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Closing Comments


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Closing Comments

LEAVE! was the vote out of the UK last night on their referendum on whether to remain in or leave the European Union. The results were a shock to the financial markets and sent the Pound falling and created a flight to quality for the dollar and gold. While not a direct impact on grain commodities, they were caught up in the ‘risk off’ attitude of the trade. The fear for Europe now is if this creates a “referendum effect” among other members of the EU. The vote led to Prime Minister stepping down from leadership of Britian’s conservative party.

Corn finished its worst weekly performance in three years on the improved short-term weather forecast that sent the long funds running for the door this week.  As the southern corn belt nears tasseling and pollination, the trade has taken a risk-off mentality on the outlook for a cooler next 10 days. However, the longer range post-July 4th outlooks continue to show above average temperatures which could bring risk premium back to the market. Next Thursday the USDA will provide their estimate of actual planted acres, the market participants are expecting a drop in corn acres of 800,000 acres compared to the March estimate – which was a 5.6 mln acre jump from the previous year. With the recent break and the relatively low expectation for acreage adjustment – a bearish surprise will be hard to muster from that report. In the meantime though the fund length could continue to add weight to the market so long as near-term weather looks cooperative. As of the week ending Tuesday, Managed Money unloaded -27k contracts of their net corn position – leaving them still net long 224,827 as of Tuesday. Since then they have been estimated sellers of 35,000 contracts since Tuesday’s report. From a technical standpoint, the last five days cleared through the 20 day and 50 day moving averages without hesitation – but today’s action was an encouraging comeback after trading down through the 100 day MA and a trendline but was able to close above both into the close, finishing today toward the upper end of the trading range.

Soybeans continued their decline, caught up in the Brexit commodity sell-off today despite the announcement of a sale of 411,000 mt of soybeans to ‘unknown’ destination. CFTC data showed funds somewhat paired back their long position for the week ending Tuesday, dropping -6k contracts to put them at a still large long position of over 200,000 net long.

Chicago Wheat finished admirably after early selling pressure from the commodity sell-off. Chicago actually was able to close green on selling exhaustion and the market finding itself in an oversold situation. Kansas City and Minneapolis both closed off their lows, but weren’t able to change color as KC is now trading back at 2006 levels on the large crop coming to market. Managed Money returned as sellers of Chicago wheat, adding 15k contracts to their net short position yielding a net short of -63,228 as of the end of Tuesday. Seasonal lows in wheat come the end of June / beginning of July and this could be the stab lower that helps to turn the wheat market.

Today’s Cattle on Feed report showed as of June 1 all cattle on feed at 102% of last year (trade estimate of 102), May placed 110% (trade estimate of 109.2%), May marketed 105% (trade estimate of 105%). US frozen beef stocks came in at 446.71 mln lbs for May 31 vs 453.10 on April 30.

Hog and Pig highlights were June 1 all Hogs 102% of a year ago (trade est of 100.8), breeding 101% (trade est of 100.4%), market 102% (trade est of 100.8%). Mar-May sow farrowings 101% of a year ago. US June 1 hog and pig inventory 68.381 mln head, the highest for the period since record keeping began in 1964. Cold storage saw total pork stocks at 612.715 mln lbs on May 31 vs 637.320 mln on April 30.

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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