Headline Risk - May 5, 2014

By: Chip Flory

May  05,  2014

The goal of Headline Risk is to identify the markets most vulnerable to be influenced by headline-making news. And, of course, to identify the news that might influence price action in the corn, soybean, wheat, cattle and hog markets.


Each potential headline includes a rating from 1 to 10.

Each potential headline starts with a 5 rating, meaning the market is used to seeing news on the topic, but is still paying attention to development of the event. If a potential headline is given a 5 rating, it means it will take a "major happening" in the event to have an influence on price action this week. A 5 rating means a market is likely to have a neutral reaction to news from the event this week.

A potential headline with a 10 rating means I am extremely confident the event will not only have an influence on price action, I am also extremely confident it will have a bullish impact on price action

A potential headline with a 7 rating means the story is likely to influence price action and I believe it is likely to have at least a short-term bullish impact on prices.

A potential headline with a 1 rating means I am extremely confident the event will not only have an influence on price action, I am also extremely confident it will have a bearish impact on price action.

A potential headline with a 3 rating means the story is likely to influence price action and I believe it is likely to have at least a short-term bearish impact on prices.


Headlines that have the potential to impact CORN trade this week --

Ukraine-Russia conflict -- headline risk rating of 7.

The rating is unchanged from last week. The situation intensified again over the weekend as the conflict moved into Odessa. Traders are building in geo-political risk premium into the corn market as the longer the conflict lasts, the more likely it is to have an impact on 2014-15 corn shipments from the Black Sea Region.

Corn planting progress -- headline risk rating of 6.

The rating unchanged from last week. Corn planting progress as of April 27 was 19% complete, below trade expectations. Some in the market are looking for corn planting progress as high as 35% as of May 4, which seems to be a bit of a stretch, but I'll admit... sitting in an area that has seen very little planting progress may be clouding my judgment a bit. I'm looking for corn planting progress to be at 28% complete with Iowa, Minnesota and North Dakota plantings being furthest behind the five-year average pace. Most of the expectations in the market are centered on 30% complete for the U.S. - anything above that would be negative; anything below that should be slightly positive. If planting progress comes in below 26% complete (unlikely), it would be the source of support for a Tuesday rally in corn futures.

Corn demand -- headline risk rating of 6.

The rating is unchanged from last week. Export inspections of corn in the week ended May 1 will be solid. But, traders will likely choose to ignore the still-strong export pace and will likely be evening positions ahead of Friday's Supply & Demand Report rather than trading the Weekly Export Sales Report. The weekly Export Inspections Report this morning should help support the gains in the corn market this morning, but probably won't do much to add to the gains.

Weather -- short-term headline risk rating of 4; long-term headline risk rating of 3.

The short-term headline risk rating is down from 6 last week. Even in some of the most-delayed areas, farmers should get good enough weather to get some fieldwork done the first half of this week. The first Tweet from Minnesota or North Dakota that corn they are planting corn will likely be a negative on corn prices.

The National Weather Service 6- to 10-day outlook calls for cool but dry condition in the western Corn Belt and warm and wet conditions in the eastern Corn Belt. If eastern Belt producers can advance corn plantings significantly this week, the longer-term outlook (if realized) would clearly benefit early stand establishment.

USDA Supply & Demand Report (old-crop) - headline risk rating of 6.

New rating this week. USDA will release the Supply & Demand Report Friday at 11:00 CT. For old-crop, the strong shipping pace should push the corn export forecast up another 25 to 50 million bushels. If that increase in use is taken off carryover, it would be bullish. However, don't be surprised if USDA increases export demand but cuts corn feed & residual use to hold carryover close to the current 1.331 billion bushels.

USDA Supply & Demand Report (new-crop) - headline risk rating of 4.

New rating this week. USDA's first official look at the new-crop marketing year will also be released at 11:00 CT on Friday. Do not expect any downside yield adjustments to corn based on the planting pace. Carryover is likely to be projected 500 million to 700 million bushels higher than the 2013-14 carryover estimate. That should be widely expected, but the reminder from USDA will likely have a negative impact on prices to wrap up the week.

Headlines that have the potential to impact SOYBEAN trade this week --

Corn planting progress -- headline risk rating of 6.

The rating is up from 4 last week. I moved corn planting progress from a potential negative, to a potential positive for soybeans this week. The combination of planting progress and the forecast should give the impression that "corn will get planted" this year, preventing "too many" acres from sliding from intended corn acres over to soybeans this year.

Soybean planting progress -- headline risk rating of 5.

Rating is unchanged from last week. Traders will pay close attention to Monday afternoon's Weekly Crop Progress Report, but it would take planting progress well ahead of the five-year average to generate a negative price reaction. That's not going to happen.

Soybean trade -- headline risk rating of 4.

Rating is down from 6 last week. This is an ebb-and-flow story for the bean market. This week, look for more talk of soybean imports to be the likely headline-maker. While bean imports should be expected, confirmation has proven to be a negative for the market. Look for more confirmation of soybean imports to have a negative impact on prices this week.

USDA Supply & Demand Report (old-crop) - headline risk rating of 6.

New rating this week. Demand is strong... stocks are tight. That should be a combination to help inspire some additional bull spreading in the bean pit this week, even though it hasn't developed yet. In the S&D Report on Friday at 11:00 CT, don't be surprised by some "creative accounting" in the soybean balance sheet -- we could see the first negative residual estimate of the year. (A negative use estimate actually adds to total supply to help hold carryover up.)

USDA Supply & Demand Report (new-crop) - headline risk rating of 3.

New rating this week. USDA's first official look at the new-crop marketing year will also be released at 11:00 CT on Friday. The first official new-crop carryover estimate of the year will basically be double of the current year estimate. The trade should know this and should be prepared for it, but confirmation of it will likely be a negative for prices.

Headlines that have the potential to impact WHEAT trade this week --

Crop Condition Ratings -- headline risk rating of 7.

Rating is unchanged from last week. This afternoon's Weekly Crop Condition Report will show more HRW crop deterioration, but the market is likely prepared for that. The reason I lean bullish on the expected deterioration is because of the weather outlook which is expected to intensify stress.

Weather -- headline risk rating of 7.

Risk rating is up from 3 last week. Hot and dry in hard red country. That will limit selling interest in wheat futures this week and keep HRW futures in a leadership role. Adding to my bullish attitude toward the weather is the still cool forecast for the Northern Plains where growers are trying to get the spring wheat crop seeded.

USDA Crop Production Report - headline risk rating of 4.

New rating this week. Most likely, the trade will be leaning to the downside on the crop estimate, which just makes it more difficult to get a "bullish" crop estimate -- that's the reason for my slightly negative price risk rating. The report is out Friday at 11:00 CT and is USDA's first survey-based winter wheat crop estimate. Also contributing to my slightly negative risk rating is the fact that USDA could come with a monster yield projection in SRW states. And even if the estimate does come in below the average pre-report trade guess on the winter wheat crop, it could be an excellent set-up for a "sell-the-fact" reaction.

USDA Supply & Demand Report (old-crop) - headline risk rating of 4.

New rating this week. With all the focus on new-crop in the wheat market, a reminder that we'll end the year with a "comfortable" supply of wheat will be a slight negative for the market.

USDA Supply & Demand Report (new-crop) - headline risk rating of 4.

New rating this week. USDA's first official look at the new-crop marketing year will also be released at 11:00 CT on Friday. Watch the global numbers in wheat -- they'll likely be a slight negative for the market..

Headlines that have the potential to impact HOG trade this week --

PEDV -- headline risk rating of 4.

Risk rating is unchanged from last week. Porcine Epidemic Diarrhea virus (PEDV) is an "old" story in the hog market that is still developing. However, the pace of new cases of PEDV has slowed dramatically as temperatures have warmed up, meaning many traders believe the industry is getting the disease under control. Still, the slowing pace is what gives this event a very slight negative influence on the market this week.

Slaughter pace -- headline risk rating of 6.

Rating is unchanged from last week. The risk is the industry has underestimated the impact of PEDV on hog supplies. Traders will watch the slaughter pace closely this week as the calendar inches closer to what is expected to be the peak-influence period of PEDV on hog supplies starting in late July.

Pork demand -- headline risk rating of 3.

Rating is unchanged from last week. The rise in pork product prices in April have made their way to the meatcase, which is slowing demand. The pork product market is now looking for a low... and will trade lower until movement increases. Once movement increases, this risk rating will move higher, but I don't think that will happen this week..

Headlines that have the potential to impact CATTLE trade this week --

Packer profits/cash bids -- headline risk rating of 6.

Rating is up from 4 last week. Cash cattle bids are at a premium to futures, which should limit selling interest in nearby live cattle futures. That's why I give this a slightly price-positive risk rating for the week. If boxed beef prices can help shrink packer losses this week, it should help hold cash bids at least steady this week.

Slaughter pace -- headline risk of 5.

Rating is unchanged from last week. I just don't think the slaughter pace can surprise the market this week, neither coming in low enough to support prices or high enough to weigh on prices.

Beef demand -- headline risk rating of 6.

Risk rating is unchanged from last week. It should be fairly easy for boxed beef movement to impress the market this week. Traders just do not expect strong beef demand. Retailers should also be gearing up for Memorial Day features... and nobody wants to be the last to buy steaks in the wholesale market in this environment.