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Closing Comments


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Closing Comments


Corn succumbed to long liquidation and profit-taking ahead of Report Day and month end, -3 ¼ (May) and –2 ½ (Dec). The Commitment of Traders report out last Friday, showed managed funds still net long in excess of 200K contracts of corn, and they took the opportunity to take off risk. USDA weekly export loading data helped support, as it was pegged at 1,153,963 MT compared to estimates of 1,375,000 MT. According to the Ag attaché to Mexico, they will likely import 5% more corn this next year. While soybean meal has been the main focus regarding Argentina, crop scouts are now downgrading estimates of their corn production to 28-30 MMT. This compares with 39 MMT last year, and will definitely raise some eyebrows.


Soybeans saw some selling pressure as traders position themselves ahead of the Report, -2 ¾ (May) and –1 (Nov). The Argentina situation has continued to deteriorate, being looked at as a “worst case scenario”, as their crop may now dip below 38 MMT on poor yields and record large abandonment. What does this mean? It means there would not be enough soymeal to meet global demand and China would need to import more beans to process for SE Asia. Brazil is well into their soybean harvest, and estimates are now swelling to over 117 MMT, which would be a new record and would put them within range of the U.S. as the world’s largest soybean producer. On the USDA weekly inspection log, soybeans came in slightly above expectations at 584,612 MT vs. 550K MT. Two daily sales were also reported that included a private sale of 132K MT to “unknown” destination and 120K MT of soymeal to Spain for 2017/18.


Wheat was down across all varieties, with Kansas City HRW leading the way, -10 ½ (July). Chicago SRW was –5 and Minneapolis –4 (July). The next 10-14 do not hold much in the way of precipitation for the HRW Belt, according to the GFS weather model. The Plains drought is underpinning U.S. wheat, according to AgResource. Wheat conditions in Kansas continued to decline, showing 55% very poor compared to 53% previously. Wheat weekly export inspections were off for the week ending March 22nd, coming in at 278,815 MT compared to ideas of 375K MT. The USDA appears to still be too high on their wheat export estimate, and may need to make a downward revision.


Live Cattle took up right where it left off last week, -.875 (April). There has been a marked difference between cash and futures. Cash has traded relatively steady, while futures have dropped off substantially. This is not normal for March, which could support a rebound this week. The Cattle on Feed Report Friday was considered mildly bearish. Placements were at 107% compared to expectations of 104%, Marketings 102% vs 101% (slightly friendly) and On Feed 108% which was slightly above estimates. The COT report showed that funds liquidated their cattle positions to the lowest level since December 2016. Will 2nd quarter demand be enough to overcome large production?


Hogs trended lower once again, with April -.400 and June -.050. While China is levying a 25% tariff on U.S. pork in retaliation to U.S. imposed tariffs, China is not that big of a piece of the U.S. pork export pie. It is likely that supply chains will be redirected to fill gaps, if the PRC sources more from the EU and Canada. It is not a positive development, but may not be as damaging as would appear. The hog market is extremely oversold but has not signaled a low yet.


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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