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Closing Comments

 

Corn gained some momentum today on hot weather forecasts and declining crop conditions, +2 at 3.77 (Sept) and +2 ¾ at 3.90 ¾ (Dec). The USDA weekly crop condition update showed corn down 1% to 64% good/excellent from last week. However, the national rating does not tell the whole story, as digging deeper into the state-by-state numbers reveals the Big Four were: Iowa (biggest corn state by 2 million acres this year) down 6%, Nebraska down 3% and Illinois and Minnesota down 1%. States that helped prop the number up are less important to the big picture production, i.e. Pennsylvania (+8) and Texas (+5). Additionally, corn silking was at 40% compared to last year’s 53% and the five year average of 47%. This in conjunction with several extremely hot days on tap for the Central U.S. with triple-digit temps, where a considerable chunk of pollination will take place. In South America news, Brazil’s government inked corn exports during the first half of July at 820K MT which is up 65% over the same period last year.

 

Soybeans also reacted to weather concerns and a decline in crop condition ratings, +4 ½ at 9.93 ¾ (Sept) and +4 ¼ at 10.01 ¾ (Nov). Crop condition ratings showed a 1% decline overall in good/excellent ratings with Iowa down 4%, Nebraska down 3% and the Dakotas down 5% and 7%. Recent forecasts include a lot of heat and rains that lack adequate coverage across the growing area. The pending two week outlook is prompting enough concerns to help drive the market higher. A weather rally combined with strong fund buying could take the market to new heights. All that said, if August turns to a wetter trend, beans will be fine, and with bearish fundamentals including plenty of stocks and great South American crops, the market could turn bearish quickly. In outside markets, the Dollar is weak in comparison to other global currencies, and this is supportive to U.S. bean export trade. The soybean market entered the day with managed funds still short, which helped buying and adding back in risk premium.

 

Wheat was mixed, led once again by Minneapolis’ story. Spring wheat crop conditions were downgraded to 34% good/excellent, against a backdrop of more intense heat and drought in the Northern Plains. Included in the crop condition ratings was an increase of 2% to 41% in the poor/very poor category. Minneapolis closed at 7.82 ¾ up +15 ½ (Sept).  Chicago SRW and Kansas City HRW were not able to keep pace, -2 ¼ at and -3 ¾ at (Sept). Winter wheat harvest is now 75% complete, and no longer in weather markets. So, it is harder for them to rally even with Minneapolis’ strong action. Yesterday afternoon, Egypt announced they are looking for wheat for late August shipment. Their last purchase was from Russia, and with the weaker Dollar (hit lowest level in 10 months overnight), hopefully the U.S. will be competitive for this offer. Egypt is the world’s largest wheat importer, with 1.835 MMT of orders since May 17th.

 

Live Cattle were down sharply in all contracts, led by August, -1.875 at 115.075 (Aug). Feeders followed the same trend. Is a seasonal low ahead later this month? Technically, the market challenged support at the 100-bar moving average a couple weeks ago and bounced back higher while today featured a sell-off. All beef and proteins are experiencing high global demand right now. Retailers have shown to be active buyers at these levels, so this should add support.

 

Hogs traded both sides of unchanged, exhibiting selling exhaustion later in the session, -.275 at 80.500 (Aug) and –.175 at 67.875 (Oct). The deferred months tested support at the 100-bar moving average before bouncing back. The cash index is at over a $12 premium to August futures. Record high belly prices have been driving the market. Lower prices will be needed to help the market absorb the surge in pork supplies (record levels expected this fall), according to the CME’s Daily Livestock Report.  They also feel that maintaining the marketing pace and allowing hog weights to get out of control will be key to the hog market this fall.

 

In Other News, NAFTA negotiations are only 30 days away. The Trump Administration is looking to address the $64 billion imbalance with Mexico. It is felt the agreement needs to be modernized to benefit all three partner countries. More than 75% of Canada’s exports go to the U.S., and they have shown a desire to continue a strong trade relationship. The Ag industry is watching closely to see how this plays out.

 

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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