We had some positive developments in the marketplace this week. Most surprising was the monthly jobs report, which showed an increase of 2.5 million jobs, versus expectations of 8 million jobs lost. The unemployment rate came in at 13.3% versus expectations of 19.8%. With all the negative news we have been fed for weeks, everyone, including me, was expecting a horrible report. We will have to wait a month to see if these numbers hold or if we see massive revisions, but for now, it looks like our economic recovery is already underway.
The jobs report sent the Dow Jones, which was already trending higher, to the highest level since late February. The NASDAQ actually made a new all-time high. The strength in the stock market, and the re-opening economy, have helped spur big gains in the petroleum market. The 10-week highs in unleaded gasoline demand means that ethanol production is on the rise, and the rising ethanol production has firmer corn basis and given the corn market a generally less negative outlook.
Unfortunately, one of the key statements there is that the outlook is “less negative,” because we will have a supply and demand report next week that will serve to remind us that the new crop ending stocks estimate is still over 3 billion bushels. That being said, the corn charts are looking friendly despite the big carryover we are dealing with. The July corn closed above the 50-day moving average for the first time since January and traded at the highest level since mid-April. With trend indicators beginning to point up, and with the funds still carrying a large net short position, this market has potential to make a nice run higher. It may be too optimistic, but $3.75 is a possibility for the December contract. A run to that level would be a selling opportunity unless we start to see a major decline in crop condition ratings. If ratings stay steady or better, we are most likely on track for a trend line yield, which is enough to keep us buried in corn.
Wheat has been a bit schizophrenic lately, with big moves up and big moves down. The falling dollar is supportive to the wheat, and the solid export sales we have seen are a huge help, but it is hard to make the wheat market go up when it is harvest time. The July KW stalled out right at the 50-day moving average Thursday and Friday, and it looks like the run up to that level was a selling opportunity. It would not be a surprise to see the July KW head for the March low after the supply and demand report.
Like the corn, the July soybeans closed above the 50-day moving average for the first time since January. The soybean oil is acting as the leader for the complex and the soybean meal is still the anchor. We have seen good demand for our soybeans from China and “unknown destination” despite some negative trade rhetoric from both the US and China. We are very dependent on the Chinese if we are going to come close to meeting the new crop export sales estimate. In the short run, however, with the charts looking supportive, start looking for the July contract to move above the $9 level soon.
Cash cattle trade had a very large range this week from $105 to $120. That did not impress the June live cattle futures, which nearly reached $102 last week, but went as low as $93.35 this week. First notice day is coming up, so we will get to see how the delivery period impacts the market. Some people still can’t get rid of cattle, but with slaughter rates normalizing, that should be less of an issue going forward.
Futures charts are rolling over, so look for some pressure in the next week or so. Look for the August live to head for the $93 area and the August feeders to drop to $129.
Schwieterman, Inc. is a full service commodity brokerage firm. If you would like more information on commodity markets or our brokerage services, contact Eric Relph at 800-272-9131 or www.upthelimit.com.