Afternoon Commentary, Jeopardy, and Things That Stink

• A lot of markets stunk Thursday, with the Energies sector led by a solid selloff in Crude Oil (both WTI and Brent). 

• Out in the Barn, aka the Livestock sectors, both cattle markets closed deep in the red. 

• In the Grains, heavy selling was seen in the Oilseeds sub-sector, led by a limit-down move in soybean oil. 

Session Summary: Imagine being a contestant on the television show Jeopardy, back in the day when the late, great Alex Trebek was the host, and one of the categories was Things That Stink. We can certainly use what we see in Thursday’s markets to provide correct answers in the form of questions. Let’s begin. “I’ll take Things that Stink for $200 Alex”, we’d say. Mr. Trebek would respond with, “You’ll know its nearby when you smell rotten eggs.” Our answer would of course be, “What is Crude Oil?” Correct, WTI (CLM25) slid as much as $2.68 overnight but had cut its loss to only $1.53 (2.4%) as of this writing. We would follow with, “The same category for $400, please.” Alex would say, “They bring to mind the phrase, ‘Blood and guts for miles around, and me without a spoon’^[i].” We would answer with, “What are the Cattle markets?” Correct again. Both live and feeder cattle had a slaughterhouse stench to them Thursday with contracts across the board posting solid double-digit losses. Leading the way was August feeders (GFQ25), falling as much as $6.875 (2.3%) before closing “only” $6.15 lower. However, it’s interesting to note both live and feeder markets saw some commercial support late in the day, as indicated by futures spreads. Additionally, lean hogs erased early losses and closed with triple-digit gains. 

Corn: “Things That Stink for $600, please.” Alex would read, “Fetid, like an algae covered swimming pool”. “What is the corn market?”, we would excitedly reply. Yes, King Corn needs to find some fresh, moving water to wash off some of the stink, particularly out in the new-crop market. Here we see September (ZCU25) closed 2.25 cents lower on trade volume of 75,000 contracts, December (ZCZ25) finished with a loss of 1.75 cents while registering 88,500 contracts changing hands, and March (ZCH26) was also 1.75 cents lower for the day while showing 22,200 contracts traded. It was that exciting. What stood out to me, if anything? After finding its way back above $4.40 at Wednesday’s close, Dec25 could not pull off a similar late rally Thursday. Dec hit a low of $4.3625, down 4.25 cents for the day, before inching higher to settle at $4.3875. What does this tell us? Not much, though the door remains open to a test of $4.30 over the coming days. Also, the September-December futures spread (see chart) posted a new low daily close of 13.75 cents and covered 44% calculated full commercial carry. This continues to tell us the commercial side is growing more comfortable with the idea of a larger early harvest. 

Soybeans: “Let’s keep going with Things That Stink for $800.” The clue is, “A rotten pile that works its way down as you clean out the bin, shutting off the flow to the auger.” I know this answer all too well, “What is an auger clogger, or the soybean market?” Yes. It usually meant crawling into the bowels of the bin with a long, metal rod, a shovel, and a bucket. Fun times. Bit I digress. The soybean market did indeed stink Thursday as July (ZSN25) fell as much as 31.75 cents before closing 26.5 cents lower while new-crop November (ZSX25) lost as much as 27.25 cents and finished 26.0 cents in the red. However, if we take a step back to get some fresh air, we see July is down only 0.5 cent on its weekly chart while November is still 4.75 cents to the green. What happened Thursday? There are a number of possibilities, from potential cancellations on the commercial side to buy orders being exhausted from noncommercial interests. The bottom line is Thursday could either be a typical Throwaway Day, or a key turning point for both old-crop and new-crop soybeans. It’s worth noting much of the pressure came from the limit down move in soybean oil (see chart).

Wheat: “I’ll close out the category Alex, Things That Stink for $1,000.” Our question in the form of an answer would be, “Like guests and fish, it could now start to stink after three days.” This one is too easy, as we buzz-in with James Holzhauer-like speed. “What is a Benjamin Franklin Fish Analogy in the Wheat sub-sector?” We did it my friends. We cleared the board. Thursday was indeed the third consecutive higher daily close for both winter wheat markets. Recall the last part of the Fish Analogy states, “against the trend”. Based on both markets still showing bearish fundamentals, the trend is still down. This sets the stage for what could be a fun Friday session, particularly if early trade sees July issues for both winter wheat markets extend recent gains. Will Watson be waiting to sell after covering short futures positions the past three days? Will commercial traders use this week’s rally as a selling opportunity? We’ll find out together as Friday unfolds. For the record, July HRW (KEN25) closed 5.25 cents higher while July SRW (ZWN25) was showing a gain of 8.0 cents. Trailing the pack at a distance we see July HRS (MWN25) finished 3.0 cents in the green. 

Now, on to Final Jeopardy. 
 

^[i] Growing up, my best friend’s dad had been in the army and would frequently say this to us.