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Closing Comments

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Closing Comments

 

Corn was down overnight with forecasted rains materializing over a parched band in the west and headed towards the rest of the Corn Belt. The next two weeks has the potential to provide ideal grain fill conditions if rains are adequate. The question is how much irreversible damage has been done? The market held support in the 3.75 area and was able to stabilize, -1 ½ at 3.63 ½ (Sept) and -1 ¼ at 3.77 ¾ (Dec). USDA weekly export sales were under the expected range of 500K-900K MT, coming in at 475K (438,300 MT was for 2017/18). With Brazil’s bumper crop coming online, export sales are expected to take a hit this year. Analysts so far have given the following yield estimates: FC Stone 162.8 bpa, Ag Resource 165.9 bpa, and Informa 165.9 bpa. Based on corn’s recent trading, one may come to the conclusion that the market is trading around a 165+ bpa and ending stocks in the neighborhood of 2 billion bushels. All eyes are turning towards the next report on the 10th.

 

Soybeans have traders concerned and shedding length with thoughts of favorable forecasts and the looming August 10th USDA report. Soybeans were sharply lower overnight and continued that trend throughout the session as they filled the gap on the chart, -16 ¾ at 9.54 (Sept) and –17 at 9.60 ½ (Nov).  It is too premature to pencil in a low yield for beans as August weather forecasts are shaping up to be helpful to crops that got off to a poor start. China is creating mixed emotions as on the one hand it was reported that they are back looking for U.S. new crop beans, as the weak Dollar has brought the price down below Brazil. On the other hand, China is threatening to retaliate against U.S. soybeans (among other exports) in response to the U.S. if sanctions are enacted for intellectual property infringements. USDA weekly export sales tallied just over 600K MT, on the high end of expectations of 300K-750K MT. FC Stone predicts a yield of 47.7 bpa while Informa is at 47.3 bpa.

 

Wheat was not able to muster momentum today with a lack of positive news on the wires and a strong negative pull by soybeans. The wheat complex results included: Minneapolis HRS -9 ¾, Kansas City HRW -4 ¾, and Chicago SRW -3. The funds are very long in both KC and MN wheat, so liquidation is always a looming threat. The weak U.S. Dollar is providing a measure of support, and may help boost exports. Although, this was not reflected in the USDA weekly export sales report which showed net sales of 145,500 MT vs. estimates of 300K-500K MT. Earlier in the week, Turkey and Russia both upped their production estimates. The USDA report next Thursday will be pivotal to bringing clarity to global stocks and price direction.

 

Live Cattle was up led by the front month, +.700 at 115.225 (Aug) and +.150 at 114.825 (Oct). There has been more talk about the Japan tariff on U.S. frozen beef increasing from 38.5% to 50%. Frozen beef makes up about half of Japan’s U.S. beef imports (Japan is the U.S.’ top beef importer). They are exercising their right to enact “safeguard” tariffs when imports reach a level of 17% greater than the prior year. This is applicable to countries which do not have a trade agreement with Japan, which includes the U.S. since opting out of TPP. This tariff is not expected to have a large impact on U.S. exports as other countries have been providing growing demand, including South Korea and high hopes for future demand from China. It is a good reminder of the importance of trade agreements and keeping the U.S. Ag industry globally competitive.

 

Hogs rebounded after a large negative correction at the open to finish mixed, +.025 at 81.975 (Aug) and –.725 at 65.500 (Oct). Yesterday’s action featured aggressive buying as the market is oversold and there is a large futures discount to cash – over $21 compared to the five-year average of $15+. Cash and pork product prices are in decline, but at a much slower rate than the decline in futures.

 

Closing Market Snapshot  

 

All opinions expressed in this commentary are solely those of Water Street Advisory. This data and these comments are provided for information purposes only and are not intended to be used for specific trading strategies. Although all information is believed to be reliable, we cannot guarantee its accuracy or completeness. There is significant risk of loss involved in commodity futures and options trading and may not be suitable for all investors.

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