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Closing Comments

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Closing Comments

Corn showed indecision today ahead of the USDA report tomorrow, wrapping up the session + ½ at 3.66 ½ (July) and + ¾ at 3.85 (Dec).  Yesterday’s USDA Crop Progress report showed corn planting at 47% complete compared to 34% last week and 52% on average year-to-date. This was slightly above trade expectations of 44%. While weather has provided significant precipitation in areas of the eastern Corn Belt, the market has shrugged it off. However, the longer term forecast shows the possibility of another round of storms. Even though planting will get done, the season is off to a poor start and it is hard to envision yields above trend. Managed funds are still positioned very short, and it may be difficult to keep a bearish trend going, with the May WASDE report on tap tomorrow.  With May prices at the lowest level in five years, it would not take much to start a rally if there is any hint of ideas of a reduction in U.S. supplies.

 

Soybeans had a Turnaround Tuesday, with July +9 ¼ at 9.74 and November +6 ¼ at 9.67 ½. The USDA Crop Progress report yesterday showed soybeans to be 14% planted, below expectations of 16% and the average year-to-date of 17%. Soybean stocks are at record levels, but this is balanced by the large growth in global and Chinese demand as well as potential in the U.S. biodiesel market for soyoil growth.  This stems in part from the recent decision by the Commerce Commission against Argentina and Indonesia’s dumping of biodiesel into the U.S. What does this mean? There will be tariffs enacted of up to 25% (may not be levied for several months) and tougher restrictions on imports which will increase domestic demand substantially.

 

Wheat did not have many buyers stepping forward today ahead of the WASDE report tomorrow: Chicago SRW -4, Kansas City HRW -5 ½, and Minneapolis HRS -3 ¾. Japan is putting in an order for a mix of world wheats totaling 138,188 MT, which will be composed of 31,560 Australian white wheat, 30,271 MT of Canadian red spring, and the rest from the U.S. (31,360 MT DNS wheat, 25,490 MT HRW and 19,507 MT white wheat). The Chinese government sold 341,838 MT of state held wheat reserves to the market out of a total of 2.733 MMT that they are offering for sale. Keep an eye on evidence of disease issues emerging from the excessive wet weather that has plagued the Plains. Funds have continued to sell wheat, but this has only increased their exposure if there is a reason for short covering, which could result from several emerging factors including: fewest U.S. wheat acres planted since 1908, Australian production down to around 24 MMT from 36 MMT, dryness in Europe, potential widespread damage in the western Plains from snow and sub-freezing temps.  Stay tuned.

 

Live Cattle prodded investor optimism with an early spike, but fell hard later in the session, as June futures ended –2.800 at 124.975.  Feeders were limit down across the board. Fundamentals would suggest that it may not be the best time to short cattle as the CME group economists are saying that cattle-on-feed 120 days and longer (in April) were at their lowest levels in a decade.  Also, the blizzard out west took a toll with death loss.  Packer margins are positive, and there is not an incentive for them to cut back their kill rate. There may still be potential for new highs.

 

Hogs saw some buying exhaustion today, trading both sides of unchanged and finishing flat (June). Mexico has helped to prop up the ham market, as their exports were up 29% in the first quarter. And, South Korea imports of U.S. pork were up 31%. The market is overbought with a large premium on futures vs. the cash index. Although demand has been good, supply is also abundant, and buyers may want to proceed cautiously as technically the market is due for a correction.

 

USDA Crop Production Report will be released tomorrow at 11am CDT.

 

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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