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Closing Comments

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Closing Comments

Corn took out yesterday’s low and high, finding support in wheat conditions and a dryer weather forecast, +4 ¼ at 3.77 ¼ (July) and +3 ¾ at 3.95 ¾ (Dec). Impending weather premium is on traders’ minds as well as managed funds positions standing at 210K net short. Chatter at the water cooler has centered around what it will take to spook the funds to cover their positions. On the other hand, there is plentiful feed grain supplies and a large South American production to contend with (Brazil may have a safrinha crop that is 50% over last year’s disappointing crop). The USDA upped crop conditions to 68% from 65% good/excellent last week, but this is still well behind last year’s 75% at the same time last year. Crop progress is penciled in at 96% planted compared to 97% last year same time, while corn emergence is pegged at 86% vs. 88% last year. Weekly inspections continue to impress, as the weekly report indicated 1.177 MMT, and this is 10% higher than last year. Interestingly enough, more was shipped off the PNW than the Gulf for the first time this year and two cargos were earmarked for China.

 

Soybeans followed the market higher today, but without a bullish story of their own, as the outlook is still showing bearish potential long-term. July futures rose to 9.34 ¼ before settling at 9.23 ½ , up +1 ½. Some private analysts are predicting that another 500K acres of soybeans will be planted this year due to the delays experienced with corn plantings. Soyoil was able to give us a measure of follow-through strength, providing confirmation to the trade. USDA soybean planting progress was announced at 83% complete compared to the average year-to-date of 79%, with emergence at 58% (1% behind average). Look for the first soybean crop condition report next week to give a measure of direction.

 

Wheat was the leader today as futures found support in dry and hot conditions in the northern growing region and a weak Dollar: Chicago SRW +6 ½, Kansas City HRW +8, and Minneapolis HRS +8 (July). Minneapolis wheat was the big catalyst today due to plant stress in the Dakotas and Montana, reaching a high of over $6/bushel before settling at 5.97. USDA spring wheat conditions were down 7 points to 55% good/excellent compared to last year same time at 79%. Hard Red Winter was also down slightly from last week’s conditions (2% overall with SD down 21%), and wheat overall was down 1%. Weather forecasters are monitoring the situation closely because if the adverse weather elements spread south and east, we could have a developing problem on our hands for corn and beans as well.  In world news, it is reported by lawyers that Egypt has re-instated its zero-tolerance policy on the grain fungus, ergot. They had voided the ban last year, and it will be interesting to see if this will narrow their field of importers (considering Egypt’s status atop the leaderboard of wheat buyers).

 

Live Cattle started the session higher before experiencing a steep sell-off, flirting with limit down in the deferred month, -2.600 at 123.600 (August) . Feeders were limit down across all current year contract months, -4.500. There is some concern that even though demand has been strong, beef sales scheduled out 22-60 days are down 10% from last year and beef sales out 61-90 days are down 56% in the same time period. In news related to the JBS Brazilian meat scandal, JBS sold business locations in Argentina, Paraguay, and Uruguay to a competitor, Minerva, for $300M. This was done in order to help the company stay solvent, as they will be responsible for a multi-billion settlement to be paid over 25 years.

 

Hogs were strong today as they gained back much of what was lost yesterday. June was up +.925 while July and August were up +.950 and +.950 respectively. Packer margins are continuing to stay profitable, and the cash index is at a discount to futures at 77.340. While hogs are overbought and had appeared sickly on the chart, this posture has changed and are now looking like a market with more upside.

 

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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