actual damage second. We should be getting actual yield results soon as the harvest begins to pick up steam over the next two to three weeks. The trade will continue to monitor dry weather conditions in Russia, China and Australia. News stories all week long had traders lower their production estimates for all of these countries due to dryness problems. Dryness in Australia is hampering planting progress of the southern hemispheres winter wheat crop. The U.S dollar continued its rally as traders are continuing to dump euros and buying dollars as it looks like the Greece economic crisis will get much worse before it gets better. The overall mentality of this week’s market is best summed up as a risk of mentality as traders liquidated and moved to the sidelines. Allendale is turning a little less bearish the wheat at the moment. With the funds carrying a net short position of 35,200 contacts and weather concerns on the trade’s mind we could be in for some continued short covering before the traditional harvest break happens. After a 98 cent rally in the past 5 days the market is overbought. Next week’s trade direction will be determined by the weather forecast and macro news out of the Euro zone.
US Production: Producers out of Kansas are noting some concern about this crop as it heads into harvest. At worst, contacts are only suggesting the record crop has been reduced to average. If we didn’t have those good rains early last month, there would be more reason to worry…Rich Nelson
(5/15) Sold July Chicago at 649 risk filled 5/18 at 664 for -$750.
Closing Cattle Commentary
USDA’s monthly survey of feedlots gave some interesting results. Due to smaller supplies of available feeders, discouragement from sharp feeding losses on April marketings, and good competition from backgrounders, April placements were 14.8% lower than last year. That was even more dramatic than the 12% decline the analyst community was looking for. This is now two months in a row of lower placement numbers. This will help create a shortfall in live cattle slaughter from September to November. It was not just cattle going into feedlots that was supportive but the numbers leaving were surprising. April marketings were seen 0.4% larger than last year. This was better than the 1.6% lower marketings that were expected. Looking at the big picture, the total number of cattle in feedlots fell from 2.0% larger than last year to 0.6% smaller than last year from April 1 to May 1. We may need to revise our $130 upside target for October even higher if May placements also come in lower than our expectations. While we are not too excited about the nearby June or August contracts we will point out this week’s action has confirmed a head and shoulders bottom formation on the charts which project to $123.27 on June and $124.626 on August. June through October futures are called 0.50 to 1.00 higher for Monday. Cash cattle is said to be trading in the Northern Plains at $2 higher right now.
(5/17) Sold Oct 120 put 2.25, risk 1.75 from entry, objective 0. Closed 1.77.