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Closing Comments

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Closing Comments

 

Corn responded to Turnaround Tuesday with a spoiler mindset, taking out and closing on the July contract low resulting from Thursday’s volatile action, -5 ¼ at 3.70 (July) and –5 ¼ at 3.88 (Dec). The market needs an ominous weather outlook to change sentiments. With the managed funds now out of their large short position, it is going to take something on a larger scale to give them a reason to buy the corn market. The USDA rated corn 67% good/excellent, which was unchanged from last week.  However, 2% moved from good to excellent. This is still well behind the 75% rating last year at this time. Indiana stands out in the worst spot, with a 45% good/excellent rating compared to 72% last year. On the ethanol front, Mexico’s Regulatory Commission announced it will make an upward revision in the amount of ethanol that can be blended with Mexican gasoline, from less than 6% to 10%. This will bring it more into alignment with U.S. and Canadian standards, and could be a plus for the ethanol market.

 

Soybeans tested last Thursday’s low, but were able to hold and close above it, -10 at 9.27 ¾ (July) and –9 ¾ at 9.38 ¾ (Nov). The USDA pegged soybean conditions up 1% over last week to 67%, with the trade expecting 68%. In South America, it has been reported by private analysts that Brazilian farmers have been holding onto their current soy crop, with only 58% sold compared to 76% sold at this time last year. A couple of positives to keep in mind, it is expected that the EPA will soon announce their biodiesel mandate, and it is rumored that President Trump may address the topic during his visit to Cedar Rapids, IA, tomorrow evening. Secondly, it has been reported that a Chinese delegation will visit the U.S. the second week of July to sign contracts in Des Moines to buy more soybeans. While it is largely a symbolic gesture, the Chinese have continued to ramp up soybean purchases and this will only help to cement the relationship with U.S. growers.

 

Wheat was mixed with Minneapolis leading the charge fueled by yesterday’s condition report, +16 ¼ (July). Spring wheat received a poorer rating than expected from the USDA, as crop ratings showed 41% good/excellent compared to a dismal 45% last week. The market was expecting 47%. This news also helped boost Chicago SRW (+5 ½) and KC HRW (+1 ¾). The theme in Chicago has been short-covering, as funds have reduced their net short position significantly over the past week. Keep an eye on the Drought Monitor regarding dryness north of the Black Sea, Europe and Australia, which are important production areas. It is surprising that the worldwide drought story has not yet provided more support to the market. Even with spring wheat’s positive momentum, some restraint may be in order for traders as market indicators are now in overbought territory. But, the wheat market is thinly traded, and if it decides to take off on a rally it will go!

 

Live Cattle fell sharply before running out of sellers, forming a “hammer” on the charts to finish down slightly -.200 at 115.900 (August). The long-term outlook tends bearish, with record production expected in the 3rd quarter along with cattle weights gaining from their lows earlier in the season. Yesterday afternoon saw a mix in the cuts with choice down $.38 and select up $1.56. It is worth noting that pasturelands on the Northern Plains are not showing improvement regarding crop condition ratings. As a matter of fact, North Dakota showed 54% poor to very poor while South Dakota’s poor to very poor increased week over week from 45% to 49%. This is a first for both states to be in this poor of condition at this time of the year. With speculators in a large net long position in cattle, long liquidation selling could continue to weigh on futures if support levels do not hold.

 

Hogs continued their divergence from cattle’s trend, forging a new high in the front month, +1.100 at 85.000 (July). August and October contracts followed the upward trend with modest gains.  The pork cut-out continues to grow, up $.74 from Friday, which is the highest level since November 3, 2014. The cut-out is being led by bellies and hams. Even with large production (430K head yesterday), demand is winning the day. Technical momentum indicators are pointed higher so look for more positive movement in the near-term.

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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