Cash pork prices continue to advance, providing strong incentive for packers to keep bidding for cash hogs. On top of that, hot weather in the Midwest is expected to limit marketings, which make packers more aggressive in their buying. Pork cutout values were up another 12 cents after the close yesterday, and while that gain is not as strong as some of the $1-plus gains of the past week, it took cutout prices to their highest levels since June 1st! August hogs closed slightly higher on the session yesterday, but well off of the early highs. Weakness in other commodity markets and the outlook for cash to trade steady to $1.00 lower today helped to pressure the market later in the day. Packers appear to have the hogs they need for the week, and some plants will see downtime on Friday and Monday. August hogs still hold a premium to the cash market so if cash is weak, we could see a bit more long liquidation selling from the funds before the market stabilizes. The market saw strong gains early yesterday, due to news of higher pork prices late Monday. In addition, cash hogs came in steady to $1.00 higher yesterday despite expectations for only a steady trade. The CME Lean Hog Index as of July 23rd came in at 80.81, up 98 cents from the previous session and up from 77.90 the week before. The estimated hog slaughter came in at 378,000 head yesterday, which was below trade expectations and is sometimes considered a sign of weaker packer demand. This brings the total for the week so far to 764,000 head, down from 770,000 head last week at this time and down from 832,000 head a year ago. Pork cutout values, released after the close yesterday, came in at $86.86, up $0.12 from Monday and up from $84.03 the previous week.

TODAY’S GUIDANCE: Packer margins are in the black, and pork demand appears to be much better than traders have expected. Exports appear active, and traders expect continued tight supply ahead. October hog support is at 75.55 and 75.12, with 77.37 and 78.75 as the next upside targets. Look for the choppy to higher trade to continue.

This content originated from - The Hightower Report.

While traders see cash cattle trading near $95.00 this week in the southern plains, August cattle closed at 92.65 so the discount may provide some support. Traders remain nervous that the aggressive long liquidation selling from fund traders seen on Monday could re-emerge as a bearish force. Funds held a hefty net long position as of July 20th basis the COT reports. August live cattle ended the pit-session near unchanged yesterday, after trading in the bottom portion of Monday’s big range-down session throughout the day. Higher equity values and even stronger boxed beef prices offered little support to the cattle market, as it was still reeling from Monday’s steep sell-off. Cash live cattle were quiet, with offers at $96, $1 higher than last week’s trade. Bids were at $94 on Monday, but there were no bids yesterday. The estimated cattle slaughter came in at 125,000 head yesterday which was below trade expectations and could be a sign of weaker packer demand. This brings the total for the week so far to 254,000 head, down from 256,000 head last week at this time but up from 252,000 head a year ago. Boxed beef cutout values at mid-session came in at $155.62 and closed at $155.23, up 0.33 for the session and up to the highest level since July 22nd. This was up from $155.10 the prior week. The market seems to be in a supply set-up to move higher, as long as demand manages to hold near current levels. Heat in the central part of the country for a few more days could keep demand sluggish. A forecast for a trough for the eastern part of the country for the next 10 days or so could help pull temperatures and humidity levels down on the East Coast, which may be seen as a positive for demand.

TODAY’S GUIDANCE: The overbought condition and the aggressive fund selling trend seen Monday are bearish short-term forces. If we see the selling trend continue into the middle of this week, the market might correct the overbought condition. A correction in October cattle to 92.65 support looks like a short-term buying opportunity, with 95.97 as the next upside target.

This content originated from - The Hightower Report.

The market may be nervous about the recent 2 1/2 cent advance in the December contract given the shaky economic outlook, particularly the outlook for consumer spending. However, a lower dollar, higher equities and a positive chart pattern helped to boost cotton again yesterday, pushing the December contract through its 100-day moving average. December cotton then ticked through yesterday’s high overnight, but the market quickly retreated due to a lack of support from outside markets. This week’s Crop Progress report showed the overall cotton crop rated at 68% good-to-excellent, unchanged from last week. However, there was a 1% shift from good up to excellent. Squaring stands at 94% versus the 5-year average of 87%, and 58% of the crop is setting bolls versus the 5-year average of 48%. Temperatures are expected to cool in parts of the south today with much of Texas and Louisiana only in the 80s. Areas to the east are expected to remain in the 90s with parts of Georgia in the upper 90s. The hot air mass is expected to become more predominant again tomorrow, although south central Texas and parts of the Texas Panhandle may still be in the 80s. Scattered showers and a few localized thunderstorms are expected today from central and East Texas on through the Delta and into Mississippi and Alabama, with more general coverage possible in the Delta. More showers are expected over the course of the week. New Home Sales were up substantially in June after posting an unprecedented drop in May. While the June total was higher than expected, it was still the second lowest monthly total in data going back to 1963, so this still does not bode well for job creation and consumer demand. Weather in India and Pakistan has improved since the weekend and into the start of this week with good rains in western growing areas in India and scattered thunderstorms in Pakistan. More showers are expected. Stocks registered for delivery against the ICE contract fell sharply again yesterday despite their already low levels. Stocks fell to 53,403 bales from the previous total of 55,389 bales.

TODAY’S GUIDANCE: While the cotton market may have further upside potential, there is little reason to expect a sharp uncorrected rally of the sort that we have seen this month in wheat. That is because cotton is still relatively close to its recent highs, and trend-following funds have been long in cotton this year, instead of short as has been the case in wheat. The great question in the cotton market is whether the growing US new crop supply can be counterbalanced by continued growth in demand from Asia. Over the short term, the December contract may fluctuate near the 100-day moving average under the influence of dollar direction. We continue to look for a move to near 77.48 over the short term. First support in the December contract is at 75.34 to 75.38 with next support at 74.65 to 74.71. Next resistance is at 77.48.

This content originated from - The Hightower Report.

The idea that that exchange stocks will continue to tighten both at the ICE and the LIFFE continues to underpin this recovery rally, but the reality of huge upcoming crops from South and Central America may be putting a blanket over the coffee market. September coffee was able to hold much of last week’s recovery rally but was unable to extend prices outside of the recent trading range on Monday. Exports from Vietnam during July were up nearly 70% from last year’s levels, but that may be due to LIFFE futures reaching price levels high enough to encourage producer selling. Weather forecasts for Brazilian production areas continue to predict temperatures well above levels that could produce a damaging frost. ICE certified Arabica coffee stocks on July 26th fell by 820 bags to 2,130,903 bags, with 300 bags pending review. Recent revisions to 2009/10 global coffee production forecasts are reflected by tight near-term supply levels, which have helped to lift prices well off of their recent lows. The inability of September coffee to move past this month’s highs, however, may be due to a realization that supplies will be much more plentiful later on in the year. Weather remains favorable for an active harvest in Brazil and there is still no sign of threatening cold weather.

TODAY’S GUIDANCE: Unless there is a dramatic change in the supply/demand outlook, September coffee will likely have difficulty getting past the 170.00 level. Another test of last week’s lows may be on the cards if the upside momentum runs out of steam. Support for September coffee comes in at 163.70 with 167.70 and 169.80 as next resistance levels.

This content originated from - The Hightower Report.

With a weak US dollar and positive action from outside market forces, the bounce yesterday is not too impressive and the market may see choppy to higher trade over the short term to correct the oversold condition before a resumption of the downtrend. September cocoa prices ended slightly higher but well off of the day’s peak on Monday after a failed attempt to trade above resistance at $3020. Cocoa continues to consolidate last week’s dismal price action. Excess rain and moisture has made the process of properly drying the beans increasingly difficult in the Ivory Coast and at the same time has lowered the overall quality of the mid-crop, but the outlook for the main crop in October is improving. Some cash traders said they have had to turn away most (up to 80% on some accounts) of the cocoa beans offered due to insufficient quality. Quality issues have restrained supplies and increased the year over year supply deficit. Total Ivory Coast arrivals stand at 1.082 million metric tonnes since the season began last October and are about 1.9% under year ago levels. Ivory Coast production is on pace for its lowest levels since the 2004/05 season, exacerbated by excessive rainfall and years of under investment. However, reports of prolonged periods of sunshine may have helped cocoa pod development. Still, weather forecasts for lower temperatures could slow the start of the main crop in October, which in turn would further damage buds, weigh on quality and reduce production. Indonesia crop conditions appear to be improving with decent weather recently. Technically, September cocoa is trying to trend higher helped by a “higher” high and low on Monday. However, the intermediate trend is down for cocoa and would require, at least, a short term move back above $3020 to flip the sentiment positive. In the event prices are able to turn higher, there is a retracement target above at $3060. In the meantime, we would like to see if the current attempt at higher prices has any legs before getting overly aggressive on the short side of the cocoa market.

TODAY’S GUIDANCE: Resistance for September cocoa comes in at $3020 and $3056. Keep $2806 as the next target.

This content originated from - The Hightower Report.

The highest close since March 8th for October sugar along with positive influences from outside markets could attract increased buying support. The Indian monsoons are picking up steam for the monsoons, and traders see a continued good rain volume there as a potential negative force. However, short term demand news and speculative buying has helped support a steady short term uptrend. The market closed sharply higher on the session yesterday but the rallied failed to take out Friday’s highs. October sugar in London also closed higher with an inside trading day, as the strong spot demand for sugar and long lines to load at Brazil has helped support. Positive action in the US stock market along with weakness in the US dollar added to the bullish tone. Talk of rains at the ports in Brazil, which might slow the loading process, was also seen as a positive force. The COT reports on Friday showed that trend-following funds were net buyers of 3,318 contracts for the week ending July 20th, increasing their net long position to 64,343. Commodity index traders were net buyers of 3,867 contracts for the week, and the fund buying trend is seen as a short term positive force. The India Sugar Mills Association indicated yesterday that sugarcane planted acreage for the 2010/11 season has jumped to 5.28 million hectares, up 18.6% from last year.

TODAY’S GUIDANCE: The technical action remains positive with futures remaining in a tight and well defined uptrend. We question the ability of the market to see too much follow-through to the upside as the end user demand becomes saturated, but there is still no major sign of a top. Support is 18.27 for October sugar with resistance at 19.29. It will take a move under 18.09 to sour the chart outlook.

TODAY’S MARKET IDEAS: While a bit overbought, there is still no sign of a peak. Watch for bounce to at least 19.29, but the market may run out of positive news soon.

This content originated from - The Hightower Report.

NEAR-TERM MARKET FUNDAMENTALS: Better than expected weather in the northern Midwest over the weekend and forecasts for more of the same this week are dominating traders’ attention to start the week. Several major growing areas that needed rain got relief over the past week including the Ohio River Valley, southern Indiana and Ohio and parts of the mid south. The western and NW Corn Belt also saw moderate rain totals with the north central Corn Belt seeing unwelcome heavier rains. Temperatures are not expected to be as extreme as previously feared in the northern Corn Belt to start the week. A cool air mass may push 90 degree temperatures out of the northern tier of the Midwest today and possibly tomorrow, but a surge of hot air is expected to bring 90 degree plus temperatures to virtually all of the Midwest by mid week and into Thursday. A final push of very hot air is expected on Thursday and this may bring the hottest temperatures of the year into the north central Midwest. Forecasts then call for a surge of cooler air into the central and western Midwest on Saturday that would push the hot air into the mid south, the Ohio River Valley and the East Coast. Heat is not the only major feature of this week’s forecasts. Unstable air and the clash of hot and cool fronts in the northern Corn Belt are expected to bring moderate to heavy rains in a wide band running from eastern Nebraska through all of Iowa, northern and central Illinois and all of Indiana and Ohio. The heaviest amounts in the center of this band could be 4 inches or more with the entire band expected to see at least 1 inch. The USDA will release its weekly Crop Progress reports this afternoon. The overall good-to-excellent rating stood at 73% on last week’s report. Some analysts are expecting the rating to be unchanged to slightly lower this week. Corn planting is set to start in Argentina by mid August. West central areas could use more moisture, but moisture levels are considered favorable in the east. China saw showers in the SE corn areas of the NE corn belt this weekend with scattered showers in the NE of this region. Temperatures remain warm to hot and more rain is needed. The Commitments of Traders report for the week ending July 13 showed very heavy buying by trend-following or managed funds. These traders were net buyers of 75,787 contracts to increase their net long position to 92,984 contracts. The biggest net long position held by these traders was near 313,000 contracts in February, 2007. Index funds were net sellers of 5,232 contracts.

TODAY’S GUIDANCE: Profit taking and commercial selling helped to take the market lower overnight as traders are concerned that the yield reductions that were feared last week will not materialize. More selling is possible with the start of the day session, and this could take the December contract back near the 100-day moving average which stands near 384 3/4 this morning. First support in the December contract is at 391 3/4, with next support at 385. First resistance is at 4.10 1/4 and then at 4.35.

This content originated from - The Hightower Report.

NEAR-TERM MARKET FUNDAMENTALS: The wheat market continues to find support from lower production forecasts outside the US along with a burst of import buying to start the week. Traders said that this helped wheat to post a modest gain overnight in the face of substantial selling in corn and a lower soybean market. This left the December contract near last week’s highs with the wheat/corn spread also near its recent highs in the December contracts. India posted a slight reduction in its 2009 wheat crop to 80.71 million tonnes versus a previous estimate of 80.98 million. While this is a minor reduction, it is the latest in a long list of countries that have reduced crop estimates in wheat, and one analyst notes that traders are nervous that the trend will continue. Iraq bought 350,000 tonnes of wheat from various origins including Russia, Canada, Romania and the US. A private buyer in Israel is tendering to buy 24,000 tonnes of feed wheat. Very hot weather in the US hard red winter wheat belt may have brought some last minute stress to that crop prior to harvest, but traders do not expect this to be a major issue. The hottest temperatures have been in the western portion of the central and south central Plains. So far, they have remained south of major spring wheat areas and this is expected to continue this week with temperatures in that region staying mainly in the 80s. Growing areas in Canada to the north remain cooler with excess soil moisture and cool temperatures thought to be adding to the risk of disease there. Sources indicate that warmer temperatures are needed, but they are not expected this week, at least not on a sustained basis. Some increase is possible later in the week, but the big surge of very hot air that is expected on Friday is expected to push to the east, into the north central Midwest, missing the Canadian Prairies. Forecasters then call for cool air to push south into the weekend which would further reduce temperatures on the Canadian Prairies. The Commitments of Traders report for the week ending July 13th showed more net buying by funds. Trend-followers were net buyers of 17,124 contracts to reduce their net short position to 36,592. This is less than half the size of their net short position in wheat just a few weeks ago. These traders were also large net buyers of 16,032 contracts in KC wheat. Index funds were net buyers of 2,377 contracts.

TODAY’S GUIDANCE: Wheat shows no sign of pausing as fund buying, export demand and the improved competitive position of US wheat on the world market all provide support. Of course, the main factor in wheat is crop weather which could bring further downward revisions in Canada and Russia. First support in the December contract remains at 5.96 1/2 and then at 5.88 1/4. Next resistance is at 6.35 to 6.40.

This content originated from - The Hightower Report.

While the domestic demand outlook for the beef sector has been flat, export business is looking strong, and that has allowed cattle to resume its bullish posture. Supportive psychological factors, namely stronger equity market action and a weaker dollar, have been backed up by some bullish fundamental data. Monthly export data from May gave the market its initial lift yesterday, and August live cattle traded to their highest level since May 13th after breaking out above the recent highs. The USDA reported US exports of beef and veal in May at 203.6 million pounds, up from 177.20 million in April and 160.5 million a year ago. The market was also helped later in the session by reports of surprisingly strong cash cattle sales in Texas and Oklahoma, where they traded at $94, up from $91.50-92 the previous week. This occurred despite a lower trend in cutout values from the previous week. Yesterday the boxed beef cutout was down 14 cents at mid-session and closed 48 cents lower at $153.98. This was also down from $155.62 the prior week and the lowest it has been since June 18th. The estimated cattle slaughter came in at 131,000 head yesterday. This brings the total for the week so far to 392,000 head, up from 373,000 a year ago. A heat wave that is moving into the central part of the US has been a bearish demand concern, but the stronger outside markets and now bullish fundamental data have overcome that factor. With some weather forecasters calling for this pattern to extend well into August, the demand issue could resurface at some point.

TODAY’S GUIDANCE: With yesterday’s rally August live cattle have achieved a key retracement off of the May-June break, and holding these levels could possibly set the market up for a move back to the June highs up around 95.50. A previous resistance level at 92.35 becomes support. Next resistance comes in at 93.30 and 94.275.

This content originated from - The Hightower Report.

The USDA will issue its July Supply/Demand report on Friday, just after this writing and the report is likely to show a tight ending stocks forecast for the end of the 2009/10 season which would lead to smaller beginning stocks for the upcoming crop season. In the process of pricing in both a near-perfect start to the crop season and improving crop conditions in May and June, December 2010 corn pushed to a life-of-contract low ahead of the key USDA reports on June 30th.

The USDA Planted Acreage and June 1st Grain Stocks reports were considered very bullish, and prices have already jumped as much as 13.5% in just 4 trading sessions. This suggests that a major low could be in place. The corn market seems to be in a position to move higher over the near-term, and it seems to have some of the key characteristics to attract interest from large money managers and fund traders as a “buy and hold” commodity.

Planted acreage was revised lower to 87.87 million acres, as compared with 88.8 million acres on the March report and expectations of a 400,000 to 600,000 acre increase from that March forecast. This was below the low end of the range of trade expectations. June 1st stocks came in at 4.31 billion bushels, which was roughly 290 million bushels below trade expectations. The stocks number implies much better than expected demand for corn during the past quarter, and this suggests another significant revision lower for 2009/10 ending stocks. In the long run, the 2009 crop was probably overestimated. However, there is still talk that the lower quality of the 2009 crop meant that it took more corn to produce the same amount of ethanol and to feed animals to the same weight. With lower beginning stocks and lower plantings for the 2010/11 season, the ending stocks forecast is likely to tighten.

However, yield is also likely to be revised higher. Even if we revise yield to a record 168 bu/acre, when we plug both the lower beginning stocks and lower acreage numbers, ending stocks come in at just 1.526 billion bushels. If yield is a lesser record at 166 bu/acre, ending stocks slip to 1.365 billion bushels with a tight 10.2% stocks/usage. If we see late season heat and some dryness from mid-July through mid-August, some of the later planted corn crop could see unfavorable conditions for pollination and this could clip yield enough to cause a significant tightness in the corn supply outlook. The development of above normal heat recently, with more heat expected in the long term forecast, may trim yield forecasts as this is occurring as the corn crop starts to pollinate in key growing areas.

Nighttime lows will also be watched closely. If they remain above 80 degrees, this can seriously hamper the pollination process. Traders noted that plant populations have increased in corn fields in recent years and that this increased concentration of vegetation raises the temperature in corn field above that of the surrounding air. This could cause added stress and lessen the ability of the crop to cool down at night which is necessary for an optimal pollination. For example, if actual average yield comes in at 161 bushels/acre, still the second highest on record, ending stocks slip under 1 billion bushels and stocks/usage drops to just 7.2%. Stocks/usage has been under 10% only two other times since 1973 and this would suggest a December corn price of near 5.25 to 5.65 into late August.

Crop conditions have deteriorated in the past two weeks due to too much rain, especially in Iowa. The good-to-excellent corn rating dropped to 71% as of July 4th versus 73% the previous week and 75% two weeks earlier. However, Iowa conditions fell to 65% from 72% last week and this is a growing concern for the market. However, pollination weather looks near ideal for the corn crop until or unless extreme heat moves back over the Midwest for the July 17th to 24th timeframe. Many weather models are showing this feature and this could clip the yields for some of the late planted crop. Silking stands at 19% as of July 4th, well ahead of last year’s 8% at this point. This is also ahead of the 5-year average of 12%. Silking is the best indicator of the start of pollination although the corn plant starts to shed pollen slightly before silking and it continues to shed pollen for several days thereafter. Weather conditions are critical during this period since the plant will not shed its pollen if conditions are wet or too hot. The reason that pollination is critical is that each silk that is pollinated produces a kernel on the ear of corn. If there is uneven pollination, there will be fewer kernels which means fewer bushels per acre regardless of how favorable late season weather may be.

The Commitments-of-Traders report for the week ending June 29th showed heavy net selling by funds. Trend-following (managed) funds were net sellers of a whopping 50,221 contracts to switch their net position back to the short side at 39,426 contracts. The reporting period ended on the day that the December contract posted its recent low at 343 1/4, just ahead of lthe USDA’s Acreage and Quarterly Stocks reports. Therefore, trend-following funds may have gotten themselves trapped on the short side ahead of the USDA’s reports, and that could provide a foundation for significant fund buying ahead if weather is even mildly stressful and prices continue to advance. For example, if trend-following funds simply return to the 4-year mid point of their position in corn, this would be a switch from the current net short position of near 40,000 contracts to a net long of 120,000 to 160,000 contracts.

Other factors which could support the corn market in coming weeks are the China production outlook and the recent collapse in the US dollar. If the dollar sees increased pressure ahead, commodity markets in general could be well supported. Major corn growing areas in North East China have received substantial rain over the past weekend but conditions are still looking variable depending on location. Parts of the north China Plains are still showing excessive heat. If China’s crop comes in smaller than expected, imports could be significant. The rains were very welcome as dry conditions and above normal temperatures in that region in recent weeks had raised fears of a drought. Some areas are still seeing temperatures of 95 to 105 degrees in the China plains which may impact yield.

Keep in mind, a near record yield of 164 bushels per acre will leave the stocks/usage at only 9%, the second tightest since 1973 and a level which might spark aggressive pricing from end users.

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This content originated from - The Hightower Report.