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Closing Comments

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Closing Comments

Corn continues to trade sideways in a range, with competing factors of bearish weather and the uncertainty of the growing season ahead, +2 ¼ at 3.72 ¾ (July) and +1 ¾ at 3.91 (Dec). The USDA reported weekly export sales of corn of 412,100 MT, which was within expectations ranging from 400K-800K MT. Major customers included Japan and Mexico. South Korea booked another purchase overnight that is likely going to Brazil for 138K MT. However, new crop exports are lagging well behind last year. Weather is becoming less of a prominent issue, as we are settling into more normal summer patterns of warmer weather for the West and Midwest. However, there are hints of drought and dryness developing in the Dakotas and Minnesota that will require monitoring in the weeks ahead. Monday’s crop report is expected to show improvement in good/excellent by 1-2%. Next Friday, WASDE is expected to raise corn exports by 25 million bushels and U.S. ethanol use by 25 million bushels. Will fund managers grow impatient in the week ahead and exit unprofitable short positions?

 

Soybeans were able to bounce on a weak Dollar and positive export data, +9 at 9.21 ¼ (July) and +7 ¼ at 9.25 (Nov). The USDA announced weekly export sales at 610,200 MT for 2016/17 and 16K MT for 2017/18, compared to expectations of 200K-600K MT. However, new crop exports are running well behind last year. Additionally, this morning the USDA reported a private sale of 200K MT of soybeans to Spain. Next Friday, WASDE is expected to raise soybean exports by 25 million bushels and lower crush by 10-15 million bushels. Some concerns that Chinese soy demand could lessen in the 3rd quarter as crush margins are at a 33-month low, as Shandong reported nearly $52/ton in the red. Brazil is reporting their soybean exports are up for the month of May over last year, 10.96 MMT vs. 9.92 MMT. Brazil is also optimistic that costs to export out of their northern ports over the next five years will continue to decrease due to infrastructure improvements. Informa came out with an increased soybean production update for Brazil, moving them from 113 MMT to 114.5 MMT from their previous outlook.

 

Wheat continued to trade mixed throughout the session on lack of meaningful news with Chicago SRW + ½, Kansas City HRW +2 ½, and Minneapolis HRS +5. The USDA weekly export sales were net negative for wheat for old crop (but still ahead on the year), but very strong for new crop, exceeding expectations of 250K-450K MT by a long shot at 810K MT. It is expected the USDA will raise export projections for the current year in the WASDE report on June 9th. Planalytics satellite imagery has increased their forecast of winter wheat yield to 51.3 bushels/acre from 51.0. Last year’s record was 55.3 bushels/acre. In Europe, Coceral, is expecting 2017 soft wheat production to decline to 141.9 MMT compared to March’s estimate of 144.8 MMT due to heat and dryness in France and Spain.

 

Live Cattle continued its steep ascent, trading under expanded limits, +3.400 at 130.825 (June) and +1.350 at 126.050 (Aug). Smaller pools of cattle being traded in the cash markets is helping to create some of the recent volatility. When packers find themselves short on bought inventory for their slaughter needs, this can add to the frenzy when there is poor liquidity. Also, carcass weights continue to trend well below last year, as the May 20th report showed steers 27# below last year and heifers 15# below last year. The lower Dollar has also been helping to stimulate the rise in exports, as Japan and South Korea are the primary customers. The most recent numbers show exports up 3% over last year. There is much interest in the Chinese opportunity but a few details need to be worked out. One drawback to U.S. beef is that producers do not mandate the use of animal ID, which puts us at a big disadvantage to other countries that have instituted the practice, i.e., Brazil, Canada, Australia, Mexico, etc.

 

Hogs followed cattle, although to a much lesser extent, as June futures closed +.300 at 81.225 (June). Carcass values are up ($.44) and packer margins are a positive $29.67/head. The pork cut-out continues to inch higher. Retail demand is expected to be solid for at least the next month with Father’s Day and the Fourth of July on the calendar. And, pork is much more affordable than beef this year. Also providing support, is lower hog carcass weights, with packer owned hogs down 1.8% from last year. With China’s demand slowing and the market overbought, will we see a near-term top?

 

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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