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Closing Comments


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Closing Comments

Corn was only able to get a short bounce out of the lower than expected crop condition report as today continued to give back gains, -1 ½ at 3.70 ½ (July) and –1 ¾ at 3.89 ¼ (Dec). The crop conditions is a clear tale of East vs West, with the East showing 52% (IL), 43% (IN) and 49% (OH) compared to the West showing 68% (MN), 76% (NE) and 73% (IA) good/excellent. There is some debate about how much initial crop conditions matter to final yield, as one analyst mentioned that first ratings were below 70% in 9 of the last 20 years, while producing a crop yield above the 30-year linear trend in 5 of those 9 years.  However, unknowns still remain regarding the number of acres that will be planted in total, how much yield potential has gotten a haircut off the top, and concerns of nitrogen loss. Volatility is picking up and with managed funds positioned heavily short, and this could produce a combustible combination under the right conditions. EIA Ethanol numbers were released today and they showed production up 0.99% over last week and 6.25% above last year. Ethanol stocks were also up 0.35% over last week and 9.6% over last year. Corn for ethanol usage is on track to hit the USDA estimate of 5.45 billion bushels. Ethanol will be interesting to watch as E-15 is getting more push, as increasing the blend will increase demand. Also, if the RVP waiver can be extended to blends above E-10 could also really increase demand in the U.S. Both of these seem to be more realistic under the new Administration.


Soybeans traded mixed on lower volumes as the market is not sure what to make of weather, crop progress/conditions, etc, -3 ¾ at 9.12 ¼ (July) and – ½ at 9.17 ¾ (Nov). Word on the street is that China will be interested in resuming buying U.S. soybeans if July futures fall into the $9.10 range. Look for the grain crushings report to be released this afternoon. The market is awaiting word from the U.S. Commerce Department sometime this month on its ruling regarding Argentina and Indonesia dumping biodiesel into the U.S. market and the ensuing tariffs, embargos, etc. Export sales will be announced this week on Friday rather than Thursday due to the holiday. Trade is estimating between 200-600K MT.


Wheat traded both sides of unchanged, battling a rallying Dollar, to finish – ¼ (Chicago), -1 (KC). Minneapolis was the only category to gain, as HRS ended +6 ¾ (July). There continues to be demand for high quality wheat as the spring variety is off and running, with an overall rating of good/excellent at 62%. States standing out from the rest include Minnesota at 96% G/E and Idaho at 75% G/E. Winter wheat harvest is ahead of schedule in Texas at 22% complete vs. the 5-year average of 15%, while Oklahoma is only 3% complete vs. the 5-year average of 10%. Russia announced that it has intentions to export 37-38 MMT of grain in 2017/18 compared to this year’s 34-35 MMT, while the EU pegged soft wheat exports at 22.1 MMT which is a decrease of 23% from last season.


Live Cattle came charging out of the gates to a “limit up” day in both June and August contracts, +3.000. Sales have continued at high levels, as the Online Fed Cattle Exchange posted sales on most animals between $132-132.50, while sales for the 15-30 day delivery were in the range of $128-129. Japan and South Korea have been the impetus behind the growth in beef exports, as the Dollar has been at a favorable value compared to other world currencies. And, the idea of a “new” market opening in China, even with details to be worked out and negotiated, has investors licking their chops. Also adding to the frenzy are strong packer margins, at $163.25/head.


Hogs did not share the same optimism as cattle, as the front month fell the hardest, -1.000 at 80.925 (June). The cash index has continued to narrow the gap with futures, up +.110 on May 31st to 76.450. While the market is overbought, it has been difficult to sell this market, as hog supplies are tight with lighter animals. Packer margins are profitable at $28.12/head, and carcass values are up $.10 to $91.10/cwt.


In Other News, the eleven remaining nations are moving on without the U.S. on TPP, as they have set November 11th as the deadline to finalize the agreement.


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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