Grains and Oilseeds: The latest U.S. Department of Agriculture report prompted heavy long liquidation in soybeans, corn and wheat with July corn losing 6 1/2c to close at $5.81 per bushel, July wheat losing 4 1/4c to $5.97 per bushel and July soybeans losing 49 1/4c per bushel to close at $14.06. The U.S.D.A’s Thursday forecast is the first of the beginning of the growing season and could be affected by the outcome and certainly the weather. The affect on soybeans which had been our favorite in the group was to trade right through sell stops early in the week and prompted our move to the sidelines until the "smoke clears". However if the U.S.D.A is correct forecasting higher yields more than offsetting lower harvested acres, additional long liquidation could be in the offing. Soybean supplies are projected up 4% from 2011-2012. For now stay on the sidelines.
Meats: June cattle closed at $1.1515 per pound, down 70 points on continued long liquidation. Additions to feed lots and farmer intentions to increase herds weighing on prices. We could see further price moves to the $1.10 area but our expectation that herds will take longer to increase supplies, could support prices from here. Stay with call positions but do not suggest adding for now. Cattle have recovered since trading down to $1.11 area late April. July hogs closed at 85.15c per pound, up 3.75c on shortcovering after trading down to 83.75c during the week. We continue to favor the sidelines in hogs even as "barbecue" season is at hand.
Coffee, Cocoa and Sugar: July coffee closed at $1.7675 per pound, down 1.9c as prices remain in a tight range. The Brazilian 2012-2013 harvest is now starting and according to one source could reach 55.3 million 60- kilo bags, an increase over previous estimates. We like coffee but would only consider call purchases, not outrights. July cocoa closed at $2,308 per tonne, down $30 but for the week managed a 1.3% gain. Expectation of Ivory Coast farmers for a drop in output this year due to a lack of maintenance on plantations along with poor weather prompting new buying. Improved quality reported as the mid-crop harvest progresses could prompt some selling pressure. Stay long through call purchases. July sugar closed at 20.20c per pund down 25 points tied to large supplies and the dollar strength. Stay out for now.
Cotton: July cotton closed at 78.97c per pound, down 2.85c after touching the exchange limit down. U.S. farm officials forecast prices potentially falling to 65c per pound caused by the biggest inventories in history. However, expectations that world cotton output may decline by 7.7million bales in 2012-13 and lower harvest could challenge that forecast. China, the world’s biggest harvest, according to the U.S.D.A could drop substantially and provide support at current prices. The selloff from last years $2.27c per pound was overdone in our opinion, and result of the "rubber band" type reaction to those high prices. With expectation of increased world consumption by 3.3% we could see renewed interest by commodity funds. We continue to favor the long side of cotton.