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Closing Comments

 

Corn responded to the less than bearish crop conditions report and uncertainty with weather (especially in July) to finish mildly positive, + ¼ at 3.59 ¼ (July) and + ½ at 3.77 ½ (Dec). The USDA rated corn crop conditions at 67%, which is below trade expectations and the year-to-date average of 69%. Of the Big Four corn producing states (IL, IA, NE, MN), Illinois stood out as being 16 points behind last year. Nationally, the poor/very poor category increased from 5% to 8%. To put things in perspective, last year at this time conditions were a lofty 75%. How will this bode if we are to run into more challenging conditions during pollination? Based on corn pollination maps the third week of July will be pivotal, showing about 25% of the corn growing area “dry” (especially in the northwestern region). All eyes are on Friday’s Acreage Report and any surprises that may be in store. Will corn acreage be closer to analysts’ expectations of 89.9 million acres or more on par with the March Intentions Report’s 89.99 million acres? The quarterly grain stockpile report will also be announced at the same time. Corn usage continues to chew up big demand, so any confirmation of less than expected acres will be impactful. Managed money’s net short position has grown to around 130K contracts.

 

Soybeans received support from action in corn and wheat as well as a strong soy oil market, +4 ½ at 9.11 ¼ (July) and +3 ¾ at 9.17 ½ (Nov). The USDA crop conditions report was down a point from last week and 2% below analysts’ expectations, coming in at 66%. To give a bigger picture perspective, 75% was rated good/excellent last year at this time and the year-to-date average is 69%. As with corn, anticipation for the acreage report is reaching a feverish pitch – will acres increase from the previous intentions numbers showing 89.48 million acres to the 89.8 million that is expected by analysts? Soybean stocks will also be important to consider with expectations at .983 billion bushels compared to last year same time of .872 billion bushels. Look for the EPA to release its RVO (Renewable Volume Obligations) mandates this week, which should increase biofuel requirements, helping the soy complex.

 

Wheat reversed course this Turnaround Tuesday against the backdrop of a declining Dollar and poor crop conditions, +3 ¼ Chicago, +4 ¼ Kansas City, and +21 Minneapolis (July). Weather is mixed, with Europe getting some moisture relief but still a lot of stress globally from lack of moisture in parts of US, Canada, Australia and the Ukraine. Both North and South Dakota as well as Montana continue to struggle with dry weather and no relief in sight in the 6-10 day forecast. The USDA crop conditions report was instrumental to the market also, as spring wheat was downgraded yet another point to 40% good/excellent (expectations of 41%). This in stark contrast to last year’s 72% G/E and 74% average year-to-date. Minneapolis is the leader and the winter wheats are taking its cue. Harvest for winter wheat was reported by the USDA at 41% complete compared to 42% last year and 35% average year-to-date.

 

Live Cattle, after locking limit up yesterday, did a complete 180 degrees, finishing -3.250 at 115.025 in August, with feeders in lock step -4.575. While packer margins are very strong, boxes are lower in both choice and select cuts. The Cattle on Feed report on Friday may be encouraging bearish mindsets, as placements were the highest for the month of May since 2007, leading traders to wonder the effect on August and October cattle, even with strong demand.

 

Hogs saw a battle of buyers and sellers in back and forth trade, with August -.125 at 78.550 and October –.725 at 67.650. July has led the way to high levels on the chart, dating back to the last week of April. Exports and retail demand have been good and packer margins continue to be profitable. As we approach and pass the July 4th holiday, it is thought that seasonal influences will start to weigh in on fundamentals. The Hog & Pig report will be released this Thursday.

 

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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