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Closing Comments

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Closing Comments

 

Corn showed mixed emotions as traders are wary to overcommit, closing even at 3.74 ¼ (Sept) and + ¼  at 3.88 (Dec). The drought monitor is showing expansion to the southeast from Montana and the Dakotas, and the big question remains as to how this will impact yield and overall production? The trade appears to be a bit conflicted on whether there will be another reduction in crop conditions on Monday afternoon. It is probably more likely to continue its downward track to the tune of 1-2%. The extended forecast is trending dryer with the next rain event about a week away, keeping the bears at bay. Outside markets were also supportive today, with crude and gold up and the Dollar weak.  The Commitment of Traders report will be announced later this afternoon, which will bring clarity to managed fund position changes since last week.

 

Soybeans found support in dry weather outlooks and soyoil prospects, +6 at 10.06 (Sept) and +5 ½ at 10.13 (Nov). With 14% of the soybean crop planted in the Dakotas where they are seeing poor to very poor conditions at 33% and 25%, there is major concern for beans. If the market perceives carry-out to be cut in half for instance, due to a lowered production estimate, the market is going to rally. Supply driven rallies are not typically of long duration, especially with the next South American crop around the corner, so it will be important for farmers to act in a timely manner when opportunity presents. On a weekly chart, it is clear we are at a point of decision, with the weather report to start the week pivotal. Look for a test of resistance up in the $10.35-10.45 area or a possible fall to levels below $10. Soy oil made a nice gain today as it was announced that a court decision ruled against the EPA regarding their reducing the RVO in biofuel. Will the EPA appeal? It is likely but in the meantime this only adds to bullish sentiment.   

 

Wheat was up again but finished timidly, with Minneapolis in the lead. The Spring Wheat Tour wrapped up yesterday, and estimates were not impressive. The yield was tabulated at 38.1 bpa compared to 45.7 bpa last year and 46.8 bpa five year average. A question left unanswered is how many acres were lost to abandonment? Minneapolis futures used this to their advantage, gaining +5 ¾ at 7.42 ¼ (Sept). The wheat market has made a large correction after its recent highs, but export demand should stay strong, helping neutralize large supplies. Chicago SRW ended +1 ¼ at 4.81, while Kansas City HRW was even at 4.81 (Sept).

 

Live Cattle succumbed to pressure that has been building on the market this week with cash trending down and large supplies on the horizon, -1.400 at 112.900 (Aug) and –1.150 at 112.425 (Oct). The large traders are still holding a huge net long position, so long liquidation is definitely a factor. Japan is moving to increase its tariff on U.S. frozen beef from 38% to 50%. They have the right to impose an emergency tariff if imports increase by 17% over prior year. Australia and Mexico are exempt because they have a free trade agreement with Japan. But, Japan has a big appetite for U.S. beef and it is unlikely that this is going to slow down demand by that much in the short term. The total U.S. beef cow herd is 4% larger than last year, so any threat to demand is to be taken seriously.

 

Hogs followed cattle’s lead, giving way to bearish fundamentals with large supplies ahead in the 3rd and 4th quarters, -.850 at 81.400 (Aug) and –1.175 at 66.500 (Oct). The pork cut-out values that came out after the close yesterday, confirmed continued declines, down $.78 from Wednesday to $99.23, and down from last week’s $103.35. This coupled with weak Chinese demand, did not entice buyers today.

 

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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