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Closing Comments

Wow, what a report day! The USDA came out with a national corn yield that was 4.5 bpa higher than the average trade guess and 7.1 bpa higher than the July estimate. Corn immediately traded 9 lower and beans just over 20 lower – however, the market ran out of sellers and Dec corn finished +1 ¼ higher and November soybeans only -2 ¼ lower!

According to the USDA, 16/17 corn production is forecast at 15.2 bln bu, up 11 percent from last year with an expected yield of 175.1 bpa – 6.7 bu higher than 2015 and 4.1 higher than the national record in 2014. Ending stocks for 15/16 were increased 5 mln on imports of organic corn being more than expected and a drop in ethanol use of 25 mln bu with an offsetting 25 mln increase in exports.

Total feed use for 16/17 is projected 300 mln bu higher at a record 14.5 bln bushels with feed up 175 mln and exports 125 higher as the competitive US position of corn price on the world market continues to drive demand. 16/17 corn ending stocks are expected to be the largest since 87/88 at 2.409 bln bushel but is still at 16.6% stocks to use ratio. Of note, the stocks to use ratio in 87/88 was over 50%!

Over on the “Fund Front”, CFTC data this afternoon showed Managed Money added another -32,645 to their net short position in corn as of the end of Tuesday. Taking them to a significantly short position of -137,077 net short contracts.  Interesting that in today’s trade funds were seen as net sellers of 7,000 contracts of corn, and yet we closed the market higher.

Of note in today’s data was the fact that the USDA is using an ear weight above any ear weight on record. Since they didn’t use the five year average, the apparently felt there was enough developed corn that they could figure in actual weights. Plant population came in below ’13, ’14 and ’15 – but ear weights were above all years including ’04, ’09 and ’14.

The large short fund position is now in a situation to defend their shorts or to exit now that we have taken out the 2014 low of 3.18 ¼ on the continuation chart. Considering the ear weigh calculations being used and the fact that this report is as of August 1, continued reports of “it’s good, just not quite as good as I thought it would be” filter into the market coupled with the stellar demand could send shorts covering – especially if wheat can find continued support. Look for corn range to be 3.00 to 3.80 the next few months.

USDA project soybean production at a record 4.06 bln bu, up 3 percent from last year. Based on August 1 conditions, yields are expected to average a record 48.9 bpa, up 0.9 bu from last year. The higher production was partially offset by a drop in beginning stocks of 95 mln thanks to an increase of 85 mln exports and an increase in crush of 10 mln. Anticipated ending stocks for 16/17 are projected at 330 mln bu, up 40 mln from last month.

CFTC data showed as of Tuesday, Managed Money in the week prior went back to adding to their long position. Tacking on 6,658 net long contracts, taking them to a net long of 112,995.

Soybeans will continue to be sensitive to weather the next four weeks as the current demand structure will require the projected record yields to be realized. Trade next week above 9.99 ¼ should give price support into the 10.20 to 10.50 November area.

USDA projects wheat ending stocks for 16/17 at 1.100 bln bu which is just below the July estimate. All wheat exports for 16/17 are projected 25 mln bu higher to 950 mln on expectations of improved competitive position of US supplies and the sharp reduction in EU wheat production.

Spring wheat production is forecast at 571 mln bu, up 4 percent from July 1 but down 5 percent from last year.

Globally the EU is projected to have the lowest yields since 12/13 and France specifically the worst in 30 years. This was balanced out by better yields in Russia, Ukraine, Kazakhstan, Australia and Canada. Global use is up 3.2 mln tons. With total use rising faster than supplies, world ending stocks are lowered 0.9 tons but remain record large.

Managed Money has finally started covering their wheat shorts. As of last Tuesday they were seen as unloading 10,403 contracts of their net short position, leaving them a still sizable net short of -118,655 contracts.

Cattle and feeders traded mixed today while October hogs were able to find price support. The USDA forecast the total red meat and poultry production for 2016 lower from last month as increased beef and turkey production is offset by lower pork and broiler production. Beef production is forecast higher on higher expected steer and heifer slaughter. However second qtr production is adjusted lower to reflect June production data. Pork production for 2016 is lowered on expectations of slightly lighter carcass weights for the remainder of the year. Production forecasts for 2017 red meat and poultry are raised as lower forecast feed prices are expected to encourage increased production.

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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