Stewart-Peterson Market Commentary

Closing Commentary - July 29, 2015

Top Farmer Intelligence Closing Comments 7-29-15

Top Farmer Intelligence

July 29, 2015

line

TOP FARMER INTELLIGENCE REPORT DIRECTORY


  6:00 a.m. SUNRISE Update for grains and livestock
9:00 a.m. OPENING CALLS for grains and livestock
Noon MID-DAY Update for grains and livestock
  6 a.m. SALES TIMER for grains and livestock
  4 p.m. MARKETPLACE OVERVIEW/chart
  4 p.m. CORN analysis/outlook/advice/chart
  4 p.m. SOYBEANS analysis/outlook/advice/chart
  4 p.m. WHEAT analysis/outlook/advice/chart
  4 p.m. CATTLE analysis/outlook/advice/chart
  4 p.m. LEAN HOG analysis/outlook/advice/chart
  4 p.m. OTHER AGRICULTURAL MARKET strategies
  4 p.m. ADVANCED OPTION STRATEGIES hedge and speculative trades
  TOP FARMER WEEKLY PERSPECTIVE
 CASH TRACKER
 Disclaimer

 

line

TOP FARMER INTELLIGENCE - Sales Timer

PERCENT YEARS PRICES RALLIED (2005 to 2014)  From 07/29/15           1wk     2wk     1mo     2mo     3mo   CORN (Dec)              5       4       5       3       4 Historical data indicates sideways for 30 days, then weaker.  SOYBEANS (Nov)          3       4       6       4       5 Historical data indicates a bias for lower next week,  followed by sideways.  SOYMEAL (Dec)           3       4       6       4       6 Historical data indicates mostly lower next week, followed  by sideways to firmer.  WHEAT (Dec)             5       4       4       4       4 Historical data indicates no clear direction.  LEAN HOGS (Dec)         6       4       3       3       4 Historical data indicates a bias for higher next week, followed by weaker 30 days from now.  LIVE CATTLE (Dec)       4       5       5       7       6 Historical data indicates sideways to slightly higher.  DAIRY (Dec)             4       4       4       4       7 Historical data indicates no clear direction. 
line

TOP FARMER INTELLIGENCE - Marketplace Overview/Chart

July 29, 2015 4:00 PM
800-TOP-FARMER

The Shanghai Composite Index is one of the most closely watched global benchmarks. This index was created to track the performance of China's largest companies and is very similar to the U.S. equivalent, Dow Jones Industrial Average. Investors tend to use the Shanghai Index to gauge the health of the entire Chinese economy. Recently, this index has been in the news as its value has dropped over 26% since its highs on June 12 brining economic concerns in China to the fore-front. Being the world's largest purchaser of commodity goods, this pullback has sent shockwaves that have affected the global prices and volatility seen in commodities and other stock indices. Today, let's take a moment and look at the big picture. Though this move has been dramatic, year-over-year, the Shanghai Index has posted a 73.4% gain since August 1 last summer. Given the acceleration of the rally to its high, this pullback may be more of a correction in bull market. With this market putting in a short term bottom on July 9 and a higher low yesterday, could the damage be over for the short term as values stabilize. The question for commodities is, will they follow suit?



line

TOP FARMER INTELLIGENCE - Corn Analysis/Outlook/Advice/Chart

July 29, 2015 4:00 PM
800-TOP-FARMER 

CORN HIGHLIGHTS: After stabilizing yesterday, there was hope corn prices may consolidate or move higher today, but those hopes were dashed as prices slid throughout the session, closing with moderate losses of 7 to 7-1/2 cents. Dec futures attempted to trade higher overnight but failed and closed at 3.78-1/4, its lowest close since 6/22. Prices are looking weak enough that we would not be surprised if the 3.62-1/2 contract low from 6/16 is tested. Heavy selling in wheat, a firmer US dollar and continued good weather have pressured prices in recent days and again today. Funds are aggressively long the market into early July and have been exiting since.

SUMMARY: We are a bit surprised to see the sell-off this hard and fast considering we believe the crop has, in fact, been damaged in big portions of the Midwest due to excessive moisture. This will likely show up in harvest. We also think there is little more to this sell-off than just better weather. It is huge liquidation and general concerns over China as well as other economic conditions that have pressured many commodity markets. For now, we stay defensive.

CORN PRICING STRATEGY:

HEDGING: 2014: Aside. 2015: Aside. Recently, 10% hedged from 4.15 and 10% hedged from 4.04-3/4 were exited near 3.92-1/4. In addition, 10% hedged from 3.94-1/2 was exited near 3.81. 2016: Aside.

CASH: 2014: 90% sold. 2015: 50% sold. Sell 5% if Dec trades above 4.55. 2016: 10% sold. Sell 10% if Dec 2016 trades above 4.50.

OPTIONS: 2014: Aside. 2015: On 20%, purchased Dec 5.00 calls for 11 cents. On 25%, hold Dec 3.80 corn puts purchased at 28 cents. On 25%, hold March sold 3.40 corn puts from 12 cents. On 25%, sold March 3.70 corn puts at 12 cents. On 20%, sell March 5.20 calls at 12 cents. 2016: On 20%, sold Dec 4.80 calls at 20 cents.
 

 
line

TOP FARMER INTELLIGENCE - Soybean Analysis/Outlook/Advice/Chart

July 29, 2015 4:00 PM
800-TOP-FARMER

SOYBEAN HIGHLIGHTS: Soybean futures finished mixed with Aug gaining 8 at 9.83, as tight old crop inventories continue to provide support for old crop Aug. New crop Nov closed 1-1/2 lower at 3.43-1/4. Some commercial buying was noted today, and t his helped provide stability. On the other hand, there isn't much either weather-wise or newsworthy that would necessarily have anybody chasing prices today. Weather since the first week of July has been near ideal for much of the Midwest, and prospects may be growing for a better than expected crop from just 3 weeks ago. Yet, from a long term perspective, we feel the crop will be smaller this year due to acreage reduction and yield reductions in big portions of the central Midwest.

SUMMARY: Consolidation is the likeliest term that comes to mind when we look at the last 2 days of trading activity. Nonetheless, we will hold with our hedge for now. We will on today's recommendations move the stop closer. We want to make sure we are prepared in case prices continue to slide. We are concerned the overall sell-off in commodities is much deeper in reason than just an improvement in weather the last 2 weeks.

SOYBEAN PRICING STRATEGY:

HEDGING ALERT: 2015: 20% hedged Nov from 9.85-3/4. Change your order to exit on a close above 10.50 to exit on a close above 9.50 Nov. Hold. 2016: Aside.

CASH ALERT: 2015: 60% sold. Sell 5% if Aug trades above $10. 2016: 10% sold.

OPTIONS: 2014: Aside. 2015: On 25%, purchased Nov 9.60 soybean puts near 54 cents. Hold.
 

line

TOP FARMER INTELLIGENCE - Wheat Analysis/Outlook/Advice/Chart

July 29, 2015 4:00 PM
800-TOP-FARMER

WHEAT HIGHLIGHTS: Wheat futures had another rough session with sharp losses of 14-1/2 to 15 in Chi, while KC closed 8 to 9-3/4 lower and Mpls 10-11 lower. Technical selling along with a lack of reason for traders to buy all seemed to be enough to weigh on futures. Continued long liquidation and the overriding fact of adequate world supplies seems to be enough to keep traders on the sidelines. Wheat participated in a recent rally, following corn and beans, but it too came under heavy selling pressure and we have yet to see any sign of a bottom. Dec wheat closed at 5.05-1/4, down 15 and will now likely target the 5.03 area as first support, then second support at 4.94 and third support at the contract low of 4.85-3/4.

SUMMARY: Maintain a defensive posture in the near term. Technicals look very weak, especially after today's hard finish lower, basically negating yesterday's improvement and sending a signal that prices are weak as they closed near or at the day's low on most futures contracts.

WHEAT PRICING STRATEGY:

HEDGING: 2015: Sept: Hedged 25 from 5.77-1/2. Hold. Exit on a close above 5.45. 2016: 20% hedged on July Chi 2016 from 5.44-1/2.

CASH: 2015: 65% sold. 2016: 20% sold.

OPTIONS ALERT: 2015: On 25%, sold Dec 6.50 calls for 14 cents. On 25%, sold Dec 4.80 puts at 15 cents.
 

line

TOP FARMER INTELLIGENCE - Cattle Analysis/Outlook/Advice/Chart

July 29, 2015 4:00 PM
800-TOP-FARMER

CATTLE HIGHLIGHTS: Cattle futures were mixed as of this writing with nearby live cattle down 7 to 40 points as Oct led today's drop at 146.40. Feeder cattle were 30-42 higher with Sept leading today's recovery, last trading at 2.08.90. Cattle futures had an aggressive short cover rally yesterday and traded higher early in the session but seemed to run out of gas late. The bigger question is whether or not the markets are done going down or if this is just a breather before it resumes more downward price pressure. Our bias is consolidation. Demand has responded each and every time the market has set back this year, and after a drop of over 7% on futures, we expect demand will begin to pick up. Yet, as indicated on numerous reports, we will continue to encourage you to view rallies as longer term opportunities to be hedgers. We feel the market had plateaued in 2014 and will begin a steadily decreasing downward for potentially years to come as increases in supply keep rally potential in check.

SUMMARY: Cattle futures were again on the defensive late in the session as they have been most of the last 2 weeks. However, slaughter was manageable at 105,000 vs last year's 115,000. Cutout values were firmer this morning, gaining 27-52 points. Our bias is neutral but we will stick with our defensive posture as the entire commodity complex in livestock and grains looks weak.

CATTLE PRICING STRATEGY:

HEDGING: 
Live Cattle: Aug: 100% hedged. 25% from 150.65, 25% from 150.92, 25% from 146.15, and 25% near 147.47. Oct: 75% hedged. 25% from 148.70, 25% from 153.20, and 25% from 149.92. Dec: 50% hedged: 25% from 148.85 and 25% from 148.55. 
Feeder Cattle: Sellers: 50% hedged between now and Aug from 223.45. Hold. Buyers: Sept: Hold 25% bought from 213.50. Buy another 25% Sept at 205.20.

CASH: 
Live Cattle: Stay current.
Feeder Cattle: Sellers: Stay current. Buyers: Long based off of a 212.17 Aug futures on 25%. Long an additional 25% based off Sept futures from 212.80.

OPTIONS: 
Live Cattle: Oct: On 25%, hold 152 puts long and short 160 calls. Dec: On 25%, hold long 154 puts and sold 162 calls. On another 25% Dec, hold long 152 puts and sold 158 calls.
Feeder Cattle: Bought Aug 200 puts on all expected production between now and Aug.

FEED PURCHASE: 50% of all feed needs booked for the remainder of 2015. On the remaining 50%, remain hand-to-mouth.
1

line

TOP FARMER INTELLIGENCE - Lean Hog Analysis/Outlook/Advice/Chart

July 29, 2015 4:00 PM
800-TOP-FARMER

LEAN HOG HIGHLIGHTS: Hog futures were mixed with bull spreading noted as Oct led today's move higher, last trading at 66.15, up 1.10. April last traded 22 lower at 72.62. Aug, at $80, is now above the index at 78.36. Oct, however, still holding a $12 discount and has some room to work higher. Our bias is that the hog market is trying to find a footing, but increased competition on all meat fronts, it will be a challenge for hog prices to move much higher than they currently are. As indicated on previous reports, we believe expansion was faster and larger than currently thought nearly a year ago and consequently, there will be ample inventory for the third and fourth quarter.

SUMMARY: We will stay with our overall defensive posture. We have not been too willing to entertain selling beyond Dec. We feel there is a longer term rally coming at some point, or at least a correction, and this will provide a much better opportunity than today's values.

HOG PRICING STRATEGY:

HEDGING: Aug: 50% hedged from 82.95. Oct: 25% hedged from 63.00. Sell 25% if Oct can trade above 67. Dec: 25% hedged from 60.47.

CASH: Stay current. 
OPTIONS: Aug: On 25%, sold 90.00 calls at 2.00.

FEED PURCHASE: 50% of all feed needs booked for the remainder of 2015. On the remaining 50%, remain hand-to-mouth.
4

line

TOP FARMER INTELLIGENCE - Other Agricultural Market Strategies

July 29, 2015 4:00 PM
800-TOP-FARMER

Cotton

HEDGING: 2015: 25% hedged from 64.83 Dec, and 25% hedged from 68 cents. Hold. 2016: 10% hedged from 65 cents.

CASH: 2015: 50% sold.

OPTIONS: 2015: On 25%, hold long Oct 66.00 puts and short 70.00 calls at a 1.50 premium. 2016: Aside.

Milk

HEDGING: 25% hedged July through Dec at a pack average of 17. 25% hedged July through Dec at a pack average of 17.00.

CASH: On 25%, forward sell July through Dec on an average price of 17.85.

OPTIONS: July: Sold 17.25 calls on 25% at 30 cents. Aug: Sold 18.00 calls at 25 cents on 25%. Sept: Sold 18.25 calls at 30 cents on 25%.

FEED PURCHASE: 50% of all feed needs booked for the remainder of 2015. On the remaining 50%, remain hand-to-mouth.

line

TOP FARMER INTELLIGENCE - Advanced Options Strategies

July 29, 2015 4:00 PM
800-TOP-FARMER

Position:          Sold Dec corn 3.90 puts from near 14 cents. Date entered:      7/21/15 Exit Strategy:     None at this time.  Rationale:         Hedger: Re-owning sold crop through either premium collection                    of short put or exercise the put into long futures and                     collection of short put premium.                    Speculator: Expect put to expire without value.  Position:          Sold Dec 4.80 wheat puts at 14 cents. Date entered:      07/23/15 Exit Strategy:     None at this time. Rationale:         Hedger: Collect premium or willingness to collect premium                    and be long wheat from 4.80 Dec.                    Speculator: Collect premium or establish a long futures at                    4.80 with the collection of premium.                     Call 800-TOP-FARMER for further details on how to implement this strategy for your operation. 
line

TOP FARMER INTELLIGENCE - Weekly Perspective (updated every Friday)

MONEY FLOW - ANOTHER TOOL

Futures prices have a tendency to trend. You might be able get a perspective on why prices are moving in that direction by digging a little to find who is in the market. As an example, this past spring, grain prices were on the defensive, continuing to grind lower. There are many theories as to why prices move, and fundamental analysis will generally show that prices move lower in times of larger supply, lower demand, or both. With record production in the U.S. and South America, large traders were net short futures.

From a speculative perspective, anyone can trade futures, and those who invest large sums of money (or who manage large sums of money) can trade highly leveraged positions. Leverage simply means that you are not required to deposit the full value of the contract to participate. In most cases, initial margins (dollars the exchange requires to enter a futures position) are roughly 3 to 5% of the value of a contract. Therefore, when large managed money (known as funds) moves into the marketplace, this is a potential indicator of large sums of money betting on price direction. In the case of grains, the belief was simply that there was an over-supply, and funds were short (sellers) in the futures market.

In particular, corn prices drifted downward from late winter and eventually bottomed in late June. Funds were adding to short positions. Like any trader, if you're making money in a trend, it’s easy to add positions until proven otherwise. Funds built up net short positions of near 200,000 contracts. Once production uncertainty came into question, it didn't take long before funds were buying back their contracts (known as short covering). Funds went from short near 200,000 to long near 200,000 in a matter of weeks. Upward price pressure came fast, as many were trying to exit at the same time. Keep in mind that funds are not the only traders in the market. When a farmer sells corn to an elevator and the elevator doesn't have someone on the other end of that transaction to buy that corn, the elevator will often hedge (sell futures). This winter, it was not unusual to see both commercials (or elevators) and funds short.

Once prices began to move higher, it was also likely that end users were aggressively looking for corn. If they could not find a producer to sell them cheap corn, they likely went to the board and hedged their buy needs, thus additional upward price pressure to futures. Or, elevators may contract corn to buyers, and if they did not have a producer willing to sell, they would buy futures as a hedge. In the end, we see a major shift, as occurred this year with funds, end users and commercials buying futures. Add it all together and prices go up.

The exchange releases a report called Commitment of Traders. This report outlines who was in the market and on what side. This can be helpful when trying to determine whether or not you want to enter into the futures market. As an example, with funds at or near record short positions in corn, recognize that prices could recover quickly. If you are short futures, hedges could quickly work against you. By being aware of who is in the market, you can be aware of some of the potential price scenarios that could quickly occur. Knowledge can be powerful, and if used properly, can help you plan and execute strategy that makes sense and works for you. Ultimately, this can help you to shift risk and take advantage of opportunities.
line

TOP FARMER INTELLIGENCE - Cash Tracker

July 29, 2015 4:00 PM 
800-TOP-FARMER

CORN 2012-2013                           CORN 2013-2014 DATE         %    FUTURES                DATE         %    FUTURES     04/20/11    10    6.00                   06/19/12    10    5.50  08/02/11    10    6.50                   07/05/12    10    6.00 01/12/12     5    5.61                   03/06/13    10    5.44-1/4 03/28/12     5    5.36-1/4               05/29/13     5    5.65  06/19/12     5    5.45                   06/21/13     5    5.56-1/4 06/25/12     5    5.85                   12/17/13    10    4.25 07/16/12     5    7.50                   01/29/14     5    4.30-1/2 09/05/12     5    7.90-3/4               02/06/14     5    4.45 09/12/12     5    7.69-1/2               02/19/14     5    4.50       09/27/12     5    7.16-1/4               03/17/14     5    4.79 10/16/12     5    7.40                   03/31/14     5    5.00 11/13/12     5    7.20                   05/12/14     5    4.99-3/4 01/02/13     5    7.00                   05/15/14     5    4.84-1/4 02/22/13     5    6.93                   06/12/14     5    4.41                        02/28/13     5    7.15-1/2               07/16/14     5    3.78-1/4                         07/03/13     5    6.75                   07/31/14     5    3.70            07/23/13     5    5.22-1/2                            08/30/13     5    4.82                   TOTAL       100%                                                                           TOTAL      100%                             CORN 2014-2015                           CORN 2015-2016 DATE         %    FUTURES                DATE         %    FUTURES                01/02/14    10    4.58                   04/09/14    10    5.00    02/28/14    10    4.70                   05/15/14     5    4.83-1/4 04/01/14    10    5.00                   11/12/14     5    4.25 04/21/14    10    4.90                   03/13/15    10    4.04-3/4                  08/15/14     5    3.75                   05/01/15     5    3.83-1/2 09/11/14     5    3.41                   05/26/15     5    3.73-1/4 10/09/14     5    3.45                   06/30/15    10    4.25 10/28/14     5    3.70                    11/04/14     5    3.64-1/2               Total       50% 11/13/14     5    4.00 03/13/15     5    3.74 03/25/15     5    3.95-1/4 04/22/15     5    3.75 06/25/15     5    3.75  Total       90%  CORN 2016-2017 DATE         %    FUTURES  05/21/15    10    4.00  Total       10%     SOYBEANS 2012-2013                       SOYBEANS 2013-2014          DATE         %    FUTURES                DATE         %    FUTURES    06/23/11    10   13.25                   07/06/12    10   13.00	          08/30/11    10   13.75                   09/14/12    10   14.00             03/20/12     5   13.07-1/4               12/18/12     5   13.13                 03/28/12    10   13.20-1/2               02/22/13     5   12.92-3/4 04/10/12     5   13.64-3/4               04/15/13     5   12.06-3/4  05/07/12     5   13.53-1/2               05/29/13    10   12.50  06/07/12     5   13.35                   06/14/13     5   12.98-1/4 07/02/12     5   14.50                   08/23/13    10   13.25 07/10/12     5   15.50                   08/26/13     5   13.75 09/05/12     5   17.47-1/2               12/03/13    10   13.19-3/4 09/17/12     5   16.69                   12/31/13     5   13.12-1/2 09/26/12     5   15.73                   03/12/14     5   13.81-3/4         12/07/12     5   14.72-1/4               04/10/14     5   14.82-1/4 02/08/13     5   14.52-1/2               08/12/14    10   12.90 06/12/13     5   15.50                     07/02/13    10   15.73                   TOTAL    100%   TOTAL      100%                                                                        SOYBEANS 2014-2015                       SOYBEANS 2015-2016          DATE         %    FUTURES                DATE          %   FUTURES  07/26/13    10   12.00-3/4               5/23/14      10   12.25 12/31/13     5   11.46-1/2               6/11/14      10   11.94  03/14/14    10   11.74-1/2               10/01/14      5    9.33 04/01/14    10   12.00                   11/10/14      5   10.30                05/05/14     5   12.24                   11/20/14      5    9.95                  05/20/14     5   12.50                   03/04/15      5    9.72-3/4 09/10/14     5    9.95-1/2               04/15/15      5    9.50 10/01/14     5    9.07                   06/25/15      5    9.75 10/20/14     5    9.44                   06/26/15      5   10.00 10/28/14     5   10.15                   06/30/15      5   10.25 11/04/14     5   10.10 12/2/14      5    9.95-3/4               Total        60% 01/08/15     5   10.48-1/4 02/24/15     5   10.05 03/16/15     5    9.74  06/26/15     5   10.00 07/16/15     5   10.19         Total     100%        SOYBEANS 2016-2017 DATE         %    FUTURES  07/14/15    10     9.75  Total       10%  WHEAT 2012-2013                          WHEAT 2013-2014 DATE         %    FUTURES                DATE         %    FUTURES    04/29/11    10    9.15                   04/20/12    10    7.01   06/07/11    10    8.95                   07/05/12    10    8.25 03/29/12    10    6.27-1/4               09/26/12    10    8.46 05/18/12    10    6.75                   12/11/12    10    8.42-1/4 05/23/12    10    6.65-1/2               08/05/13    10    6.45  07/24/12    10    8.78-1/4               08/14/13    10    6.30-1/2 09/05/12    10    8.67-3/4               09/26/13    10    6.65 11/12/12    10    8.72-1/2               10/01/13    10    6.78 03/13/13    10    7.00                   10/18/13    10    7.00  04/30/13    10    7.25                   01/10/14    10    5.69                                           TOTAL      100%                          TOTAL       100%   WHEAT 2014-2015                          WHEAT 2015-2016 DATE         %    FUTURES                DATE         %    FUTURES  03/19/13    10    7.45                   03/13/14    10    7.00 06/07/13    10    7.50                   04/08/14    10    7.17  10/07/13    10    7.00                   05/15/14    10    7.22-1/4     02/27/14    10    5.95-3/4               12/08/14     5    6.00 03/07/14    10    6.50                   12/18/14     5    6.50 03/19/14    10    7.00                   01/08/15    10    5.76-3/4 04/03/14    10    6.75                   05/18/15     5    5.11 05/15/14     5    6.78-1/4               06/22/15     5    4.95 08/06/14     5    5.75                   07/17/15     5    5.54 12/24/14     5    6.13-3/4                02/18/15     5    5.40                   TOTAL       65%  TOTAL       90%  WHEAT 2016-2017 DATE          %     FUTURES  03/20-15    10    5.65 06/30/15    10    6.00  TOTAL       20%
line

TOP FARMER INTELLIGENCE DISCLAIMER

*** Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.

One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

 

If you have questions or comments, please call Bryan Doherty at 800-867-3276.

Top Farmer Intelligence

137 South Main Street, West Bend, WI 53095
800.334.9779 | www.stewart-peterson.com
© 2015 Stewart-Peterson Inc.

Stewart-Peterson




Market Commentary provided by:

Stewart-Peterson
137 South Main Street, West Bend, WI 53095
Phone: 800-334-9779
E-mail: rmainville@stewart-peterson.com
Web: www.stewart-peterson.com