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Closing Comments


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Closing Comments

Corn followed beans down the charts as the Brazilian Real weakened on scandalous news regarding corruption at the highest level of government (while the Dollar strengthened), -5 ½ at 3.66 (July) and –5 at 3.84 (Dec). Exports have been benefitting from counter seasonal sales opportunities, based on a strengthening Real and declining Dollar, prior to this announcement. Export sales reported by the USDA for last week were solid, penciled in at 705,300 MT for old crop compared to estimates of 500-750K MT, while new crop was announced at 168K MT compared to thoughts of 200-400K MT. Keep an eye on bullish long-term factors to emerge related to less corn acres planted, less stocks nationally and globally, and poor planting conditions and re-planted acres to start the season. In the short-term, corn needs some help from wheat and outside influences, i.e. the Dollar and potential announcements by President Trump (related to NAFTA and ethanol, etc).


Soybeans fell sharply to test key support at $9.40-9.45, as aggressive selling is the topic of the day. Despite good export weekly sales numbers, beans were overwhelmed by the negative action of the Brazilian Real due to news of a serious corruption charge against the Brazilian President Temer. Futures finished the session –31 at 9.44 ¾ (July) and –23 at 9.44 ¾ (Nov). The uncertainty is causing widespread fears of inflation, and encouraging Brazilian farmers to start aggressively selling. If Temer were to resign, it is likely the Real would strengthen again, which would be positive to U.S. farm commodities. Beans made a respectable showing on the export weekly sales board announcement, with 2016/17 crop sales at 355,300 MT compared to estimates of 200-400K MT, and 2017/18 sales reported at 41,500 vs. estimates of 50-250K MT. Even will all the chaos in Brazil, it is not likely that U.S. export sales projections on an annual basis will be adjusted downward.


Wheat, in spite of some positives, could not overcome the negative pull of beans: Chicago SRW -1 ¼, Kansas City HRW – ½, and Minneapolis HRS +4. Wheat weekly export sales released by the USDA were healthy, as 2016/17 came in at 247,600 MT compared to estimates of 0-200K MT, and 393,100 MT for 2017/18 vs. expectations of 200-400K MT. Of Egypt’s tender for 295K MT of wheat, the U.S. was able to capture 115K MT of the order. If freight costs do not become an issue and the Dollar stays at lower levels, the U.S. could find itself in the competitive mix much more often with Russia, Ukraine and the Black Sea region. There is a collection of other sales/offers on the board from destinations such as Jordan, Japan, Tunisia and Saudi Arabia. In Texas, recently harvested wheat is showing a low protein level of 10%, which is below the deliverable grade of 10.5%. This is only adding to concerns about quality issues for HRW, and bears monitoring closely.


Live Cattle were able to build positive momentum, with June +.475 at 122.925. Demand has been fantastic to this point, and with the high cash prices, producers have been bringing in lighter weight cattle to market, which has led to tightening of supplies. Production is estimated to be up in 2017 and 2018, but if the economy can stay healthy, consumers have shown a willingness to pay higher prices and keep demand at a high level. Weekly beef exports came in under last week’s 10.8K MT, at 7.6K MT. Packer margins are still very profitable, while boxes and select are down and choice is unchanged.


Hogs gapped lower out of the starting blocks, but made a nice recovery as buyers caught up with the sellers on the home stretch, +.250 at 79.150 (June). Lean hogs have continued to prosper, with 23% of production going to exports. Will exports be able to sustain at this rate? If they can, hog prices should stay firm and follow in step. Like cattle, weekly export sales came in under last week at 15.6K MT compared to 17.6K MT. Packer margins have remained profitable, with carcass values declining $.06 to $87.20/cwt. Look for seasonal demand to be friendly to prices heading into Memorial Day weekend.


In Other News, Iowa is showing that cash rents have decreased four years in a row to $219/acre, 19% lower than in 2014. However, crop prices have dropped 60% in that same period.


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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