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Closing Comments

 

Corn had a positive start to the week as traders were feeling uncertainty with mixed weather and the unknowns of the USDA report on Thursday, +5 ¾ at 3.72 ¼ (Sept) and +5 ¾ at 3.86 ¾ (Dec). Weekly inspections announced by the USDA did not disappoint, as they eclipsed estimates of 875K MT coming in at 979,006 MT. Additionally, the USDA reported a private sale of 180,800 MT of corn to Mexico for 2017/18. The big question of the week – which side of 165 bpa will the USDA put its flag in the ground on Thursday? This could have a big psychological impact on the market because of its potential impact on the overall carryout above or below 2 billion bushels. In the meantime, look for this afternoon’s Crop Progress report for any surprises, as the trade is expecting unchanged to a possible small improvement from last week. Other market factors to consider include the managed funds trimming back their corn position to an estimated 18,000 contracts long, corn shipments were up last week, as well as ethanol closing at the highest level in three months and maintaining good profitability. Corn is hardly in a state to become too bearish at this juncture.

 

Soybeans traded higher on weather uncertainty and balancing of positions in front of the USDA report on Thursday, +11 ¾ at 9.64 (Sept) and +13 at 9.69 ¾ (Nov). While cooler temps are buying plants time to recoup, if weather continues to stay dry out through the August 18th timeframe, crop conditions will deteriorate, with roots not getting adequate moisture. The USDA reported a private sale of 260K MT of soybeans to “unknown” for 2016/17. This on top of a strong showing on the weekly export inspection report, which showed beans were well over expectations of 450K MT at 685,697 MT. There are some concerns surrounding China and soybean demand as they have a backlog of cargos at their ports, resulting in them reselling at least eight of them. Their crush margins are also in the red, which is not helping the situation. With China being the largest global buyer of beans, any perceived slowdowns or threats of cancellations creates uncertainty and fear in the market. The Crop Conditions report this afternoon is expected to show possibly a one percent increase in good/excellent conditions.

 

Wheat does not have much in the way of news ahead of the USDA report later this week, but was able to find support in a weak Dollar and trader uncertainty. Minneapolis is back in the driver’s seat of the complex, and the USDA is expected to make some adjustments to its numbers on HRS. How will this be received by traders, and will there be any further surprises? The chart for MN is much stronger than for Chicago or KC, and if Minneapolis is able to move into new highs again, it is likely to pull the others along to some extent. Wheat also is intertwined with corn from the standpoint, that if the price differential drops below 75 cents, wheat can be substituted for feed. On the other hand, if wheat is able to rally, corn will certainly be influenced. Not to be outdone on the weekly export inspection rolls, wheat posted a solid 586,149 MT vs. estimates of 515K MT. Wheat exports have been a pleasant surprise this year and the trend is likely to continue with  less than stellar Australian, Canadian, Ukraine and Brazilian crops. Minneapolis HRS +10 ¼, Kansas City HRW +7 ¼ and Chicago SRW +8 ¾.

 

Live Cattle succumbed to bearish fundamentals of large supplies ahead, as big placements from earlier in the year are bringing reality to bear, -2.700 at 112.750 (Aug) and –2.975 at 111.125 (Oct). Potentially adding to supply is the cool weather and cheap feed in the plains, which could add to cattle weight. Cattle weights have been creeping up, but are still 13 lbs. behind last year. The cut-out made some nice gains as Choice was up $1.55 to $203.61 and Select was up 47 cents to $197.31.

 

Hogs have continued to rally in a bear market, with seasonal down trends looming in the background, +.175 at 83.400 (Aug) and +1.350 at 68.125 (Oct).  The pork cut-out lost more ground as it fell 98 cents, led by bellies. Through June, U.S. pork exports are up 13% over last year, with China continuing to decline while Mexico has become clearly the largest consumer of U.S. pork. In June, Mexico’s imports were up 18.3% while China was down -39.7%. Japan is the second largest importer of U.S. pork. The U.S. needs to shore up bilateral trade agreements with both countries in the near future to ensure long term sales.

 

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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