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Closing Comments

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Closing Comments

 

Corn made modest gains after the bearish news from the USDA yesterday, +3 ½ at 3.60 ¾ (Sept) and +3 ¾ at 3.74 ¾ (Dec). Crop conditions, ear counts and ear weights are the metrics behind the August report. This is the second largest yield estimate published by the USDA. The difference being, 2014-2016 the crop conditions lined up with where we final yield ended up. Of the Big Four corn states, Illinois, Iowa and Nebraska, three were down from last year, while Minnesota was up. Nebraska is 17% behind G/E condition but 5 bpa higher in yield. That is a tough one to explain. The Southern states were almost all at double digit yield, but total production acres are down, a total of only over 5 million acres combined. This year shows a drastic difference in crop conditions, but a much higher yield. For instance, the other head-scratcher is the way ear weights were tabulated, seen as the 3rd highest of all time. Considering growing conditions thus far, ear weights should not be on par with 2014 and 2015. We are a week to 10 days from “game over” when it comes to making the corn crop at this point. The USDA has four more reports to whittle it down to 162-165 bpa (Sept, Oct, Nov, Jan), if this is the actual yield.

 

Soybeans also made modest gains today, +4 ¼ at 9.38 ¼ (Sept) and +4 ¾ at 9.45 (Nov). Crop conditions were down 14% across the country but yet the bushel/acre stat was pushed up to 49.5 by the USDA. The story from growers is that “if I get a rain” the pods are there and I will get a crop similar to last year, but without rain will probably be a yield in the 40’s. Dicamba continues to be the talk in the coffee shops, with neighborly relations being strained in some instances. It seems almost everyone has been affected in one way or another. But the negatives could be washed away with a 2” soaking rain across the country. Without it there has been too much damage to areas that has not healed up. The last several Augusts have played out cool and wet, which produced the records and allowed the genetics to really run to maximum yields. This August has been cool but rain has lacked in areas. For instance, in areas of Iowa, they received over 9” less than normal rainfall from May 1st to August 1st. Soybeans could be anywhere from 48-50 bpa or 43-45 bpa depending on weather. Every bushel we lose is 90 million bushels of carryout, so carryout could evaporate quickly, which in turn will be magnified in price. China did not waste time taking advantage of low U.S. prices, as the USDA reported a private sale of 120K MT of soybeans with half for 2016/17 and half for 2017/18.

 

Wheat saw continued unwinding of net long positions in the high protein variety. Minneapolis HRS -31 ½, Kansas City HRW -7, Chicago SRW –1 ¼ (Sept). The market was caught by surprise by the report as spring wheat did not see nearly the reduction expected. All U.S. wheat production was penciled in at 1.739 bbu while the trade was looking for 1.710 bbu. Distrust seems to be building with the USDA’s slow response to crop problems in the field. Additionally, U.S. 2017/18 ending stocks were lowered a mere 5 mbu while average expectations looked for a reduction of 30 mbu. Wheat is also very influenced by the international scene, and the bearish sentiment there. The USDA increased world carryout for 2016/17 from 256.43 MMT to 258.56 (this morning’s adjustment), and 2017/18 was the bigger surprise with a gain of over 4 MMT when trade was expecting a reduction. IKAR upped Russia’s wheat production estimate to 77-80 MMT from 74-77 MMT and SovEcon followed suit with a raised estimate of 77.9 MMT compared to 72.9 MMT, while the USDA offered 77.5 MMT. This neutralizes negative numbers from Australia, Canada, parts of Europe, etc. due to dryness issues.

 

Live Cattle corrected from yesterday’s long liquidation selling for gains today, +.875 at 109.725 (Aug) and +.800 at 107.400 (Oct). Steer and heifer weights continue to rise, coming into closer alignment with last year. Cheaper feed from the fall in grain markets should help to spur higher weights in the weeks ahead. Beef production is also up 4.1% over last year.

 

Hogs trended higher today to finish the week, +.200 at 84.650 (Aug) and +.650 at 68.625 (Oct). With corn feed less expensive now, this may prompt growers to feed hogs out to higher weights, increasing the supply. Will exports remain strong enough to offset bearish supply numbers in the 3rd and 4th quarters? NAFTA talks have begun in Mexico with a lot riding on the line with America’s major trading partner – stay tuned.

 

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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