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Closing Comments


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Closing Comments


Corn was the crop getting the most attention leading into today, as the August USDA report tends to give corn a more accurate yield estimate from a historical perspective. However, analysts and traders were greeted with an unexpectedly high prediction at 169.5 bpa, a small reduction from the 170.7 bpa offered up on the first report – most were expecting something closer to 166 bpa. The ear weight used by NASS was the difference maker, the 3rd best of all time and the analysis did not take into account pollination issues. Whether this is right or wrong, it will take until the September/October timeframe to confirm. In the meantime, this has added a bearish tilt to the market that will likely take us into harvest, with seasonal lows still to come? USDA export weekly sales announced today showed corn solidly within expectations of 500K-900K MT, made up mostly of 2017/18 sales of 628,400 MT. The Pro Farmer Tour is the next big event on the schedule, starting on August 21st.  Corn results included –15 at 3.57 ¼ (Sept) and –15 ¼ at (Dec).


Soybeans rallied briskly leading into the report but failed miserably thereafter, -32 at 9.34 (Sept) and –33 at 9.40 ¼ (Nov). The report was bearish and the midday weather report is showing wetter in both the 1-5 and 6-10 day outlooks. To the markets’ surprise, the USDA raised the yield estimate from 48.0 to 49.4 bpa, 0.9 bpa above last year. Industry expectations averaged 47.4 bpa. This puts production at 4.381 billion bushels on 88.7 million acres. Ending U.S. stocks for 2016/17 came in lower at 370 million bushels compared to the last estimate of 399 mbu, while 2017/18 ending stocks rose to 475 mbu from 428 mbu. Illinois’ results raised the most eyebrows as the USDA pegged yield at 58 bpa, only 1 bpa off last year. The August report does not evaluate pod numbers/weights, so it is likely this report will offer the highest number of the year. Regardless of everyone’s beliefs and sentiments, the USDA has spoken and the market reacted accordingly. Weekly export sales announced by the USDA were on the upper end of expectations of 300K-750K MT at 684,300 MT. This number was comprised mostly of 2017/18 sales which tallied 639,300 MT. Crop condition ratings next Monday are more likely to decline than improve.


Wheat is all about world production and with some major areas dry, i.e. Australia, Canada, parts of Europe and the Ukraine, the focus was on Russia and if they could make up some of the difference. And, make up the difference they did, as WASDE put ending world stocks at a record high level of 264.7 MMT, which is up 4 MMT from July. This was due mostly to a large hike in the Russian yield to 77.5 MMT and Ukraine also getting a boost, offsetting other problem areas such as Canada and Europe. U.S. wheat production was reduced from the last report by 21 mbu, led by spring wheat. There will also be more adjustments ahead which will reflect the increased abandonment of acres. Wheat made a strong showing on the weekly export sales log, coming in at 464,200 MT, on the upper end of the range of estimates of 250K-500K MT. However, wheat was down sharply with the other grains: MN -25 ¾, KC -15 ½, Chicago -19.


Live Cattle is struggling with big supply at the feedlots, -1.150 at 108.850 (Aug) and –1.450 at 106.600 (Oct). Sellers have been proactive in the cash markets, taking advantage of the premium to futures. Cash prices have fallen by around $3, from last week’s levels. The boxed beef cut-out closed 59 cents lower yesterday to $201.66. The slaughter level was at a high level this past week at 637K cattle, which will need to continue to stay current with feedlot supply levels. Profitable margins at beef plants have helped to drive high slaughter rates. Technically, cattle took out and closed below the 200-bar moving average, a key level of support.


Hogs gained modestly in the front month, but showed mild losses in the deferred months, +.325 at 84.450 (Aug) and –.275 at 67.975 (Oct). The U.S. hog market is very dependent on exports, particularly to Asia. It is important with all the geopolitical issues going on that the U.S. is able to maintain sales to China, Japan and others. And, that includes Mexico, who is the number one importer of U.S. pork. The question to be answered – will the market finally succumb to seasonal trends?


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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