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Closing Comments


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Closing Comments

Corn, after responding positively to the report yesterday, was back down for a reality check and moderate correction, -4 ½ at 3.69 ¼ (July) and –4 ¼ at 3.87 ¼ (Dec). The USDA weekly export sales were well below the expected 750K-1.1 MMT, at 277,700 MT (a marketing year low). This is 65% off of recent weekly sales, with buyers consisting of Japan, Mexico and a few others.  Regarding Brazil, CONAB upped their crop estimate to 92.8 MMT from April’s 91.5 MMT. Ethanol margins are also trending weak, at  breakeven or below. There were a few positives from the report yesterday, including the USDA giving their first 2017/18 U.S. corn carryout predication to be 2.11 billion bushels compared to 2.295 billion bushels last year. And, the biggest surprise was the initial estimate for world carryout in 2017/18, as it was lowered by 30 MMT to 195.3 MMT. The USDA also agreed with the March planting intention acres of 90.0 million and a trendline yield of 170.7 bpa (this would be the third highest ever). In order for the market to rally and to scare the shorts out of their positions, there must be information that leads them to believe that the trendline yield will not be achieved.  Until that happens, we are likely to continue in the current pattern.


Soybeans traded in a range, -4 at 9.66 ¼ (July) and –2 ¾ at 9.64 (Nov). Beans are looking at growing supplies, as the USDA estimated soybeans for the coming season at 48 bpa on 89.5 million acres, yielding 4.2 billion bushels. Soybeans were on the low end of weekly export sales expectations announced by the USDA, coming in at 381,400 MT vs. estimates of 350-700K MT. This is 20% above last week but slightly below the 4-week average. Customers included Japan, Bangladesh, the Netherlands, and China (for new crop). Soyoil and soymeal were also in good export standing, with soyoil at the top end of the 0-30K MT at 29K MT.  Soymeal was over the mid-point of the expected range of 30-225K MT at a respectable 137,100 MT. In South America, CONAB raised their soybean production projection for Brazil to 113 MMT, significantly higher than April’s 110.2 MMT. If growing season goes without a hitch, there is significant downside risk to consider for beans.


Wheat was able to distinguish itself today in the market with positive numbers across the board: Chicago SRW +2, Kansas City HRW +1 ½, and Minneapolis HRS +4 ¼. The USDA released numbers domestically that are anything but bearish, with an estimated production this season of 47.2 bpa on 46.1 million acres, with a total yield of 1.82 billion bushels. On the other hand, weekly export sales were nothing to brag about as the net 248K MT compared to the market’s expectation of 250-750K MT. While wheat has some story lines that could spur managed fund shorts into a flurry of short-covering if uncertainty and volatility were to occur, there is not enough negative news presently to spur much other than sideways action. Will damage in the western Plains change the picture of crop potential when known? In world wheat, Russia and Turkey were able to put aside their differences, as the Turkish economics minister said that imports from Russia were resuming this past Monday.


Live Cattle continued lower again today, -.275 at 123.925 (June). It has been quite a ride the last couple of weeks, as cattle futures posted one of the largest short-term price advances in modern history. Feeders were garnering upwards of $500 per head.  Producers are thankful to take advantage of it when they can.  Good demand and lower cattle weights have helped drive prices, but we are now seeing market corrections.


Hogs fell slightly in the June contract, -.150 to 77.050. Did the market move up too far and fast, with futures’ having such a large premium to cash? Technical indicators are showing the market is overbought and basis seems too wide.  But, a drop in weekly average weights have helped bring support along with good export demand. That being the case, some caution is in order until direction is clearer.


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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