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Closing Comments


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Closing Comments

Corn found support in a weak Dollar, which is down to its lowest level since the Election, +3 ¾ at 3.71 ½ (July) and +3 ½ at 3.89 (Dec). Short-term corn has tended bearish, but the long-term outlook remains upbeat as corn ending stocks are lower (per the last report) in the U.S. and worldwide. And, planting stateside has not gotten off to a robust start. For example, one IL crop scout opined that 2017 will be “biggest corn replant of his career”. IL released a state crop condition report that showed only 42% good/excellent, which is the 3rd lowest level in 30 years. EIA Ethanol report released today showed production up 21K bbl to 1.03 million bbl/day (up 8.33% over last year). Ethanol stocks were also up 359K to 23.41 million bbl (up 10.95% over last year). Refinery capacity of 93.4% was over last week (91.5%) and expectations of 92.0%. As of yesterday, ethanol profitability hit a bump in the road after three days of gains, with the Midwest average back to around breakeven. Nationally, there is still a lot of supply base to chew through with a pile of corn still on farms and only 5-10% of new corn priced.


Soybeans continue to feed off positive export vibes and lack of global farmer selling, as China has shown renewed interest in U.S. soybeans, following a rise in the Brazilian Real and unwillingness of Brazilian farmers to part with inventory at low prices.  However, the reduced soy crush could play spoiler to a certain extent, as this may offset counter seasonal gains in exports. Adding to Brazil’s short-term export woes, the customs office is calling for a strike related to a salary dispute with Brazil’s Congress. The main Brazilian port, Santos, will stay open but will be operating with only 30% staff. In Argentina, Cordonnier, raised his bean estimate by 1.5 MMT to 56.5 MMT. In the U.S., some traders have been concerned that more acres may go to beans, with the unfavorable corn planting conditions that have been experienced. However, the current Midwest forecast does not look friendly for soybean planting either at this time. Beans finished a nonchalant – ½ at 9.75 ¾ (July) and flat at 9.67 ¾ (Nov).


Wheat was able to produce gains across the board as short covering was the fare of the day: Chicago SRW +2 ¾, Kansas City HRW +2, and Minneapolis HRS +2 . The big story is Egypt, the world’s largest wheat customer, finally getting back into the wheat export lineup, as they took a 9-week hiatus. It is reported the U.S. HRW has put in the lowest bid for Egypt’s tender, which is a big reveal as to how the U.S. is positioned to capture this and future offers. The U.S. is vying with Russia, Ukraine and Romania for this prized customer, and freight will be the limiting factor as to whether the U.S. can compete effectively. France is out of the picture right now due to the strong Euro making their higher protein wheat more expensive. Helping the U.S. is the weak Dollar, which is experiencing lows not seen since Election Day. Wheat production this season has been anything but normal, and it is likely current numbers that have been released will be downgraded. Harvested acres could drop to 80% on already the least number of acres planted in over a century. Wheat could be poised for a surprising pop, but that said, there are still a lot of unknowns until the combines get rolling.


Live Cattle was able to break free from a string of negative sessions, +.550 at 122.450 (June). The last several sessions has seen the market continue to correct its position following open interest rising to record levels in recent weeks, as funds liquidated long positions. However, keep an eye on carcass weights, which are down 11 lbs. on the year, to be a supportive factor to prices. While the recent Chinese agreement with the U.S. to allow beef imports is a positive, it may not turn out to be as big of a deal as appears on the surface. China only allows “natural” beef free of the additive ractopamine, and this is only a small part of U.S. production.


Hogs continue to experience follow through buying and technical bullishness in the front month, although they finished weakly at the close, +.175 at 78.900 (June). Futures continue to gain as the marketplace is realizing strong demand and seasonality is continuing to win the fight with large supplies and an overbought condition. While traders were concerned in April about big supplies, it is now apparent that pork is very competitively priced as a protein option, both here and abroad. Bellies are leading the way and this is also contributing to the increases in the pork cutout. Strong pork margins are viewed as sustainable. With beef prices up sharply, keep an eye on how retailers respond and if they increase pork features in the coming weeks.


In Other News, Sonny Perdue, new Ag Secretary, has started to lay out his vision for the Ag industry and feeding people.  His main areas of focus will be trade, labor and regulatory reform. He plans to have an Undersecretary for Trade to focus solely on export markets. Regarding labor, work will be done with the Trump Administration on immigration reform, realizing the importance of immigrants to Ag (many who are more than seasonal workers), and focusing on eliminating the criminal element. Related to regulatory reform, there is an Executive Order requiring a report in 180 days, with the idea to eliminate barriers for farmers (most relate to the EPA rather than the USDA).


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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