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Closing Comments

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Closing Comments

In Corn, the bulls and bears fought to a draw today (July futures flat), as planting progress of 71% complete exceeded expectations of 68% and was over the average year-to-date. The Western Corn Belt was responsible for most of the planting progress gains, as Iowa, Minnesota, the Dakotas, Wisconsin and Nebraska were able to kick it into gear this past week. West of the Mississippi River accounts for 60%+ of corn typically, so while the East is struggling, the yield may even out.  Re-planting is also an issue to be considered, as this is not included in the calculation. The crop is not off to an ideal start and any other weather blips or acreage changes could be impactful. For example, IL reported corn crop to-date at 42% good/excellent compared to 69% same time last year. Look for more clarity with the national crop condition report in June. The long-term outlook for corn is more bullish than beans.

 

Soybeans fed the bulls with a counter seasonal sale today, +11 at 9.76 ¼ (July) and +7 at 9.67 ¾ (Nov). The USDA reported a private purchase of 132K MT to “unknown” end user for 2016/17.  This transaction is likely due to increased demand of U.S. 2016/17 crop by China off the PNW as a result of Brazilian farmers’ unwillingness to sell, in response to the recent surge in the Real to its highest level since April 18th. With the Brazilian Presidential election upcoming, a continued strong Real could also contribute to a decline in planted acres there in the fall. Argentina is also down on the export front by 15% compared to last year. Of some concern was the dismal NOPA crush report, which showed a decrease in average crush number below the average for the third month in a row. This could equate to a reduction of 20 million bushels of crush demand on the June Supply/Demand report. In planting, growers made great progress (especially in the West), reaching 32% complete compared to 14% last week and 29% 10-year average. Looking at the market as a whole, it appears that we could see the continuation of a downtrend, with great yields in South America, large planted acres estimated for the U.S., and big stockpiles on hand.

 

Wheat is trading the negativity of better weather for Europe and the Black Sea region, as well as precipitation on the U.S. Plains neutralizing frost damage: Chicago SRW +1, Kansas City HRW -4, Minneapolis HRS – ¼. Wheat conditions slipped a couple of points to 51% good/excellent from last week, but is still ahead of the 10-year average of 48%. Regarding planting, spring wheat was up to 78% complete from 54% last week, and ahead of the 10-year average of 69%. Looking at exports as of May 11th, inspections were at 91.4% compared to the 5-year average of 93.2%. The extra rains could prompt quality concerns and disease pressure. It will be hard to completely assess protein levels until the combines start rolling. Technically, wheat is looking oversold, and managed funds are very short.  Keep an eye on this angle, as there is potential for a rally with any perceived changes that could affect yield.

 

Live Cattle continued its trip down the charts, as a decline in open interest suggest a major top may be in place and sellers may be focused on liquidation of long positions, -.550 at 121.900 (June). With high placements in the winter months and the likelihood that weights will come back into alignment, has helped to weigh down trade. The idea of trade opening up with China is a big positive, but the market is impatient, and more than likely it will take time to materialize. Add to that general skepticism towards Chinese trade commitments, and the market is wary of the true impact. Look for support around 120.50 and resistance at 125.20.

 

Hogs found support in strong demand and exports, +1.475 at 78.725 (June). The pork cut-out is profitable and at the highest values since February 21st. Futures are trading at a large premium to cash. The market looks poised to go higher.

 

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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