Stewart-Peterson Market Commentary

Closing Commentary - July 16, 2018

Top Farmer Closing Commentary 7-16-18

CORN HIGHLIGHTS: Corn futures finished with gains of 1/2 to 1 cent, as May led today's gains, closing at 3.74-1/4. Nearby Sep gained 1/2, closing at 3.41-3/4 and Dec 1/2 at 3.55-1/4. On one hand, today may be considered a victory since the previous six Mondays all finished with losses. Prices worked lower on the overnight trade but managed to bounce back during the day, at times trading with gains of 3-4 cents before finishing without much fanfare. Support from higher soybean prices, as well as soymeal, may have given corn buyers reason to take a stab at going long. However, the wheat market lost near 10 cents, and this likely acted as a drag on price. Favorable crop conditions and a forecast that continues to look mostly conducive to growth and maturity will likely keep prices in check. However, it is only July 16; between tariff talk, fundamentals and technical selling, prices may have already factored in the brunt of all the negative news it can find, at least for now. On top of that, the market likely believes that the USDA estimate of a yield of 174 is too low.

SOYBEAN HIGHLIGHTS: Soybean futures posted a reversal, finishing with gains of 11-1/2 to 12-1/2, as May led today's rally. Nov closed at 8.45-3/4, up 11-1/2, while nearby Aug gained 10-3/4, closing at 8.29-1/2. Nov soybeans traded in range larger than Friday's and finished firmer while posting new contract lows; we will term this signal a bullish key reversal. While this may mean little, it could mean a lot - especially if the market begins to find support. It could be signaling a long term turnaround. On the political front, there were rumors today that communication between the US and China could be on a supportive track may have spurred today's turnaround. Weekend weather was considered mixed, as beneficial rains helped some. Southwest parts of the Midwest remain critically dry, and these areas will quickly reach a point of no return for bean production. From a long term perspective, the market's concern is demand. Last week the USDA took a preemptive strike indicting less world demand due to tariff issues. If these were to be resolved, there may be strong adjustments another day to the usage side of USDA reports. Our bias is that it is a win for all sides if tariff issues can be resolved, or at least negotiated through to a point of more regular trade expectations.

WHEAT HIGHLIGHTS: Wheat futures finished with losses of 2 to 3-1/2 Mpls and 7-1/4 to 7-3/4 KC. Chi Sep lost 8-1/2, closing at 4.88-1/2. After two consecutive up days, today's downturn and failure at the 21-day moving average was viewed as disappointing. While the one day does not make a market, the weakness that had settled in throughout the session was a disappointment to bullish traders. In addition, today's price reached the highest level since 7/10, but the close was not overly impressive. Export inspections at just over 17 million bushels were termed unsupportive or bearish. The market would like to see more, in particular with the Black Sea region struggling with production this year due to drought. Nonetheless, the world has ample wheat supplies. For now, we will look at export inspections as a positive despite numbers being on the low side. Harvest pressure will continue to exert itself, in particular with SRW maturing between this week and next.

CATTLE HIGHLIGHTS: Live cattle futures put in a solid start to the week, taking advantage of a wider than normal discount of futures to the cash market. The nearby Aug live cattle contract closed 2.37 higher to 106.92. Oct closed 1.27 higher to 108.65, and Dec closed 1.30 higher to 112.70. Feeders were up as well, with Aug 1.65 higher to 152.37. Sep was up 1.37 to 152.45. Packers paid 111 for cattle last week in Texas, giving the front month Aug, in particular, some room to bounce today. Some believe that cash trade will stay relatively steady this week because packers are not trying to aggressively forward contract cattle. With cattle markets bear spread, it makes more sense to purchase slaughter inventory as needed. On Friday, choice beef cuts closed 2.44 lower to 204.14. This is the lowest choice value since 12/29. Choice cuts were down another 30 cents this morning to 203.84, and the choice to select spread has tightened to 6.70. Current cattle prices, losses at feedlots and cheap grain have many traders concerned that feedlots may start to add too much weight, a bearish supply factor. Today's price action was impressive but not technically a key reversal. The Aug contract put in its highest close since 3/19. After closing above multiple moving average levels, the next upside target is at the 200-day moving average at 109.05.

LEAN HOG HIGHLIGHTS: Hog futures pushed lower today, though were able to remain within their recent trading ranges. The Jul contract went off the board today 20 cents lower to 79.75. Aug closed 95 cents lower to 69.20, and Oct closed 1.30 lower to 54. Hog markets continue to be pressured by production that is ramping up at the same time trade tensions are threatening pork export potential. On last Thursday's USDA Supply and Demand report, 2018 pork production was increased by 30 million pounds, and 2019 production was increased by 90 million pounds. Ending stocks were left the same as reported last month, but if exports start to decline, supplies could inflate quickly. In addition, the USDA is expecting a 180 million pound production increase from quarter 2 to quarter 3, the largest in nine years. On Friday, carcass cutout values closed 31 cents higher to 83.82 but were back down 8 cents today to 83.74. Today's price action was not bullish, but contract lows were held, and prices remain within current consolidation levels. The current discount of Aug futures to the cash market is over twice the size as is normal for this time of year, but it is hard to ignore the fundamental picture at this point.

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