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Closing Comments

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Closing Comments

Corn started this week in a bullish mindset, with support from a declining Dollar and a spike in energy prices, +2 ¼ (July). USDA weekly inspections were strong, coming in at 1.144 MMT for the week ending May 18th, compared to expectations of 1.050 MMT. The USDA weekly Crop Progress show planting progress of 84% compared to the average of 85%. However, these numbers do not account for re-planting, and seed dealers are saying that this is the biggest re-plant they have seen in many, many years. To achieve or best trendline yield will require few if any weather hiccups from here on out. There is more cool and wet weather on the way, which will only hamper planting and crop emergence. The Commitment of Traders report on Friday afternoon, pegged non-commercial and non-reportable traders a combined 105,167 contracts short, which is down 7,265 contracts from last week. Managed funds are at a massive, near record 204,000 net short, which would provide a volatile scenario if a new bullish story were to force short covering.

 

Soybeans have continued to come back from the big drop last Thursday, as unrest in Brazil is helping U.S. prices, +3 ½ (July). The Brazilian Real had dropped about 4%, helping farmer selling, but has now recovered a portion of the losses, which is a good thing for U.S exports. The Brazilian Presidential scandal will be an ongoing story over the next several weeks, with talk of impeachment hearings soon. USDA weekly export inspections were slightly off the mark of 375K MT, as they came in at 348,535 MT. The USDA soybean Planting Progress this afternoon came in at 53% vs the expectation of 52% complete, right in line with the average. However, with continued rains planting could become a  bigger story by around the June 7th timeframe. The Dollar Index is lower, which is bodes well for all the grains. Keep an eye on what China does, as they really set the tone with their demand-heavy posture. The Commitment of Traders report on Friday afternoon showed Managed Money net short 36k contracts, up 2k for the week.

 

Wheat was of the same positive mindset coming out of the gate as the other grains, with emerging quality concerns being voiced from the U.S. harvest but couldn’t hold on to buying into the close. USDA export inspections also provided support as they were announced at 674,559 MT, eclipsing estimates of 550K MT. The session finished with Chicago -1 (July), Kansas City -2 (July), and Minneapolis +3 1/2 (July). The forecast has more wet weather on the way over the next several days in the Plains and Midwest. Even though there are large global ending stocks, one must consider that 49.5% is held by China, and their stocks have never been a competitor in the export market. As in corn, managed funds are heavy on shorts, as evidenced by the Commitment of Traders report last Friday: managed money shorts are up to 121k contracts, an increase of 13k over last week. This combined with a weak Dollar – could we see a significant rally that would help to carry the rest of the grains to new heights?

 

Live Cattle continued their steady march north on the charts with a solid start to the week, +0.475 (June). It is thought this could be a near-term peak, with retailers having filled their orders for the upcoming Memorial Day weekend. Feed yards are enjoying great returns this year, but still are climbing out from under the burden of 2015 by shoring up their equity position. In October 2015, feedyards were losing an average of $500/head. This year for the week ending May 12th, feed yards are showing a profit of $536/head, according to the Sterling Profit Tracker. The cash market and basis has been really good, while futures are lagging significantly behind cash. The concern is that beef could price itself out of the market at this rate. Will cash come down to meet futures, or will the opposite take place? Also, there is a very large fund long position in futures which begs the question – when will investors decide to correct?

 

Hogs stayed firm in today’s session, -0.150 (June). The pork cut-out continues to gain, up 13 cents from Thursday to Friday, and the highest level since July 25th ($86.53). Ribs were also up to $139.61 on Friday, from $132.51 last week. Cash has continued to advance, and while the market is overbought, the positive momentum is continuing for now on strong buying. The Commitment of Traders report showed managed money a net long 33k contracts, an increase of 6k over the previous week. Look for the Cold Storage report results at 2pm to be influential to tomorrow’s trade.

 

In Other news, according to the Labor Department, applications for H2A visas for farm workers is up 36% above last year for the first quarter.  If a farm is to hire these workers they must show they cannot find willing and available workers, that hiring of these foreign workers will not affect wages of U.S. workers, and that the job for hire is seasonal.

 

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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