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Closing Comments

Corn is looking for the next threat but not seeing anything short-term, -3 ¼ at 3.67 ¾ (July) and –3 ½ at 3.85 ¼ (Dec). Weekly inspections were a bright spot, as the USDA announced 1.395 MMT for the week ending May 11th vs. expectations of 900K MT. The planting progress update at 3pm today is expected to show corn  65% complete vs. the five-year average of 71%. Farmers have been able to make up a lot of ground the last few days with pervasive sunshine and warm weather across the growing region. Informa just released an updated acreage estimate, penciling in corn at 89.7 million acres, which is about a million lower than their previous estimate and below the USDA’s 90.0 million acre prediction. China is offering to sell 5 MMT of corn from their government reserves, of which 4 MMT is from 2013. Mexico continues to indicate they will be taking more of their business south, as officials said they could buy as much as 3-5 MMT of corn from Brazil. Mexico’s total annual imports are 14 MMT and have traditionally been predominantly from the U.S. How much of this is posturing? Only time will tell, as they are serious about diversification but at the same time it is hard to justify moving away from the U.S. from a logistical standpoint.

 

Soybeans were caught between the push and pull of competing factors with less than flattering numbers from inspections and the NOPA report, and a rally in cash soyoil values, +2 ¼ at 9.65 ¼ (July) and +1 at 9.60 ¾ (Nov). Soyoil has been on the uptick due to strong demand stateside as well as the potential for more with looming tariffs on Indonesia and Argentina’s biodiesel imports. USDA weekly inspections were below expectations, coming in at 281,465 MT compared to ideas of 375K MT.  The NOPA crush report detailed the following: April 2017 Soybean crush 139.13 million bushels, below the expected 145.7 million bushels and the prior month’s 153.06; Soyoil stocks at 1.725 billion lbs vs. expectations of 1.78 billion lbs and prior month 1.815 billion lbs; soymeal exports were 595,468 MT vs. last month’s 1.056 MMT. In Brazil, Safras & Mercado upped their soybean production estimate to 113.4 MMT from 111.5 MMT.  Brazilian inventories have risen 29% over last year, and it is likely this will impact U.S. export levels in 2017/18, as Brazil will not hold inventories. Technically, the market has formed a bear flag formation – will the market break out to the downside? Fundamentally, factors are tending bearish, but beans do not always adhere to conventional wisdom.

 

Wheat was down sharply with no apparent fundamental reason other than drier and warmer weather over the weekend, which is helping recovery of stressed crops: Chicago SRW -9 ½, Kansas City HRW -10 ¾, and Minneapolis HRS -8 ½. However, disease pressure continues to be a concern, as more soaking rains are on the way for the Plains. Wheat conditions will be released later today, and the expectation is for a lowering of 1-3%. USDA weekly inspections were solid for beans, with an announced 691,226 MT for the week ending May 11th compared to estimates of 500K MT. While dryness has been a concern in Europe, things have gotten better for the French, as their crop conditions got a boost to 76% good/excellent compared to 75% last week. In comparison to last year, they are still well behind the 87% level. However, the UK crop is experiencing dryness that could result in a 10-20% reduction in yield depending on rain over the next couple months. Spring wheat acreage in the U.S. will down to 10.9 million acres according to Informa, which is 420K acres lower than their last estimate. The quality concerns still exist, but until combines start rolling, it will be hard to assess yield impact.

 

Live Cattle was down sharply today as indicators have turned south, -2.725 at 122.450 (June). Are we seeing the unwinding of spreads? The big news recently has related to exports, surrounding the  agreement between the U.S. and China with an implementation date of July 16th. The agreement will allow U.S. beef exports into China for the first time since 2003. Some details need to be worked out and there are questions – what grades they are looking for and what do they expect in return? There is a “wait and see” approach that is keeping optimism in check based on past history with China. However, this has the potential of being a $2B opportunity.  Keep an eye on this developing story as we move into mid-summer.

 

Hogs have been picking up positive momentum with indicators pointed upward. Futures look to be headed higher leading into Memorial Day weekend. However, today was a minor setback as June hogs followed the negative pull of cattle, -.700 at 77.250. Packer margins remain profitable at $21.63/head, and carcass values were up $1.44 (as of Friday afternoon). Futures continue to hold a significant premium to cash.  The market is overbought technically, so some caution is warranted.

 

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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