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Closing Comments

Corn responded bullishly to the USDA report today, +6 ¾ at 3.64 ¼ (May).  Today was one of the biggest USDA report days of the year, featuring duel announcements of acreage planting intentions and quarterly stockpiles.  The average prediction by analysts was 90.9 million planted acres for corn, however the announcement saw corn a million acres lower at 90 million (94 million were planted last year).  As expected, quarterly stocks were well above last year at 8.616 bbu (7.822 bbu LY) and above estimates of 8.534 bbu.  Of that amount, 4.91 bbu were stored on farms, which is up 13% over last year.  On the South American front, Informa Economics released their latest estimate and it showed Brazil’s production at 95 MMT (up from 91 MMT) and Argentina at 38.2 MMT (up from 35.2 MMT).  Now that we know the USDA acreage planting estimates, the main focus will be on weather.  What will be the long term impact of this report on the markets?

 

Soybeans could not stop the bleeding today, finishing -17 at 9.46 (May).  Many were expecting a bearish report, and the USDA confirmed suspicions with projected US planted acres rising to 89.5 million acres compared to expectations of 88.2, and stockpiles accumulating to 1.735 bbu compared to predictions of 1.684 bbu and 1.531 last year.  However, it is worth considering that the last 12 years in a row have seen the February daily average price eclipsed by the November contract in the time period of March 1 – September 30th.  For example last year the February price was $8.85, and the peak price later in the season rose to $11.86.  Different this year is the fact we started at a much higher February price ($10.19) and stockpiles are at record levels.  However, the unpredictability of beans and the underlying demand always seem to rise to the top and confound even the best analysts.  It is too early in the season to think that all is lost.  In South American news, Informa raised their forecast of Brazil’s soybean production to 111 MMT from 108 MMT and Argentina to 57.5 MMT from 55 MMT.  Brazil’s number continues to climb higher, and this is definitely having a profound influence on trade in addition to US numbers that came out today.  The closely watched corn/bean ratio is now 2.45 ¾, below 2.50 for the first time since last October.

 

Winter Wheat followed corn with a positive response to the report today, with Chicago +5 ½ and KC +3 ¼.  However, Minneapolis took it on the chin, -9.  Wheat planted acres were even lower than record low estimates of 46.1 million acres, at 46.06 million.  Stockpiles were slightly higher at 1.655 bbu vs. the expected 1.627 bbu and 1.372 bbu last year.  On-farm bushels were 9% higher this year than last at 350 mbu.  The drought monitor is looking more benign as the Southern Plains as well as many other dry areas received rains this week with more on the way.

 

Live Cattle made a nice comeback, finishing even at 110.875 in the June contract.  This in the face of declining wholesale beef prices and eroding packer profit margins.  Feeders showed a nice gain at 132.700, +1.275 (May).  On a side note that is positive to beef, McDonald’s announced that they will be converting to fresh beef patties for Quarter Pounders by mid-2018.  Consumers are demanding fresher and healthier options, and McDonald’s does not think this will have a big impact on the price of the burgers.

 

Hogs responded mildly bearish to the Hogs & Pigs report yesterday, with June ending -.400 at 73.850. To recap the report – all Hogs were at 104% to last year vs. estimates of 103.9% (this is record large for the quarter), March-May Farrowing at 101% vs. estimates of 101.8%, and Marketings of 104% vs. estimates of 104%.  Abundant supplies have limited gains, but demand has also been good.  Some traders cashed in their profits on short positions.  Average packer margins were down modestly from last week’s $20.20 to $19.75 and wholesale pork fell $1.04 to $75.18 per cwt.

 

In Other news, Sonny Perdue passed the first hurdle on his way to becoming the next Ag Secretary, as the Senate Ag Committee gave their approval and sent him on to the full Senate for a confirmation vote.  Next Thursday is Easter recess, so if he is not confirmed before then, the vote will be pushed out until the end of April.

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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