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Closing Comments

 

Corn rallied on weather concerns as the Midwest continues to step through pollination windows, +5 ½ at 3.82 ½ (Sept) and +5 ½ at 3.96 ¼ (Dec). Traders are putting the major focus on corn, with July being the critical month that will make or break the crop. By this Friday or Monday, it should become apparent if rains in the present weather patterns were enough to satisfy the current trend yield predictions. There is a lot of disparity between weather models, which is only adding to the chaos. The main attention will be on Western Iowa, as it is a critical growing area experiencing acute dryness and in desperate need of rain. Managed funds are currently seen as having moved their position into the “long” column, so it will be important for bullish news to emerge to continue the buying. EIA Ethanol weekly data was released this morning showing ethanol production up 19K barrels to 1.03 million barrels/day. This is up 1.89% over last week, and one of the best weekly grinds going back to March. Ethanol stocks were also up for the week ending July 14th by 956K barrels to 22.14 million barrels, up 4.51% vs. last week and up 4.63% vs. last year. Corn used for ethanol in last week’s production was 107.73 million bushels, well ahead of the needed 89.542 million bushels needed per week to attain the USDA estimate of 5.45 billion bushels for the year. Ethanol margins for producers have continued positive, estimated at around 10 cents/gallon.

 

Soybeans had a strong day with traders adding in risk premium, rallying +10 ¼ at 10.04 (Sept) and +10 ¾ at 10.12 ½ (Nov). Severe heat and concerns of inadequate moisture in some areas are keeping the market propped up. The EU and GFS weather models have not been in agreement, which has caused a degree of confusion and uncertainty. However, more than sufficient soybean supplies and a stronger Dollar provided a check and balance to the market overheating. The August timeframe will be the most critical to beans and as to whether the bears or the bulls come out on top.

 

Wheat sent mixed signals based on Minneapolis’ lead, –1 ½ at 7.79 (Sept). Chicago and Kansas City have been the followers on this ride, – ¾ at 5.03 and -2 ½ at 5.00 ¼ (Sept) respectively. Managed funds are still liquidating market length in wheat. KC in particular bears monitoring, as the large spec funds are heavily long, while Chicago is still positioned short. However, if MN has another rally in the works, you can be sure the effect will trickle down. The lower quality Chicago wheat is also heavily influenced by corn, as the two can be substituted for each other in feed. Wheat is also heavily influenced by global fundamentals. Australia’s dryness concerns along with Europe and other regions will play a role. The overall trend of a weaker Dollar (down 7.5% against world currencies) is likely to persist through the summer, which should help U.S. pricing on the global front.

 

Live Cattle added big gains today in spite of negative news, +2.200 at 117.275 (Aug). The U.S. market had a minor scare when it was announced that an 11-year-old cow from Alabama was confirmed with “atypical” BSE (Mad Cow) after showing signs of the disease. However, the USDA reassured that the cow did not enter the food chain and does not pose a risk to health due to being “atypical”, which is not the classic form that can infect humans. Sales last week were $2-3 higher, and the market will be watching the Fed Cattle Exchange results today for price direction for the rest of the week. Also, recent reductions in price at retail stores, due to declines in beef cut prices, has helped bolster demand.

 

Hogs continue to run counter to typical seasonal trends with a huge bar to the upside on the charts, +2.075 at 82.575 (Aug) and +.925 at 68.800 (Oct). The pork cut-out continues to rise, up 43 cents yesterday to $103.95. Futures are trading at a large discount to the cash index. However, the long-term outlook is showing a production increase in the 3rd quarter of 155 million lbs., which is the largest in 8 years. The 4th quarter is expected to follow suit with a 710 million lb. increase, which would be the highest in 3 years. However, 1st quarter production is estimated to decline by 465 million lbs., according to the Hightower Report.

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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