Stewart-Peterson Market CommentaryClosing Commentary - August 22, 2014
Stewart-Peterson Closing Commentary 8-22-14
WHEAT HIGHLIGHTS: Wheat futures found support, gaining 5 to 8 cents by today's close. Dec closed 6-3/4 higher at 5.62-1/4 in Chi. This compares to the close last week of 5.63-1/2. Prices had a sour start to the week, but finished on a firm note and once again, showed consolidation. Wheat prices are trading at the same level today as they were back on July 11. Consolidation continues. Uncertainty in the Ukraine and Russia has provided underlying support, yet that hasn't proved a significant factor one way or the other. The market does respond to uncertainty, but for the moment, it appears that news from that geopolitical part of the world is uneventful. Commercial buying was noted, as well as potential profit taking from those who recently went short, or short covering. Recent rain delays have hampered spring wheat harvest, and this too may have provided underlying support, yet we view these delays as temporary. Overall, the wheat market continues to mark time waiting further news for direction. We feel very strongly that the downward momentum for wheat has likely been halted, or at least slowed. When stepping back and looking at the big picture, world supplies are adequate, but not over burdensome. Demand should be good in the year ahead.
CATTLE HIGHLIGHTS: Both the live and feeder markets rebounded today with moderate to sharp gains. Aug cattle closed 220 points higher at 151.85, a strong rebound after sliding on Tuesday and Wednesday of this week. Oct cattle gained 1.45, closing at 147.00, and this compares to last Friday's close of 147.75. We'd like to believe this week is a consolidate week and the bulk of the heavy selling interest was last week. Yet, the inability to hold gains from earlier in the week is somewhat concerning and would suggest that cattle futures may have some further room to correct downward. With that being said, when looking at corrections, the Oct contract retraced 50% of its rally from the beginning of the year and may be starting to find buying interest. The feeder market has corrected downward also and may be poised to find additional buying interest. This afternoon's much anticipated Cattle on Feed report was viewed as neutral to negative. On feed was at 98.1% versus the average estimate of 97.5%. Placements were slightly higher as well at 92.6% versus an average estimate of 90.5%. Lastly, marketings were lower than anticipated at 90.7% versus an average estimate of 92%. This could suggest additional supplies available to the market in early August, and perhaps, in part, why the market fell apart as it did. Yet, we think that cattle were probably tugged down more by hogs, which imploded on themselves on the reality that hog production isn't anywhere near as low as many feared due to PED.
LEAN HOG HIGHLIGHTS: Bear spreading was noted due to weaker hog cash bids. Oct closed 75 lower at 92.87, while Dec closed 40 weaker at 87.15. Deferred months gained anywhere from 7 to 125 points. With weaker near term cash prices due to bigger than expected inventories, we're not surprised to see the front months come under some pressure. We do now believe the back months could likely be undervalued. Outbreaks of PED will likely begin to pick up into the fall months. As far as we can tell, there is no strong reason to believe that this virus won't continue to plague the hog producers. Despite a very rough start to the week, many of the deferred contracts finished the week higher. This again could signify that the momentum downward is slowing and as we indicated in previous reports, feel the market is overvalued. This is why we bought Feb hogs based off today's pit opening.
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