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Closing Comments

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Closing Comments

Corn was bullish this “Whipsaw Wednesday” on active fund buying, following a positive report yesterday, +5 at 3.72 (July) and +5 ¼ at 3.91 (Dec). Prices bounced up near the top of the range that we have been trading since the end of March. Yesterday’s USDA crop conditions report fell short of expectations with corn 65% good to excellent, 28% fair and 7% poor to very poor. Estimates for the report were 68% to 69% good to excellent and last year’s crop was rated 72%. The increasing uncertainty of production was reflected in buyers showing up throughout the day. In other news, cash gain sources reported 68,000 mt of optional origin corn was bought by Major Feedmill Group of South Korea. The 6-10 day forecast includes below average temps for the central and eastern U.S. and above average temps for the west. Precipitation is predicted to be below average for the northern U.S., normal for the central U.S. and above for a good portion of the south. Will the bullish mood last?

 

Soybeans had trouble staying on the bull train, as they were weighted down by a decline in Chinese meal values and the continued fall of their spot crush margin, finishing mixed +3 ¼ at 9.16 (July) and –1 ½ at 9.18 ¼ (Nov). The USDA planting progress report that was released yesterday showed progress at 67% complete vs. 53% last week, and emerged progress up to 37%. In world news, yesterday marked the first day of Argentina’s government inspectors’ strike that is expected to last through this Friday. The strike will untimely result in halted movement of grains/soy crops. China has announced it is willing to make trade concessions in an effort to create a win-win trade relationship with America. This was part of a 117 page document released by the Chinese Ministry of Commerce that indicates they want more infrastructure cooperation with the U.S. in exchange for taking more imports – that would include soybeans, as well as beef, natural gas and other services. Regarding Brazil and the focus on their currency the past couple of weeks, it is expected that the Real will continue to strengthen as Brazil’s economy is improving even in the midst of all the negativity plaguing their political scene.

 

Wheat found support in corn’s resurgence and a weak Dollar, but winter wheat finished the session weakly: Chicago SRW – ¼ and Kansas City HRW -1 ½. Minneapolis HRS was the lone winner today at +4 ½ (July). The USDA report late afternoon yesterday was within expectations for wheat. Winter wheat is 80% headed compared to the five-year average of 77%.  Winter wheat conditions was rated at 50% good/excellent vs. 52% last week, fair 35%, LW 33%, poor/very poor 15%. Spring wheat planting is virtually complete at 99% vs. the five-year average of 91%. Spring wheat emergence is 79% compared to the five-year average of 74%, and spring wheat conditions are seen as 62% good/excellent compared to 52% last year. Preliminary reports of the hard red winter harvest are indicating a good harvest with low protein. In global news, Egypt’s GASC purchased 180K MT of wheat at today’s tender, comprised of 120K MT from Russia and 60K MT from Romania. According to the Egyptian supply minister, their wheat stocks are good for five months.

 

Live Cattle experienced a buying bonanza, with June trading to the highest level since May 12th, +1.450 at 124.425. Packer margins have been off the charts for beef at $240/head through last week, compared to a healthy $106 last year and $55 five-year average. It looks like relative strength could help propel beef higher in the short-term, in spite of the usual seasonal beef slow down into the mid-summer timeframe. Fundamentally, there has been a shortage of choice beef due to lighter carcass weights and less days on feed, and this will take time to replenish. So, even though there are 10% more cattle on feed this summer, the animals weigh less than last year and feedlots are motivated to push them through. It is worth noting that pasture/range conditions are down this year, so the Drought Monitor will be an important gauge to watch for MT, ND, etc. Related to the JBS meat scandal in Brazil, it was announced that Chairman Batista will step down and the company has agreed to pay $2.3B in settlement monies over 25 years.

 

Hogs were able reverse course from yesterday, as fundamentals seem to have more room to the upside, +1.425 at 81.925 (June). Seasonal demand and strong exports have continued to boost the market, although technicals show room for a correction, with the market overbought. Hog weights are below last year, which is also giving support. It is likely prices will peak in step with a peak in slaughter as we get further into the summer.

 

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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