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Closing Comments

 

Corn broke down key support at 3.70 yesterday and continued down today, -2 ¾ at 3.52 ½ (Sept) and –2 at 3.66 ½ (Dec). Corn has not shown signs of a low, but could be a bargain if the yield ends up well below the USDA’s first stab. Bearish wet weather and large stocks in the U.S. and the world are weighing on the market. The Pro Farmer Tour next week may offer a glimmer of hope next week if actual field survey results show a different story than USDA estimates. Although it is doubtful that they will be low enough to reverse the downward trend in price. And, historically NASS’ numbers in near normal years with normal temps do not show a huge discrepancy related to a big overstatement on their part. Producers may have to wait until the Sept. 12th crop report for the next opportunity? EIA Ethanol numbers today were positive for corn, showing production up 4.64% over last week and 2.92% over last year. Ethanol stocks were also up 2.25% over last week and 6.87% over last year. Corn used in ethanol production was pegged at 111.2 million bushels, well ahead of the pace needed to achieve the USDA overall number of 5.45 billion bushels for the year. In South America, Argentina indicated that they are planning to plant 5-10% more corn acres (12.4 million) this September.

 

Soybeans traded both sides, as they have not shown signs that a low is in yet, even at 9.21 ¾ (Sept) and +1 at 9.25 ¼ (Nov). Weather is against the market as Kansas, Nebraska and west and southwest Iowa, all received good rains yesterday and more is on the way for the next five days and out into the 6-10 day forecast. It is likely that crop conditions will improve dramatically next Monday afternoon. The U.S. Commerce Dept. has decided to delay the ruling on biodiesel dumping by Argentina and Indonesia into the U.S. until October 19th. Will this delay result in long liquidation of soybean oil positions? It is worth noting that on Tuesday, representatives from 11 Chinese companies signed a ceremonial agreement to purchase 3.8 MMT of soybeans. While this did not seem to have market implications in the short-term, it is definitely good to have confirmation of continued Chinese buying, as it is critical to carry-out structure. And, Chinese crush margins continue to improve which could help U.S. exports even more, as Brazilian farmers appear to be holding onto bushels with the Real currency trading into new lows.

 

Wheat is dealing with the pressure of large supplies, with another down day for the winter wheats and a corrective gain for spring wheat. Egypt, the world’s largest wheat importer, was back in for a tender of 60K MT. This was their first since July 18th, and Russia is in the lead with the lowest bid, while the U.S. is not far behind with competitive pricing and a Dollar that is still at relatively low levels. Minneapolis wheat was trading over 20 cents higher in the overnight, but this was halved throughout the day, and did not seem to pull along the other wheat classes, as Chicago and KC finished sharply in the red, -10 ¼ and –7 respectively. Minneapolis HRS +14 ¼ (Sept).

 

Live Cattle had a very impressive break-out day yesterday, as buyers overwhelmed sellers. The discount of futures to cash has helped to buoy the market. However, today saw a reversal in trading sentiments, with a correction of –.575 at 109.475 (Aug) and –.725 at 108.325 (Oct). This year will likely be the most profitable ever for beef plants, as margins have been at high levels and have led to continued large slaughter numbers. Cattle weights have continued to rise and should eventually come into alignment with last year, which will add tonnage to already large supplies.

 

Hogs finally succumbed to pressure, led by the front month, with concerns related to NAFTA looming in the background, -1.750 at 68.775 (Oct) and –1.225 at 63.475 (Dec). Hogs have been playing tug-o-war, with bearish supply fundamentals on the horizon but yet great demand domestically and in exports. The slaughter rate increased this week by 3.6% over last year same time, but this could turn against the market if it is not able to digest the supply. The discount of futures to cash has helped both hogs and cattle to maintain their positions. Packer margins continue to be at an attractive level.

 

Other News When President Clinton signed NAFTA in December of 1993, it created the largest trade zone in the world. President Trump has been very critical of the pact for pushing many manufacturing jobs out of the country, but it has been a boon for agriculture. Today, marks the first day of re-negotiations in Washington D.C. between the U.S., Mexico and Canada. Ag exports have more than quadrupled for the U.S. under NAFTA and a lot is on the line.

 

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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