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Closing Comments

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Closing Comments

 

Corn, along with the other grains, traded both sides of unchanged, +3 ½ at 3.92 (Sept) and +4 ¾, at 4.04 (Dec). The debate over Central U.S. weather forecasts is keeping everyone on the edge of their seats. So far, the concerns seem to be outweighing optimism, but farther out than 10 days  is difficult for weather forecasters to give confident predictions. Traders are cautiously navigating their way through this important stretch, with crop development and pollination several days behind this year. The holiday shortened week has thrown things out of sync, as crop conditions will be announced later this afternoon instead of Monday, while EIA Ethanol and Export sales reporting will be on Thursday and Friday. Crop conditions are not expected to show much change this week. The EPA announced that ethanol rates for RVO in 2018 will be unchanged from 2017. The estimated amount will be 15 billion gallons of ethanol with 4.24 billion gallons being advanced.

 

Soybeans are continuing to build weather premium, with uncertainty and concerns in the western part of the growing area, now that we know there will be less acres planted than originally expected. September futures were up in today’s trading +13 at 9.86 ½, while November was up +13 ½ to 9.94 ¼. One of the two long awaited announcements came today, as the EPA indicated the total renewable fuel standard will be 19.24 billion gallons for 2018, which is a 400 million gallon reduction from 2017. While the news may not seem positive on the surface, this is a quite modest reduction. The focus will now be squarely on – what will the tariffs be for Argentina and Indonesia for dumping biodiesel into the U.S. market? This will likely have a more significant impact depending on the size of the tariff and how penalties are enforced.

 

Wheat showed extreme volatility led by Minneapolis (without an obvious fundamental reason), which traded in a $.94 range before settling +3 ½ at 8.19 ½ (Sept). The other wheat classes followed in step, as Chicago SRW was able to pull out of a nose dive to +5 at 5.60 (Sept), while Kansas City HRW finished +10 at 5.69 ½ (Sept). At these levels more than a few buyers have been willing to take profits. It is unlikely that the spring high quality variety has hit its high, with all the negative news surrounding drought and dire crop conditions. According to an Ag Resource piece, there should be two stages to the U.S. Hi Pro wheat bull market – a supply shock rally, followed by a demand led rationing phase. This afternoon will feature another crop condition update, which is sure to have some influence tomorrow. Egypt’s GASC announced they purchased 410K MT of wheat today from Russia (350K MT) and Romania (60K MT), which only helps to validate world wheat demand and the price rally.

 

Live Cattle continued to move lower, taking out the low from June 22nd and finishing –2.200 at 113.550 (August). The cattle sector may be experiencing a shift of producers being more calculated and feeding cattle to higher weights to gain a stronger trading posture and lower break evens. This trend is not considered market friendly, as more beef tonnage will be added. Show lists were down 25,000 from the prior week and the Fed Cattle Auction tomorrow will be looked to for price direction. Last week showed prices in the $119-120 range, which was down $2 from the week before. The cutout is also down, as choice cuts declined $12 in a week’s time. Packer margins, while still great, are down from $300/head to around $200/head.

 

Hogs took up where they left off before the holiday, with all months showing gains. The front month showed the biggest gains at +1.350 (July), while August and October followed at +.175 and +.575 respectively. Did Joey Chestnut’s new Coney Island hot dog eating contest record of 72 dogs in 10 minutes contribute to the gains? It is not likely the case in reality, but pork’s popularity and demand has continued to drive the market. The deferred months are viewed as overly discounted compared to supply and demand. The pork cut-out has continued to gain led by ribs and bellies. Keep an eye on seasonal demand changes and how this will affect the market moving forward.

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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