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10 Dec 2024
Agriculture, CME, Corn, Education, Futures, Grain, Hedging, Market Commentary, Market Updates, Research, Risk Management, Soybeans, Weather, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: NOVEMBER 18 – DECEMBER 10

Corn has had a good month but needs some more help to get over the $4.50 hump that it bumped against after Tuesday’s Dec USDA report. The bullish trade leading into the report was hoping the USDA would find better numbers for ethanol and US exports, but they underestimated the demand numbers with the US ending stocks coming in 168 million bushels below estimates for US stocks. World stocks were also lower by 268 million bushels. While these stocks numbers are still very strong, they have tightened enough to raise the floor for the meantime while corn could trade between $4.30-$4.55 heading into the new year.

Via Barchart

Soybeans’ last few weeks of trade between $9.80 and $10 has not provided much bullish optimism. There were no surprises in the Dec USDA report as large South American crop expectations and the US bean carryout doubling from 2023 are still bearish influences. Soybeans have a tough road ahead as South America is on pace to produce another record crop, and the incoming administration will likely not be biofuel friendly in the US. With all the recent investments in biodiesel and sustainable aviation fuel, there is a cloud that hangs over those areas that we are not sure if it is nothing and will blow over or a storm that may linger.

Via Barchart

Equity Markets

The equity markets have continued higher with some recent weaknesses in the largest stocks while strength in the market has broadened. Analysts are beginning to release their outlooks for 2025, while plenty still feel good about the market do not expect another year of 20+% returns like we saw in ’23 and ’24 (so far) after the down year in ’22.

Via Barchart

Other News

  • The Assad regime in Syria is over. Israel and Hamas appear close to reaching a temporary ceasefire. The fallout of both will be watched by energy markets as many questions will emerge in the region.
  • There was a slight cut to US wheat stocks, but world stocks are as expected, and comfortable as low Russian cash prices continue to reflect their ample supplies.

 

Drought Monitor

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

 

25 Nov 2024
Agriculture, CME, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: Coming into the week we were expecting a sloppy trade

Recap:

Coming into the week we were expecting a sloppy trade. With a later Thanksgiving and the recent run up, a technical correction was not out of the question. The problem is that lumber futures have a tendency of unwinding gains in a hurry. That’s what we saw in January futures from Wednesday on. There was no change in market conditions to warrant a rollover so what caused the steep selloff?

The lumber market has changed. There will be times of tightness exclusively caused by supply reductions. JIT from here on out will keep you undersupplied in a trending higher market. That said, the standard operating procedure will remain the same in 2025 with the boss calling for no losses on excess inventories. That’s a receipt for price spikes. Most will agree that it will be harder to buy something in a rallying market. What holds many back is the fact that once the cycle is over there is no support. That is what we are experiencing now. The futures market can settle back towards its original value. With the cash and futures prices so close, I would not expect the futures to return to 560. The discovery period of the next level should be higher. The issue I see is that there are about 15 trading sessions left between now and the new year to gain some momentum. It might be the algo/fund buying or the cash trade picking up again. This is a tough environment for price discovery. Buy the mistake.

Technical:

The market was able to fall to the 595.15 retracement point. The major support point is the 50% mark at 586.25. The RSI is 44.50% and the stochastics are heading lower. Both indicate a market that had pressed higher than value and now is giving it back. If this was a court of law a new precedent of 623.50 is on the books. The 200-day moving average is 566.70.

The key takeaway is how to trade the basis. There needs to be a recalibration of the model. $40 or $50 basis is still great. The issue is when. The first spike could be followed by another so now you are managing the futures. It looks like the trade switch could be one that the trade makes money on the cash side now. All these are signs of a change in trend. We are still in a sideways market. The trend is only a minor factor in the overall trade. If you have too much wood, hedge it.

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

The Commitment of Traders:

https://www.cftc.gov/dea/futures/other_lf.htm

About the Leonard Report:
The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors. 

Brian Leonard

[email protected]

312-761-2636

11 Nov 2024
Agriculture, CME, Futures, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: New highs going into NAWLA?

Recap:

New highs going into NAWLA? Now that is different. I think it also shows how this market has been turning early for months now. This lack of supply followed by a lack of demand cycle has kept the buy side off balance. The data indicates that the demand pattern, while not busy, is coming in more often. Buyers are used to a longer lag between buys so are not ready for the next one so soon. There is also an effect on the production side as they drop prices more aggressively looking for a longer lag. I can see the mills taking a more wait and see approach as the buy side stays in. This is all predicated on a bottom for this to be correct.

I made a call for $600 in the July contract back in April. I was surprised on how long the mills would lose money. The windfall from the last few years certainly allowed for some patience. They also have a good understanding of the cycles. This is one that has to play out. Profitability is getting close. My point is there is a lot of unspent capital out there. There is a lot of dry powdered out there. And the economy is good. Not bad for housing.

This is not going to be an easy ride. There just will be less overall pressure. As we speak, they are backing up the Queen Mary to Cape in Florida. The eastern guys have already turned it up. Supply increasing is the biggest headwind to the market. It is no longer rates. The trade is conditioned to back away at any sign of extra supply. When the wholesale community is in the middle there is this false sense of extra wood available. As I said, it’s not going to be and easy ride from here, but it is better. If the mills start to hedge they will keep the market tight.

Technical:

Going back to what was said above, the market this time did not correlated to the norm. The July to Sept run up, followed by the October lows never materialized. This year the market slowed into September only to walk itself up. The technical picture had turned neutral from negative. That wasn’t enough to buy the market but indicated a change. My point is that all three turns in the technicals to become a trade may not work here. There are times where a lag skews the osculators. This was one. If that remains the case, it indicates some downside in front of us in futures, but just enough to get the tech pic neutral. It continues to lean towards hedging. That hasn’t changed.

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

The Commitment of Traders:

https://www.cftc.gov/dea/futures/other_lf.htm

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Brian Leonard

[email protected]

312-761-2636

28 Oct 2024
Agriculture, CME, Education, Futures, Hedging, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: Lumber is a very complicated commodity

Recap:

Lumber is a very complicated commodity with the most moving parts of any I have dealt with. That said, it is a commodity and commodities trade value. Lumber is only $20 either side of a trade and can’t get there. If you look at a weekly chart you’ll need a microscope to see the trading ranges for the last 5 weeks. Someone said last week that this market is coiling ready itself for a blowup. I said the same thing 12 months ago. I’m hoping he is closer to right than I was. My point is that the market is draining all the excesses caused by Covid a few ounces at a time. The shutdowns just aren’t showing up in a way that can cause a panic. It looks like more of the same.

A few recap points.

A mill reported a 3rd quarter loss last week. Let’s take a step back. Futures contracts are designed to protect the producer in a falling market. Mills presences will actually put a floor in prices. We have little mill participation today. I’m hoping they take a deeper look into the financial design of futures.

All week I heard complaints about certain items not being available. It is not a free-flowing cash market out there. Now, yes, there are some cheap and available items, but for a flat market things are getting tight. Unless it’s a basis trade, this is a tough place to sell futures. The funds are rolling and exiting. The report this week is up to Tuesday, so it missed the 3 strongest days for the week. It all comes down to momentum. Outside money creates momentum in the lumber futures market. Shutdowns, fires, and strikes all have a very limited effect. The algo and the funds are today’s day-to-day drivers. The lack of that push keeps us flat. Now, it may be defined as flat, but I wouldn’t be short.

Technically, we are married to trying to push to a new high in futures. Cash hasn’t recently allowed it but that too is moving up. In November the last high was 538.00. Today, its 200-day moving average sits at 554.07.

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

The Commitment of Traders:

https://www.cftc.gov/dea/futures/other_lf.htm

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Brian Leonard

[email protected]

312-761-2636

30 Sep 2024
Agriculture, CME, Futures, Hedging rcmagserv 0 comment

LEONARD LUMBER REPORT: Data is starting to confirm a change in market dynamics

Recap:

Data is starting to confirm a change in market dynamics. The funds exited 1000 shorts from Tuesday to Tuesday, leaving them with 3500 pre-roll. The Oct 1st. mark tends to be the start of the funds cleaning their positions by year-end. The futures focus is always on the funds and algos as they drive our market. They will rally it further than warranted and drive it lower than the actual market. It does it in all commodities markets. They tend to create a speculative value outside the bounds of the fundamentals. We have seen a few highs and lows recently that confirm it. Two rolls are coming up with the fund-type side, but the decrease in the position on the short side and the decrease in open interest tells me that the fundamentals should become the focus of value. Maybe lower rates and less production will become the focus?

Technical:

Today, we have the strongest tech read in many months. It shows trends and support. The moving averages are stacked up from 520 down to 515. This is major support. The slow stochastics turned up ten sessions ago, and the MACD turned up six sessions ago. This change in momentum is hard to reverse. Should we correct rallies? Yes, but it is still pointing higher.

The change is finding support as the market goes lower. It doesn’t indicate new highs. It will still be a slug. The SYP factor today looks very similar to the Euro factor last year. The cheapness and overabundance keep the buyers out. You want to rattle the cage, show an increase in demand.

 

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

The Commitment of Traders:

https://www.cftc.gov/dea/futures/other_lf.htm

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Brian Leonard

[email protected]

312-761-2636

16 Sep 2024
Agriculture, CME, Futures, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: September futures settled at $20 under print, the first recorded discounted expiration in almost 12 months

Recap:

September futures settled at $20 under print, the first recorded discounted expiration in almost 12 months. Was it a one-off trade or a change in market dynamics? It’s too early to tell, but we must remember that it doesn’t necessarily indicate a bull or bear market, only a change. If it holds, it is a shift from basis trading strategies to forward pricing. I don’t expect to see much forward selling from the industry. They didn’t touch the basis, so why do forwards? I expect the industry to continue to trade extremely guarded through the end of the year. We saw an almost 30% reduction in the commercial short position after the Canfor announcement. That massive bail is a result of the guardedness of the trade. Most took hedges off above $520 and are naked under $500. Is this a dynamic shift or a fluke?

Production is getting cut. When will the supply cut be a factor? Someday, but not tomorrow? The struggle now is to continue to navigate a balanced marketplace. Can value be brought back into play in housing after a few rate cuts and increasing existing home supplies? We are starting that process based on the futures trade, but it could take another year. If you look back, in 2012, there was a fear of a fiber shortage that shot prices higher. It took five years to get our next spike to new highs in 2017. And finally, our covid 2021 debacle. My point is it takes years to create the undersupplied pocket. If we are there, our lows will be higher and highs sharply higher. Today, all the pressure is from the funds or the algo selling. That’s where the work needs to be done. The mills should start with the funds if they want to curtail something.

Technical:

The November contract low is 473.00. September’s low was 455, and July’s was 418. The market is already stair-stepping higher, making these lows significant points. As we head into October and the traditional lows, 473 is key. A trade under 473 indicates a more aggressive fund-selling program, knocking all fundamentals out of the equation.

The technical picture is negative for the short term. To change the trend, we need to reach an oversold condition. The problem with the RSI today is that it holds long-term bearish divergence. It remains high every time the market breaks. Walk that down into the low 20s, and the momentum can change. I could bring in almost every other oscillator and show the same results. The selloffs are not hurting the market.

The key upside point is 518. This area has been key for months and could be the top for now. The computers will target the low of 473. It could be a $10 market until the next announcement comes out.

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

The Commitment of Traders:

https://www.cftc.gov/dea/futures/other_lf.htm

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Brian Leonard

[email protected]

312-761-2636

12 Sep 2024
Agriculture, CME, Corn, Futures, Grain, Hedging, Market Commentary, Market Updates, Other News, Research, Risk Management, Soybeans, USDA Report, Weekly Prices, Wheat rcmagserv 0 comment

AG MARKET UPDATE: AUGUST 26 – SEPTEMBER 12

Corn has gotten back above $4.00 in a struggling market that needs good news to propel it back to the mid $4s. The USDA raised US corn yield to 183.6 bu/ac up from 183.1 bu/ac in last month’s report. In the USDA’s eyes the crop is getting bigger as struggling areas will be more than made up for by the best areas across the corn belt. Despite the higher US yield numbers, the corn trade following the report was welcome to see as it did not move much lower on larger numbers. If corn can bounce off or hold this $4 level then we can probably expect it to hang around here as planting gets rolling until we know what is actually in the field and if the numbers are closer to 180 or 183.6.

Via Barchart

Soybeans have seen a nice 50+ cent rally off recent lows with dryness in areas causing a little concern with pod fill and some pickup in demand. The USDA kept yield the same at 53.2 bu/ac as they agree with Pro Farmer tour that a massive crop is out there. Like corn, this recent bounce off lows is encouraging but may setup a range bound trade until harvest gets rolling and we have a better idea on the true yield. The USDA did slightly lower US ending stocks in both 23/24 and 24/25. Continued exports and any issues to South American planting are needed to drive beans higher in the current market.

Via Barchart

Equity Markets

The equity markets have been on a bit of a roller coaster lately with the tech/semiconductor trade having quite a bit of volatility while some rotation occurs with the Fed rate cuts expected to begin this month.

Via Barchart

Other News

  • The market is expecting a 25 basis point cut to the Fed Funds rate this month

Wheat

  • Wheat has been the one positive market lately, hitting new 2-month highs. The war in Ukraine and Russia continues to escalate and the market has responded accordingly. The USDA did not make any major changes in the report.

Drought Monitor

Via Barchart.com

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

 

26 Aug 2024
Agriculture, CME, Futures, Hedging, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: As much as we all want to discuss the rail issue, we should take a step back and look at the market

Recap:
As much as we all want to discuss the rail issue, we should take a step back and look at the market. The cash market is up $75 from reported lows in a few weeks. That strength has pulled futures higher and also narrowed the premium. Two weeks ago, there was an uptick in cash interest. This past week saw digestion. That is very efficient. Last week’s futures trade was anything but efficient. There were wide swings from rail news and algo selling. The roll held it up while the computer sold. The futures are signaling an ending cash buy round. That remains to be seen.

It looks like the Teamsters were blindsided by the Minister’s next-day order to return to work, so they decided to serve 72 hours’ notice and sue the Minister. Welcome to Chicago. This back and forth has drained some of the momentum/panic out of the situation. This could lead to another week of digestion on the cash side and more $20 moves back and forth in futures.

I’m not a fan of shorting a commodity priced below the cost of production. While the cash market has robustly rallied, most mills are still underwater. While waiting for the reduced supply equation to hit the market finally, we may have to suffer the testing of lows a few times. Lumber 101, prepare for the worst, and hope for the best.

Technical:

The momentum couldn’t carry futures to new highs last week. The market hit an artificial wall in the high 530’s. It’s considered artificial because of the aggressive selling shown by the industry over 540. That doesn’t top the market but shows the growing inventory lists. It’s interesting how moving averages on the chart and inventories tend to match up over time. A slow Monday will allow the algo to shove Sept under $500. They’ll take one more shot at forcing the spec longs out before the labor news heats up again. This week, it may be more prudent to play the news cycles than the technical points…

 

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

The Commitment of Traders:

https://www.cftc.gov/dea/futures/other_lf.htm

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Brian Leonard

[email protected]

312-761-2636

22 Jul 2024
Agriculture, CME, Futures, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: To keep it simple the sharp selloff on Monday rattled some cages and woke up a marketplace

Recap:

To keep it simple the sharp selloff on Monday rattled some cages and woke up a marketplace. All of a sudden, the trade looked up and saw low inventories with a cash market very close to $300. The round of cash was enough to bring in short covering in futures. To sum it up we finally are getting a cash buy. The question now is it one of the new 2024 tepid buys or a good old fashion fill in?

Early in the year, we expected shutdowns, fires, or rail to hold prices up. Most of those factors are still here. As a matter of fact, we are in the thick of the shutdowns, so that can become a feature. Nothing has changed with demand. We had run inventories to very low levels with fall coming soon. The market bottomed out in cash, and if it is going to go much higher, the futures have to become the driver.

Some could buy early in the week and sell most of it by Friday. The next buy will be higher, so they have to decide on building inventory. With the futures at such a premium, there is a way to protect it, but for now, buyers want to book a few profitable cars, noting that it’s been a few months. Market psychology always has the last word.

A higher futures trade will bring in more cash buying. The focus from here will be on the ability to manage the risk of the next cash buy. I bet everyone is putting the futures app back on their phones this weekend.

Technical:

The futures offer two major focal points. The first is a bottoming of the market with real upside potential. I’ll add to that in a moment. The other fact is that July futures expired at 418.50. With all the headwinds facing the economy and this industry, you can’t call it a low. But today, we are.

I have talked about the noise above the market for months now. Last week’s action tells me that the market can grind through those areas. The problem with the grind is that you have to deal with more fund selling each day. The data shows that it would take a trade over $518 to slow or stop that. A close over it gains momentum to the $528 area. The next level is $550. I’m not calling for anything like that, but if you are short and sitting on your hands, pay attention.

The gap left Tuesday adds a little “generative” confidence to futures. This rally was needed. It’s healthy and should stay intact until the funds say that’s enough.

14 Jun 2024
Agriculture, CME, Corn, Cotton, Futures, Grain, Hedging, Market Commentary, Market Updates, Research, Risk Management, Soybeans, USDA Report, Weather, Weekly Prices, Wheat rcmagserv 0 comment

AG MARKET UPDATE: MAY 31 – JUNE 14

Corn’s small 18 cent rally off recent lows for new crop corn has been very welcome after 6 down days in a 7-day period to end May and start June. This week’s USDA Report was a non-event with the USDA making no changes to South Americas production from last month despite the trade expecting production well below the USDA’s estimate of 175 mmt (171.82 estimated). CONAB released their estimates on Thursday, increasing their estimates for Brazil’s corn crop but still 310 million bushels below what the USDA is saying. The heat over the next couple of weeks is not expected to be a major problem but if this level of heat with a lack of rain goes into July the markets would take notice and begin to worry a bit.

Via Barchart

Beans are lower over the last 2 weeks with them settling into a flat trade this week. The USDA report was uneventful despite the USDA cutting another 1 mmt from Brazil’s bean crop. US exports were revised lower and ending stocks rose as the slow pace of exports continued. With no major surprises and no major weather/production issues yet there is not much bullish news outside of CONAB’s Brazil production estimate which is 207 million bushels below this week’s USDA update.

Via Barchart

Equity Markets

The S&P 500 and NASQDAQ continue to move higher setting new all-time highs as several large tech companies beat on earnings. The AI movement is continuing its dominance, but some other areas are starting to find strength as funds are forced to reposition.

Via Barchart

Other News

  • The cotton market continues lower as there is nothing bullish in the news cycle for it other than the potential for up to 25 named hurricanes this year.
  • Wheat’s roller coaster ride continues with potential for lower Black Sea production still a possibility after the $1.50+ rally follows by a $1 fall with 10 down days in a row.

Drought Monitor

Via Barchart.com

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

 

Disclaimer

RCM Ag Services is a registered DBA of Reliance Capital Markets II LLC. Trading futures, options on futures, and retail off-exchange foreign currency transactions are complex and involve substantial risk of loss and are not suitable for all investors. Loss-limiting strategies such as stop loss orders may not be effective because market conditions or technological issues may make it impossible to execute such orders. Likewise, strategies using combinations of options and/or futures positions such as “spread” or “straddle” trades may be just as risky as simple long and short positions. There are no guarantees of profit. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. You may lose all or more than your initial investment. You should not rely on any of the information herein as a substitute for the exercise of your own skill and judgment in making such a decision on the appropriateness of such investments. Opinions, market data and recommendations are subject to change without notice. Reliance Capital Markets II LLC shall not be held responsible for any actions taken based on this website or attached links. Parties acting on this electronic communication are responsible for their own actions. Past performance is not necessarily indicative of future results.