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Closing Comments

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Closing Comments

Corn and other grains were hit hard after the long weekend, as pessimism abounded leading into the crop conditions report at 3pm today, -7 ¼ at 3.67 (July) and –6 ¾ at 3.85 ¾ (Dec). Rain was less than expected over the weekend and weather forecasts are somewhat benign, as the market perceives the crop will be planted. How everything shakes out long-term remains to be seen. It is likely that in spite of the rains and all the re-plant, farmers will try to stick with planned corn acres as much as possible. However, there could be a swing of another 500K acres if producers are not able to get seed in the ground soon, especially in some of the hardest hit areas in southern IL and IN. Crop conditions are expected to show 68% good/excellent compared to 72% last year. USDA weekly inspections produced another strong number for corn, coming in at 1.194 MMT for the week ending May 25th vs. expectations of 1.1 MMT. It is expected that corn will be able to capitalize on its discount to wheat on the world market, to garner a large amount of feed demand.

 

Soybeans led the way lower, as bears are winning the day –13 ¾ at 9.12 ¾ (July) and –9 ½ at 9.19 ¾ (Nov). Applying pressure are very weak Chinese crush margins and soymeal stocks piling up to levels not seen in five years. USDA inspections were not far off the mark, hitting 335,519 MT for the week ending May 25th vs. expectations of 355K MT. U.S. soybean exports had been looking like they would remain competitive on the global scene into August, based on pricing prior to the Brazilian Real tumbling on political turmoil. Maybe the Brazilian farmer selling is not necessarily all a bad thing, as the market will not have a huge supply of their old crop hanging over it. But, this has led to less opportunities stateside and bearish thinking in the near-term. It is important for the American farmer to hedge and make cash sales aggressively when above breakeven, as uncertainty abounds. Brazilian farmer selling has slowed down, after a strong push May 18-19 on the heels of the falling Real. They are still behind selling the 2016/17 crop, as year-to-date 58% is spoken for compared to 69% last year and 70% five-year average. As of today, Argentine beans are the cheapest for August offers, followed by the U.S., and Brazil. Incidentally, China is celebrating its Dragon Boat Festival, and will be returning to the market this evening.

 

Wheat was down across all varieties, with Chicago SRW hit hardest at -8 ¾, followed by Kansas City HRW -4 ¼ and Minneapolis HRS – ¾. This, in spite of a positive USDA weekly inspection result of 602,913 MT for the week ending May 25th compared to expectations of 550K MT. As with corn and soybeans, wheat traders are less concerned now with weather and the feared damage to crops in the West from frost/freeze. In other parts of the world, while Argentina’s Chief of Agriculture is predicting a near-record 20 MMT crop, Canada’s Saskatchewan province will plant 700K hectares (1.7 million acres) less of wheat this year due to excessive rains and flooding of fields. Other areas of Canada also have been hampered by wet weather. France AgriMer gave the soft wheat crop a 76% good/excellent rating, which is up 1% over last week.  With U.S. harvest getting into full swing in the coming weeks, keep an eye on managed funds’ large net short position in wheat futures.

 

Live Cattle were able to reverse course after a poor start to the session, +.900 at 119.850 (Aug). On the one hand, strong demand and the potential of trade with China starting this summer are providing support, while the Cattle on Feed report last Friday was viewed bearish, as it featured placements up 11% to a high not seen in 14 years (1.85 million head). This was above trade expectations and is bringing pressure to the market. And, it has been revealed that major meat packing company, JBS, has been embroiled in a scandal and web of bribery. Up to 1,800 Brazilian politicians are involved and recordings have been obtained that implicate President Temer. JBS is an international company, and how this will all shake out is to be determined. Keep an eye on “combined” spec and funds’ net long position, as it is at a record high.

 

Hogs suffered a setback today, most notably in the front month, as futures finished the session -1.325 (June) and -.900 (July). The cash market has continued to make up ground, as it rose $.18 to $76.25 on May 24th. This is a level not seen since late February. Fundamentals are in position to see more positive action, as kill numbers are expected to tighten.  This is due to tight supplies and not poor margins, as packer processing is very profitable of cuts including hams, bellies, loins and butts. The June 1st Hogs & Pigs Report should help to bring more clarity and direction, but summer contract months look positive at this time.

 

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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