Markets Take Wait-And-See Mood Ahead Of USDA Reports

4-9-14 – As traders await the USDA’s Crop Production and World Agricultural Supply and Demand reports around midday, the markets generally have settled into a wait-and-see mode.\r\n\r\n   However, soybean futures are up in overnight trading amid fewer order cancellations and talk that crush margins there have turned positive.  Concerns the USDA WASDE report would show tightening US and world ending stocks also circulated, but since average trade estimate surveys were published days ago, much of this may already be in the market.\r\n\r\n   Corn received support Tuesday from talk that US ending stocks could be cut significantly, but the price action has subsided overnight.  Weather forecasts generally indicate conditions in the western Corn Belt should be favorable over the next several days.  The fact that this area also is abnormally dry overall also worries some.\r\n\r\n   Wheat conditions were reported at 35% good to excellent, down one percentage point from the same week a year ago.  This seems to be confirmation that drought in portions of the southern Plains is taking a toll on the crop and is adding support to the market.\r\n\r\n   Kansas City Wheat turned higher Monday after a near-term bottom on Friday and continued higher on Tuesday amid dry-weather worries, even though forecasts for rain in the weeks ahead and thoughts that Russia will remain an active exporter capped gains.\r\n\r\n   South American corn and soybean production estimates are expected to be revised lower in today’s WASDE report, and such talk is providing support to the market.  And weather reports of too much weekend rain in Argentina are propping up soybeans amid thoughts of flood-reduced production.\r\n\r\n \r\n\r\nFUNDS ACTIVE BUYERS\r\n\r\n \r\n\r\n   Fund buyers were said to be buyers on Tuesday, with Nov soybeans posting a new high close and Dec corn hitting its highest level since Sep. 4.  The most recent CFTC Commitment of Traders report as of April 1, showed commercial traders being net short by 139,845 contracts, with large funds net long 181,519 and small speculators net short 41,674 contracts.  Large funds continue to hold near-record long positions while commercials are seen hedging on recent price gains.\r\n\r\n   The most recent CFTC Commitments report shows corn commercials net short by a record 186,311 contracts with large funds long a record 308,663 contracts and smaller speculators net short by 122,352 contracts.\r\n\r\n   The CFTC report showed commercial wheat traders were net short by 15,447 Chicago contracts while large funds were net long by 26,657, and smaller speculators were net short by 11,210.  A graph of the COT reports over the last few months shows a steady increase in commercial net short positions and a commensurate steady increase in net long positions by the funds.  And both coincide with a rebound in futures prices since the bottom Jan. 29.\r\n\r\n \r\n\r\nCATTLE UP AS SPEC SELLING SLOWS\r\n\r\n   Live cattle futures are mixed in overnight action with nearby contracts higher while fall and winter contracts decline.  April closed higher Tuesday amid ideas the break over the last week was overdone.  Friday’s close of $134.80 per cwt was well below last week’s live-basis cash trade of $148 to $150 and even significantly lower than packer bids this week of $146.\r\n\r\n   Yet with large funds holding a near-record number of long positions, some traders worry that further declines below Monday’s two-week low will trigger more massive long liquidation.\r\n\r\n   The USDA reported its choice beef cutout value Tuesday was down $0.94 per cwt at $226.99, but select was up $0.98 at $216.97.\r\n\r\n   Week-to-date slaughter at 233,000 head, compared with 232,000 last week and 235,000 last year.  Slaughter rates are expected to increase into summer as fall feedlot placements come to market.\r\n\r\n   The CME Feeder Cattle Index for the seven days ended Monday was $178.68, up $0.26, while the April futures contract settled Tuesday at $178.30, up $0.80.\r\n\r\n \r\n\r\nIN OUR OPINION\r\n\r\n \r\n\r\n–We hear black box funds have their sights on $177.27 to begin buying April feeder cattle.\r\n\r\n–We hold a longer-term bullish outlook for the beef industry, even though drought has reduced the US herd and South America has captured export markets in the short term.\r\n\r\n–Market sources indicate PEDv losses continue to mount, reducing red meat competition.\r\n\r\n