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Closing Comments

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Closing Comments

 

Corn traded both sides of unchanged as traders try to position themselves for the USDA report on Thursday, -2 ½ at 3.69 ¾ (Sept) and -3 at 3.83 ¾ (Dec). Crop conditions fell another point to 60% good/excellent yesterday, compared to 74% last year and 63% average year-to-date. The all-important state of Iowa seems to be hurting the most with the pervading question – how much permanent yield damage was done with heat and dryness the third week of July? Currently from a weather standpoint, temps are cooler but rainfall is lacking, especially in IL and IA. Farther out in the less reliable two week model timeframe, more rainfall is predicted but not certain. The next 10 days will be important for grain fill. One has to go back to 2012 for the last August rally and it appears this year has the potential for a return visit. There is a total of 61 million acres of combined corn and beans that are at risk due to lack of soil moisture, more than double than recent years.

 

Soybeans joined corn with traders correcting and balancing positions ahead of the all-important report this Thursday, bumping into resistance at 9.80 area, +3 at 9.67 (Sept) and +3 ½ at 9.73 ¼ (Nov). And, weather was once again the central focus, as rains missed the southern and central areas of IA that so desperately need moisture. Forecasts are only predicting about .25” over the next week for these areas, so very little relief is in sight. Beans have been blessed in recent years with wet and cool Augusts, which has been great for grain fill. However, this year is not offering the same scenario, especially with all the additional acres planted in the dry Dakotas. Incidentally, today the Governor of ND sent President Trump a request for Disaster Relief for the drought-stricken state. A 48 bpa for soybeans is likely off the table, and 47 may be as well. The trade is estimating that the USDA will reduce their yield to 47.5 bpa with a crop of 4.212 billion bushels on 88.669 million acres. Ending stocks are predicted to come in at 401 million bushels for old crop and 424 million bushels for new crop, both down from last month.

 

Wheat is in the same boat with the other grains, as investors prepare early this week to be positioned for the USDA report on Thursday. Wheat is in an oversold condition, so could be positioned for a recovery bounce. U.S. and world ending stocks are tightening up. The USDA crop conditions update yesterday showed spring wheat improved one point to 32% good/excellent, compared to 68% last week and 68% average year-to-date. Much of this has already been priced in to Minneapolis’ ascent on the charts, but there is still room for a demand rationing rally later in the season. The other classes of wheat are surely to follow spring wheat’s lead to some extent, especially considering global concerns with dryness in Australia, Canada, etc. In Canada for instance, reports are rolling from farmers of spreading drought and building losses with all wheat crop estimates trending down. Minneapolis HRS +5, Kansas City HRW -6 ¼, Chicago SRW -6 ½.

 

Live Cattle built on yesterday’s sharp decline with more to the downside, -.275 at 112.475 (Aug) and –.525 at 110.600 (Oct). Funds are long and likely to sell as bearish fundamentals continue to weigh in on the market. Friday’s report showed managed money was still net long 102,526 contracts as of August 1st, which leaves plenty of room for long liquidation selling. The beef cut-out trekked lower to $202.72 from $205.75 last week and to its lowest level since February 27th.

 

Hogs were non-committal today with mixed results, +.125 at 83.525 (Aug) and –.375 at 67.750 (Oct). Futures are coming more into alignment with the CME Lean Hog Index down to 86.69 from 88.75 last week. October futures as of yesterday were still at a 1,842 point discount to cash compared to the five year average of 1,590.

 

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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