Headline Risk Rising in Corn, Cattle | July 21, 2014

By: Chip Flory

July  21,  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.


Author's note: After being out of the office for consecutive Monday's, I'm back to put some analysis on the risk we're facing in these markets. I'm limiting the number of subjects covered in each commodity to just the issues that I think have a chance of influencing price action in the week ahead.

 

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

Corn crop progress -- headline risk rating of 3.

The rating is unchanged from last week. The crop that hasn't been hailed or wasn't planted exceptionally late in the northern and northwestern Corn Belt is pollinating right now. Probably 10% to 12% of the crop will see pollination later than the five-year average pace (portions of crop in ND, MN, WI and MI). All of the crop that will pollinate later than the five-year average is in the area most vulnerable to an on-time (or early) first frost and even an on-time first frost this year would at least nick yield potential. Now... that's 10% to 12% of the U.S. crop... not just the crop in those four states, so an on-time end of the growing season could have a negative impact on the 2014 corn crop.

Corn crop conditions -- headline risk rating of 3.

The risk rating is unchanged from last week. The corn crop is in generally good condition, even where the crop is a little slow in development. That's not going to change this week. However, comments from growers in Ohio and Indiana are starting to reflect the need for a rain within 10 days to prevent any deterioration of the crop.

Corn demand -- headline risk rating of 5.

The rating is up from the previous rating of 4. Demand is building, but it will take at least one more week of solid old- and new-crop demand to get the market's attention. If the sales pace slows this week, this entry will move back under 5 next week, but I think there's enough buying interest at current values to keep some demand coming to the market.

Weather -- short-term headline risk rating of 4; long-term headline risk rating of 5.

Short-term weather risk is up from 3 last week. Temperatures are spiking right now and a heat advisory will be with us through Tuesday. The only reason I eased up on the negative risk of the short-term weather outlook is because growers across the Corn Belt would like to "catch" the rain that's in the forecast for tomorrow and into Wednesday for the eastern Corn Belt. If that rain event disappoints growers, the market might start to pay attention to some of the areas that are drying out.

Longer-term weather risk rating unchanged from the previous rating. There is another chance for showers this weekend... missing those showers could turn out to be price supportive, but "catching" those rains with normal- to below-normal temperatures would be a positive for the corn crop and a negative on prices.

 

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

Soybean crop progress -- headline risk rating of 3.

Rating is unchanged from last week. No problems... the crop is a little behind in the northern and northwestern Corn Belt, but it's got time to catch up in August.

Soybean crop condition -- headline risk rating of 3.

Rating is down from 4 last week. Last week, USDA put 72% of the bean crop in "good" to "excellent" condition. I think the bean crop improved last week, which means the percent of the bean crop should be up from last week. If USDA does push the percent of beans in "good" to "excellent" up to 75%, look for crop conditions to put pressure on bean prices later this week.

Soybean trade -- headline risk rating of 6.

New-crop bean sales were nearly 1.7 million metric tons last week. That's an excellent tally and some followthrough buying this week will start to get the market's attention. But, we need some followthrough buying this week or last week's surge will be viewed as a round of value buying before China decides to sit back and wait for lower prices later.

 

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

Crop Condition Ratings -- headline risk rating of 4.

Rating is unchanged from last week. The spring wheat crop is in generally good condition and the winter wheat crop is nearing the end of harvest.

Weather -- headline risk rating of 4.

Risk rating is unchanged from last week. Scattered and fairly regular rains in the Southern Plains is setting up the hard red winter wheat crop for a good start when it is seeded later this fall. The outlook for the spring wheat crop looks relatively stress-free for the week ahead.

Wheat demand -- headline risk rating of 2.

Rating is down from 3 last week. I really hesitate to go below 3 (or above 7) in the risk ratings because I've got to be convinced to have that much confidence in a crop rating. But, even after last week's downing of the Malaysian airliner near the Russian-Ukrainian border and the ongoing investigation, exporters are still booking sales out of the Black Sea Region. Also, Canada is getting competitive in the export market and the threat of El Nino is fading, which means Australia has a better chance of growing a good 2014-15 wheat crop than it did just a couple of weeks ago. Wow... wheat demand stinks!

 

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

Slaughter pace -- headline risk rating of 7.

Rating is up from 6 last week. This could be the week that the market starts to really discover how many pigs were lost to PEDv. I don't think the bottom of the market-hog hole will come until sometime in August, but slaughter levels could be low enough this week to get the market's attention. Unfortunately, that could be offset by talk of packers cutting back kill hours to adjust to the lower hog supply, which would remove competition from the cash hog market and limit the support from falling slaughter numbers.

Pork demand -- headline risk rating of 6.

Rating is unchanged from last week. It's still really good. Fundamentally, it's tough to find a negative in the hog/pork market.

Cold Storage Report -- headline risk rating of 7.

New category... report out Tuesday at 2:00 p.m. CT. Trends seen in recent reports will likely continue. Pork in frozen storage will be low enough to help support prices and may be low enough to give a "mild shock" to the market.

 

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

Cash bids -- headline risk rating of 6.

Rating is unchanged from last week. The cash market was expected to continue a downside correction last week, but that got cut short by still-positive packer margins. Packer margins are still in the black and still-tight show-list numbers should help support cash bids this week.

Slaughter pace -- headline risk of 5.

Rating is unchanged from previous 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 unchanged from previous week.

Cattle on Feed Report -- headline risk rating of 6.

New category... report out Friday at 2:00 p.m. CT. Calf placements will once again be the key in the report. My suspicion is calf placements will be low enough to make the report slightly positive for cattle prices, but not so low as to "shock" the market. The "push" here is the need to save a few heifers back to expand the beef herd versus the high value of feeder heifers that are keeping heifers moving through the salebarn and heading to feedlots.

Cattle Inventory -- headline risk rating of 6.

New category... report out Friday at 2:00 p.m. CT. We get the twice-yearly Cattle Report back this week. It shows the longer-term trend in the beef and dairy herds. I'm most interested in the beef cow inventory, the heifer inventory and where those heifers are right now. If the report shows hefty beef heifer retention for the breeding herd, it could be slightly negative for far-deferred cattle futures, but it would be a positive for 2014 cattle futures and first-half 2015 cattle futures as it would suggest cattle slaughter will be even lower than expected as females are pulled out of the slaughter mix.

Cold Storage Report -- headline risk rating of 6.

New category... report out Tuesday at 2:00 p.m. CT. Trends seen in recent reports will likely continue. Beef in frozen storage will be low enough to help support prices, but not so low as to "shock" the market.