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Water Street Solutions

Water Street Solutions Daily Report 2017.8.18
2017-08-18T02:38

Corn traded in a narrow range, trending mildly positive to finish the week, +1 ½ at 3.52 (Sept) and +1 ½ at 3.65 ¾ (Dec). The weekly chart is trading at the lowest level this year. The attention is turning away from weather to crop tours, with the Pro Farmer kicking off on Monday. Exports are down this year as expected with the large South American crop taking the lead, as the 2017/18 YTD corn sales are at 14% of USDA forecasts compared to 35% in an average year at this time. Ethanol got a bearish report from the EIA with large stocks, but margins continue to be around 10 cents in the black. Watch for results from the Commitment of Traders report later this afternoon, to see how positions changed after the USDA report last week.

Soybeans were able to build on yesterday’s gains, scratching out another few cents, +7 ¼ at 9.37 ½ (Sept) and +4 ¾ at 9.37 ¾ at (Nov). Weather is a bigger story in this sector, and it was a mixed bag this week with some storms hitting and others missing. The trend for the next few days is not offering a lot of precipitation, although will be cool. The charts are oversold and looking to level out, and the increased export demand by China is helping the cause. The Chinese are taking advantage of the lowest U.S. soybean prices since early summer. This, coupled with Brazilian farmers tending to hold on to their crops with the unfavorable Real currency valuation. Look for crop conditions on Monday to show improvement and for crop tours to give another perspective to consider next week. 

Wheat has maintained an oversold position and is overdue for a correction, as managed funds are holding a significant short position. The market ended on a positive note for the winter wheats  with Kansas City HRW + ¼ and Chicago SRW +2 (Sept). Minneapolis had a small setback at – ½  (Sept). U.S. wheat is the cheapest in the world and buyers are taking notice. While the global wheat price is up $.40/bu over last year, the U.S. wheat futures are unchanged or slightly below. Russia’s harvest has been delayed by weather, but is still ahead of last year at this time. SovEcon is predicting Russia’s total grain exports to increase by 3.3 MMT. Australia on the other hand, is continuing to show declining yield prospects as Rabobank pegged the wheat crop at 22 MMT in comparison to the USDA’s view of 23.5 MMT. But, world record ending stocks loom in the background as a damper on thoughts of rallying. 

Live Cattle is trying to find a low enough price to level out supplies, -.750 at 106.375 (Aug) and –.325 at 105.900 (Oct). Cattle weights are a closely monitored barometer of supply, and average dressed steer weights for the week ending August 5th up to 880 lbs from 875 last week. The five-year average for that week is 874.2 lbs. It is thought that traders are of the persuasion that cash prices will continue to decline and pressure futures as cattle supplies grow in the fall. Consumer demand is also falling, which is expected for this time of year.

Hogs have seen sharp declines since Wednesday, with futures ending the session –.800 at 66.125 (Oct) and –.475 at 61.325 (Dec). Although the lean hog index continues to decline, cash continues to hold a large premium to futures. Supplies are large but export demand is strong. It has been reported that Argentina has agreed to allow U.S. pork imports for the first time since 1992. Will demand be able to keep up with bearish supply fundamentals?


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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.8.17
2017-08-17T03:58

Corn could not find a story today to bolster optimism, -2 at 3.50 ½ (Sept) and –2 ¼ at 3.64 ¼ (Dec). The attention is shifting away from weather to field surveys, with the Pro Farmer Tour starting Monday. Two private groups in IL gave results from their field surveys and they showed that yield is down 10-20% from last year. Many are skeptic of the USDA report last week, and are looking for a reason or confirmation that the crop yield is not nearly as high as predicted. Weekly export sales announced by the USDA were solid, for a total of 734,200 MT, of which 671,800 MT was for 2017/18. Expectations ranged from 600K-700K MT.

Soybeans were up as less rains fell on important areas of IA and IL that are deficit of soil moisture, +8 ½ at 9.30 ¼ (Sept) and +7 ¾ at 9.33 (Nov). Limited rain events are in the forecast for the next 10 days, which is prompting concerns of pod abortion if a nice rain does not materialize. The USDA announced a private sale of 165K MT of optional origin soybeans to China. The U.S. is in a favorable export position as Brazilian farmers are holding on to their grain with low prices resulting from their weak currency. USDA weekly export sales came in well above estimates of 300K-800K MT, as the USDA pegged 2016/17 sales at 453,200 MT and 2017/18 at 899,400 MT. 

Wheat was a drag on the grain complex today, down across the board – Minneapolis HRS -4 ¼, Kansas City HRW -5 ¼, and Chicago SRW -5 ¼. The USDA announced weekly export sales above estimates of 300K-600K MT at 633,500 MT. The weak Dollar has been supportive, trading in a range that is the lowest in 15 months. U.S. wheat is staring at the prospect of higher future demand, as world supplies continue to be downgraded. Australia and Canada’s crops will be down almost 20 MMT due to dryness, the U.S. crop will be off over 15 MMT and Europe will be down 1.5-3.0 MMT. So, even though Russia is up 5-7 MMT on their harvest, it will not fill the void. 

Live Cattle exhibited the volatility that has become commonplace as of late, dropping more gains, -2.350 at 107.125 (Aug) and –2.100 at 106.225 (Oct). In the short term, liquidation selling is in control, but there is hope that other factors such as the large discount of futures to cash and the prospect of increased imports to China will win out. Boxed beef cut-outs were down to their lowest level since February 23rd at $197.51.

Hogs followed yesterday’s downward momentum with more futures losses, -1.850 at 66.925 (Oct) and –1.675 at 61.800 (Dec). Follow through selling was the trend of the session, as bearish factors such as increased weights, higher slaughter numbers and weakness in pork bellies weighed on the market.


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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.8.16
2017-08-16T03:17

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.


In 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. 

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.8.15
2017-08-15T02:03

Corn was not able to overcome favorable weather forecasts and improved crop conditions, -7 ½ at 3.55 ¼ (Sept) and –7 ¾ at 3.68 ½ (Nov). The spec buyers seem to be biding their time to see how weather turns out before adding more length. The USDA announced an increase in corn ratings from 60% to 62% good/excellent with IL, NE and MN all showing improvement while IA declined 3%. Iowa corn conditions have dropped nine straight weeks. Corn silking is at 97% compared to 99% last year, dough progress is 61% complete vs. 70% last year and dented progress is seen at 16% complete compared to 19% last year. On the world scene, South Korea announced a snap tender for 70K MT of corn, but nothing has been finalized as they are still looking for the lowest offer. The Pro Farmer tour begins next Monday and ends Thursday - this will be closely watched for actual field results.

Soybeans continued their descent, in spite of a reduction of 1% to 59% good/excellent soybean ratings, -11 at 9.21 ¾ (Sept) and –14 at 9.24 ¼ (Nov). Illinois and Iowa both saw reductions in their crop conditions. But, with weather showing more favorable at this critical juncture, no one is counting out this bean crop yet, in spite of the ratings. If rains materialize this week, November beans are well on their way to challenging the 9.07 low put in on June 23rd. Buyers are taking advantage of attractive pricing, as two orders were reported for the 2017/18 timeframe – 132K MT sold to “unknown” destination and 132K MT sold to the Chinese. The Brazilian Real is at a low which is encouraging the Brazilian farmer to hold onto his crop, and is likely to benefit U.S. exports. The NOPA report offered some positive news, as July soymeal exports were up to 596,767 MT compared to last month’s 562,684 MT, soyoil stocks were lower than the expected 1.62 billion lbs. at 1.558 billion lbs., and the soybean crush was pegged at 144.72 mbu vs. the estimated 143.0 mbu. 

Wheat found weakness in a stronger Dollar and bearish picture for all the grains, -11 ½ at 4.29 ½ (Chicago Sept). Kansas City and Minneapolis were right in step at –10 ¼ and –11 ¾ respectively. While the market rebounded later in the session yesterday, wheat had a tough time doing a repeat performance, as investors look to shed length. Is speculative liquidation in MN and KC futures done yet? Winter wheat was reported to be 97% harvested by the USDA. Spring wheat’s good/excellent rating went up to 33% but is still well behind last year’s 66%. It is also worth noting that 42% of the crop is rated poor/very poor. Is the wheat market too cheap? One must remember when looking at world fundamentals, that even though Russia is expected to have such a large crop which will offset other dry areas of the world, they are only able to export 29-30 MMT due to infrastructure challenges. 

Live Cattle rallied sharply late in the session to finish, +1.000 at 110.050 (Aug) and +2.450 at 109.050 (Oct). This in spite of multiple factors working against the cash market. Corn is cheap, there is a hefty slaughter pace, the weather has been nice and the beef market is the lowest that is has been since February. And, managed money was last seen holding a net long position of 94,768 contracts. The USDA estimated cattle slaughter came in at 119,000 head yesterday. That is up from 118,000 last week and up 112,000 from a year ago this time.

Hogs made positive gains today closing +1.350 at 70.525 (Oct). Cheap corn and cooler weather are two factors that could cause weights to turn up soon. If the slaughter pace returns to running 3.5% - 4.0% above last year, the market may have difficulty absorbing the large supply flow. Yesterday’s USDA pork cutout values came in at $93.59. That is 7 cents lower than Friday and down from $97.00 the previous week.


In other news, there has been quite a disparity between crop conditions and yield predictions, as crop conditions are significantly lower than last year while yields have not reflected in kind. NASS Chief, Lance Honig, explained to Ag Day that crop conditions and crop yield estimates are two different reports collected by two different groups within the USDA. Crop conditions are put together at the county level by a list of reporters based on what they see and hear, which is different than asking for an estimate of what yield will be. 

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.8.14
2017-08-14T03:19

Corn traded on both sides of unchanged throughout the session closing +2 at 3.62 ¾ (Sept) and +1 ½ at 3.76 ¼ (Dec). The price fluctuation is thought to be based on whether or not forecasted mid-week rains for drier areas of Iowa and Illinois will come to fruition. Traders expect this afternoon’s crop rating to be 59% to 60% good to excellent compared to last year’s 74% and a 63% long-term average. Weekly USDA inspections did not meet expectations coming in at 756,935 MT vs. expected 875,000 MT. Managed money traders reduced their net long position yet again (-17,571 contracts) totaling 37,597 contracts over the past 4 weeks.

Soybeans fell to their lowest price since June during the session but managed to gain back ground closing -5 ½ at 9.32 ¾ (Sept) and -6 ¾  at 9.38 ¼ (Nov). The weather forecast for the week includes some much-needed precipitation for Iowa and Illinois. The rains are not expected to alleviate all dryness in the area; however, a nice soaking rain on the bean crop in those areas will still have a positive effect on final yield. Traders are expecting this afternoon’s crop rating to show soybeans 59% to 60% good to excellent compared to last year’s 72% and a 61% long term average. Weekly USDA inspections exceeded expectations coming in at 570,012 MT vs expected 450,000 MT. August beans go off the board today. Being a low volume month, no significant chart implications are expected on the roll to Sept. 

Wheatlike the other grains, traded considerably lower of unchanged for a majority of the session and made a comeback towards the end of the day closing -4 at 6.70 (Minneapolis HRW Sept), -4 ½ at 4.36 ¾ (Kansas City HRW Sept) and +1 ¾ at 4.41 (Chicago SRW Dec). While weather is the main cause behind the other grains weakness, the funds continuing to liquidate their burdensome long position in both MN and KC is likely the cause of wheats fallout. Traders are expecting this afternoon’s crop rating to show corn 59% to 60% good to excellent compared to last year’s 74% and a 63% long term average. Weekly USDA inspections did not quite meet expectations coming in at 511,528 vs expected 515,000. In world news, Saudi Grains Org. announced it bought 660,000 MT of feed barley in a tender. 

Live Cattle prices fell throughout the day closing -.675 at 109.050 (Aug) and -.800 at 106.600 (Oct). With beef prices down to the lowest level since February and slaughter up 10.7% from last week, the cash cattle trend looks to remain down. February cattle seems to have the supply fundamentals to find some support soon.

Hogs traded lower today closing -.200 at 84.450 (Aug). Slaughter is running 1-2% above last year but Hogs and Pigs data suggested we should be seeing slaughter up 3.5% to 4.0% above last year. Fourth quarter pork production is expected to be up 740 million pounds from the third quarter which would be the largest increase in 10 years.


Other News
The US Midwest Pro Farmer corn and soybean crop tour is scheduled to start Monday, August 21. 

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.8.11
2017-08-11T01:53

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Corn made modest gains after the bearish news from the USDA yesterday, +3 ½ at 3.60 ¾ (Sept) and +3 ¾ at 3.74 ¾ (Dec). Crop conditions, ear counts and ear weights are the metrics behind the August report. This is the second largest yield estimate published by the USDA. The difference being, 2014-2016 the crop conditions lined up with where we final yield ended up. Of the Big Four corn states, Illinois, Iowa and Nebraska, three were down from last year, while Minnesota was up. Nebraska is 17% behind G/E condition but 5 bpa higher in yield. That is a tough one to explain. The Southern states were almost all at double digit yield, but total production acres are down, a total of only over 5 million acres combined. This year shows a drastic difference in crop conditions, but a much higher yield. For instance, the other head-scratcher is the way ear weights were tabulated, seen as the 3rd highest of all time. Considering growing conditions thus far, ear weights should not be on par with 2014 and 2015. We are a week to 10 days from “game over” when it comes to making the corn crop at this point. The USDA has four more reports to whittle it down to 162-165 bpa (Sept, Oct, Nov, Jan), if this is the actual yield.

Soybeans also made modest gains today, +4 ¼ at 9.38 ¼ (Sept) and +4 ¾ at 9.45 (Nov). Crop conditions were down 14% across the country but yet the bushel/acre stat was pushed up to 49.5 by the USDA. The story from growers is that “if I get a rain” the pods are there and I will get a crop similar to last year, but without rain will probably be a yield in the 40’s. Dicamba continues to be the talk in the coffee shops, with neighborly relations being strained in some instances. It seems almost everyone has been affected in one way or another. But the negatives could be washed away with a 2” soaking rain across the country. Without it there has been too much damage to areas that has not healed up. The last several Augusts have played out cool and wet, which produced the records and allowed the genetics to really run to maximum yields. This August has been cool but rain has lacked in areas. For instance, in areas of Iowa, they received over 9” less than normal rainfall from May 1st to August 1st. Soybeans could be anywhere from 48-50 bpa or 43-45 bpa depending on weather. Every bushel we lose is 90 million bushels of carryout, so carryout could evaporate quickly, which in turn will be magnified in price. China did not waste time taking advantage of low U.S. prices, as the USDA reported a private sale of 120K MT of soybeans with half for 2016/17 and half for 2017/18. 

Wheat saw continued unwinding of net long positions in the high protein variety. Minneapolis HRS -31 ½, Kansas City HRW -7, Chicago SRW –1 ¼ (Sept). The market was caught by surprise by the report as spring wheat did not see nearly the reduction expected. All U.S. wheat production was penciled in at 1.739 bbu while the trade was looking for 1.710 bbu. Distrust seems to be building with the USDA’s slow response to crop problems in the field. Additionally, U.S. 2017/18 ending stocks were lowered a mere 5 mbu while average expectations looked for a reduction of 30 mbu. Wheat is also very influenced by the international scene, and the bearish sentiment there. The USDA increased world carryout for 2016/17 from 256.43 MMT to 258.56 (this morning’s adjustment), and 2017/18 was the bigger surprise with a gain of over 4 MMT when trade was expecting a reduction. IKAR upped Russia’s wheat production estimate to 77-80 MMT from 74-77 MMT and SovEcon followed suit with a raised estimate of 77.9 MMT compared to 72.9 MMT, while the USDA offered 77.5 MMT. This neutralizes negative numbers from Australia, Canada, parts of Europe, etc. due to dryness issues. 

Live Cattle corrected from yesterday’s long liquidation selling for gains today, +.875 at 109.725 (Aug) and +.800 at 107.400 (Oct). Steer and heifer weights continue to rise, coming into closer alignment with last year. Cheaper feed from the fall in grain markets should help to spur higher weights in the weeks ahead. Beef production is also up 4.1% over last year.

Hogs trended higher today to finish the week, +.200 at 84.650 (Aug) and +.650 at 68.625 (Oct). With corn feed less expensive now, this may prompt growers to feed hogs out to higher weights, increasing the supply. Will exports remain strong enough to offset bearish supply numbers in the 3rd and 4th quarters? NAFTA talks have begun in Mexico with a lot riding on the line with America’s major trading partner – stay tuned. 

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.8.10
2017-08-10T02:26

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? 

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 they may not be suitable for all investors.

Water Street Solutions Daily Report 2017.8.9
2017-08-09T03:18

Corn saw traders maneuvering for position in anticipation of the big USDA report tomorrow, +2 ½ at 3.72 ¼ (Sept) and +2 ½ at 3.86 ¼ (Dec). To what extent will bushels/acre be reduced from the previous report’s 170.7? It was reported that the input data from the Wescott-Jewison model came in yesterday at 166 bpa. The government will utilize this data as part of their calculation in addition to farmer surveys and ear counts. The wild card this year is the ear count, and if this comes in 3K below normal (like some in the seed business are claiming), sub-166 could be a reality. Another component to tomorrow is the USDA’s FSA early a.m. release of their monthly acreage numbers which will give more clarity to prevent-plant and failed acres ahead of the 11am WASDE report. EIA weekly ethanol production was reported up 1% compared to last week and down 0.59% vs. last year. Ethanol stocks were also up, building to 21.347 million barrels, up 2.37% compared to last week and 4.34% over last year. Corn used for ethanol continues to chug along at a solid pace at 106.26 million bushels, while needing to produce only 76.811 million bushels/week to keep pace with the USDA overall annual estimate of 5.45 billion bushels.

Soybeans moved back and forth from positive to negative, as traders idle their engines waiting for tomorrow’s results, -1 at 9.66 (Sept) and even at 9.73 ¼ (Nov). The weather forecast is basically unchanged, with a drier bias for the coming week and possibly more precipitation thereafter. The crops in western Iowa and the Dakotas have rain in the 6-10 and 8-14 day forecasts, which is prompting thoughts of recovery. Cooler temps will also continue to prevail. The focus is on dry areas of IL and IA, as both are heavyweight corn and bean powerhouses. It was reported by the USDA that a private sale of 130K MT for 2016/17 was canceled by an “unknown” destination. China’s record import data is continuing to support the market though, and is serving as a counter-balance to bearish supply. Even if soybean yield is pegged at 47.5 bpa or above, the trade may buy anyway as concerns regarding late planting, drown outs, under-sized plants, dicamba drift and pervasive dryness may win out. 

Wheat diverted from the recent pattern of spring wheat leading as Minneapolis brought up the rear, while Chicago and KC led with modest gains, MN +1 ½, KC +3 ¼ and Chicago +2 ½. Wheat is expected to see some reduction in world stocks in tomorrow’s report, with less than optimal growing conditions in Australia, Europe, China and the Ukraine. In the U.S. the reduction will come almost entirely from the spring wheat and durum sector while the winter wheats should be similar to July’s report. Some are skeptical of the USDA at the present, as previous estimates have seemed out of touch with the reality of the crop problems that have been experienced. Look for some volatility in the markets tomorrow. 

Live Cattle moved sharply lower today, -2.475 at 110.000 (Aug) and –2.550 at 108.050 (Oct). Big supplies are influencing mindsets, as improved demand will be needed to keep pace. Technically, the market is weak and managed funds are holding a very large net long position, which could open the door for more long liquidation.

Hogs once again managed to forge decent gains in the face of bearish supply fundamentals to come, +.600 at 84.125 (Aug) and +.500 at 68.250 (Oct). It will be difficult for the market to maintain strength if slaughter numbers and weights gain simultaneously. The pork cut-out value continues to decline, as it was at $94.68, down $2.32 from Monday and at the lowest level since June 15th. 

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 they may not be suitable for all investors.

Water Street Solutions Daily Report 2017.8.8
2017-08-08T01:56

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 -3at 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.

Hog 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. 

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 they may not be suitable for all investors.

Water Street Solutions Daily Report 2017.8.7
2017-08-07T03:17

Corn had a positive start to the week as traders were feeling uncertainty with mixed weather and the unknowns of the USDA report on Thursday, +5 ¾ at 3.72 ¼ (Sept) and +5 ¾ at 3.86 ¾ (Dec). Weekly inspections announced by the USDA did not disappoint, as they eclipsed estimates of 875K MT coming in at 979,006 MT. Additionally, the USDA reported a private sale of 180,800 MT of corn to Mexico for 2017/18. The big question of the week - which side of 165 bpa will the USDA put its flag in the ground on Thursday? This could have a big psychological impact on the market because of its potential impact on the overall carryout above or below 2 billion bushels. In the meantime, look for this afternoon’s Crop Progress report for any surprises, as the trade is expecting unchanged to a possible small improvement from last week. Other market factors to consider include the managed funds trimming back their corn position to an estimated 18,000 contracts long, corn shipments were up last week, as well as ethanol closing at the highest level in three months and maintaining good profitability. Corn is hardly in a state to become too bearish at this juncture.

Soybeans traded higher on weather uncertainty and balancing of positions in front of the USDA report on Thursday, +11 ¾ at 9.64 (Sept) and +13 at 9.69 ¾ (Nov). While cooler temps are buying plants time to recoup, if weather continues to stay dry out through the August 18th timeframe, crop conditions will deteriorate, with roots not getting adequate moisture. The USDA reported a private sale of 260K MT of soybeans to “unknown” for 2016/17. This on top of a strong showing on the weekly export inspection report, which showed beans were well over expectations of 450K MT at 685,697 MT. There are some concerns surrounding China and soybean demand as they have a backlog of cargos at their ports, resulting in them reselling at least eight of them. Their crush margins are also in the red, which is not helping the situation. With China being the largest global buyer of beans, any perceived slowdowns or threats of cancellations creates uncertainty and fear in the market. The Crop Conditions report this afternoon is expected to show possibly a one percent increase in good/excellent conditions. 

Wheat does not have much in the way of news ahead of the USDA report later this week, but was able to find support in a weak Dollar and trader uncertainty. Minneapolis is back in the driver’s seat of the complex, and the USDA is expected to make some adjustments to its numbers on HRS. How will this be received by traders, and will there be any further surprises? The chart for MN is much stronger than for Chicago or KC, and if Minneapolis is able to move into new highs again, it is likely to pull the others along to some extent. Wheat also is intertwined with corn from the standpoint, that if the price differential drops below 75 cents, wheat can be substituted for feed. On the other hand, if wheat is able to rally, corn will certainly be influenced. Not to be outdone on the weekly export inspection rolls, wheat posted a solid 586,149 MT vs. estimates of 515K MT. Wheat exports have been a pleasant surprise this year and the trend is likely to continue with  less than stellar Australian, Canadian, Ukraine and Brazilian crops. Minneapolis HRS +10 ¼, Kansas City HRW +7 ¼ and Chicago SRW +8 ¾. 

Live Cattle succumbed to bearish fundamentals of large supplies ahead, as big placements from earlier in the year are bringing reality to bear, -2.700 at 112.750 (Aug) and –2.975 at 111.125 (Oct). Potentially adding to supply is the cool weather and cheap feed in the plains, which could add to cattle weight. Cattle weights have been creeping up, but are still 13 lbs. behind last year. The cut-out made some nice gains as Choice was up $1.55 to $203.61 and Select was up 47 cents to $197.31.

Hog have continued to rally in a bear market, with seasonal down trends looming in the background, +.175 at 83.400 (Aug) and +1.350 at 68.125 (Oct).  The pork cut-out lost more ground as it fell 98 cents, led by bellies. Through June, U.S. pork exports are up 13% over last year, with China continuing to decline while Mexico has become clearly the largest consumer of U.S. pork. In June, Mexico’s imports were up 18.3% while China was down -39.7%. Japan is the second largest importer of U.S. pork. The U.S. needs to shore up bilateral trade agreements with both countries in the near future to ensure long term sales. 

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 they may not be suitable for all investors.

Water Street Solutions Daily Report 2017.8.4
2017-08-04T01:50

Looking for farm business skills in a podcast format? Search for “Modern Farm Business” in your favorite
podcast app or find the latest episodes at modernfarmbusiness.com

Corn limped in today with a double-digit loss for the week, but the market was able to turn the tide with balancing of positions heading into the weekend, +3 at 3.66 ½ (Sept) and +3 ¼ at 3.81 (Dec). We have seen fireworks following the weekends, mostly negative as of late. Friday afternoon Commitment of Traders reports on fund positions, Sunday weather forecasts and Monday afternoon crop condition reports have been very influential. While weather continues to trend favorable for crops, a lot of the damage has already been done to corn plants that is not reversible compared to beans that could improve yield prospects. It has been a story of the “haves” vs. the “have nots” this year, with some areas receiving generous precipitation while others have suffered under drought. Will the USDA reduce their production estimate from 170.7 to the 166 bpa or lower area? Most analysts feel that the market should be below 166, with estimates ranging from 162.8 (FC Stone) to 165.9 (Informa and AgResource).

Soybeans have had a rough week, losing 51 points leading up to today. While the USDA report on the 10th is important, the timing is more impactful for corn, as estimates will not be nearly as accurate for beans with most of August ahead. Current thinking says that bean yield estimates may be reduced by the USDA from 48 to 47.5. Will the USDA adjust the soy carryover down by over 30 million bushels due to better than expected Chinese imports for the 2016/17 crop? The benign forecast with cool temps and rains to come is favorable to bean yield. In currency, the Brazilian Real continues to trade near recent contract highs, while the Dollar hit a 15-month low this week but rebounded for a large gain today as traders bought into its oversold condition. Futures were –1 ¾ at 9.52 ¼ (Sept) and –3 ¾ at 956 ¾ (Nov). 

Wheat has experienced a significant break across the complex this week, and finished with mixed results heading into the weekend. There is not a lot of news for the market to latch onto, as attention is now squarely on the next USDA report on Aug 10th. Rolling of contracts will start on Monday, which may spark some movement. Informa released their latest U.S. crop estimates yesterday and it showed all wheat production at 1.690 billion bushels compared to the latest USDA estimate of 1.760 billion bushels. Spring wheat also was lower in Informa’s view at 360 million bushels vs. the USDA’s 385 million bushels. It is worth noting that Informa is not looking to predict what the final number will actually be but what the USDA is going to say. The FSA acreage report on the 10thwill bring more clarity to abandoned acres in the Northern Plains. The rallying Dollar on a positive Jobs Report this morning provided a measure of weakness. Minneapolis HRS +2, Kansas City HRW – ¼, and Chicago SRW -3. 

Live Cattle is carrying the weight of large supply for the foreseeable future, as the market finished mixed +.225 at 115.450 (Aug) and –.725 at 114.100 (Oct). Earlier this week the strong cash market provided support, but today’s trade was much more non-committal to long positions. Also adding to the narrative is cheap corn and cooler weather in the Plains, which could translate into extra weight and more supply.

Hog cash prices are holding firm on pork demand, particularly for bellies. The futures market was not expecting these high cash levels to maintain and has responded by rallying to narrow the gap. In addition, packer margins have remained very respectable, enough to keep production at a good pace. The market once again made a strong showing today with August +1.250 and October +1.275 on the session. 

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.8.3
2017-08-03T01:47

Looking for farm business skills in a podcast format? Search for “Modern Farm Business” in your favorite
podcast app or find the latest episodes at modernfarmbusiness.com

Corn was down overnight with forecasted rains materializing over a parched band in the west and headed towards the rest of the Corn Belt. The next two weeks has the potential to provide ideal grain fill conditions if rains are adequate. The question is how much irreversible damage has been done? The market held support in the 3.75 area and was able to stabilize, -1 ½ at 3.63 ½ (Sept) and -1 ¼ at 3.77 ¾ (Dec). USDA weekly export sales were under the expected range of 500K-900K MT, coming in at 475K (438,300 MT was for 2017/18). With Brazil’s bumper crop coming online, export sales are expected to take a hit this year. Analysts so far have given the following yield estimates: FC Stone 162.8 bpa, Ag Resource 165.9 bpa, and Informa 165.9 bpa. Based on corn’s recent trading, one may come to the conclusion that the market is trading around a 165+ bpa and ending stocks in the neighborhood of 2 billion bushels. All eyes are turning towards the next report on the 10th.

Soybeans was down overnight with forecasted rains materializing over a parched band in the west and headed towards the rest of the Corn Belt. The next two weeks has the potential to provide ideal grain fill conditions if rains are adequate. The question is how much irreversible damage has been done? The market held support in the 3.75 area and was able to stabilize, -1 ½ at 3.63 ½ (Sept) and -1 ¼ at 3.77 ¾ (Dec). USDA weekly export sales were under the expected range of 500K-900K MT, coming in at 475K (438,300 MT was for 2017/18). With Brazil’s bumper crop coming online, export sales are expected to take a hit this year. Analysts so far have given the following yield estimates: FC Stone 162.8 bpa, Ag Resource 165.9 bpa, and Informa 165.9 bpa. Based on corn’s recent trading, one may come to the conclusion that the market is trading around a 165+ bpa and ending stocks in the neighborhood of 2 billion bushels. All eyes are turning towards the next report on the 10th. 

Wheat was not able to muster momentum today with a lack of positive news on the wires and a strong negative pull by soybeans. The wheat complex results included: Minneapolis HRS -9 ¾, Kansas City HRW -4 ¾, and Chicago SRW -3. The funds are very long in both KC and MN wheat, so liquidation is always a looming threat. The weak U.S. Dollar is providing a measure of support, and may help boost exports. Although, this was not reflected in the USDA weekly export sales report which showed net sales of 145,500 MT vs. estimates of 300K-500K MT. Earlier in the week, Turkey and Russia both upped their production estimates. The USDA report next Thursday will be pivotal to bringing clarity to global stocks and price direction. 

Live Cattle was up led by the front month, +.700 at 115.225 (Aug) and +.150 at 114.825 (Oct). There has been more talk about the Japan tariff on U.S. frozen beef increasing from 38.5% to 50%. Frozen beef makes up about half of Japan’s U.S. beef imports (Japan is the U.S.’ top beef importer). They are exercising their right to enact “safeguard” tariffs when imports reach a level of 17% greater than the prior year. This is applicable to countries which do not have a trade agreement with Japan, which includes the U.S. since opting out of TPP. This tariff is not expected to have a large impact on U.S. exports as other countries have been providing growing demand, including South Korea and high hopes for future demand from China. It is a good reminder of the importance of trade agreements and keeping the U.S. Ag industry globally competitive.

Hogs rebounded after a large negative correction at the open to finish mixed, +.025 at 81.975 (Aug) and –.725 at 65.500 (Oct). Yesterday’s action featured aggressive buying as the market is oversold and there is a large futures discount to cash – over $21 compared to the five-year average of $15+. Cash and pork product prices are in decline, but at a much slower rate than the decline in futures. 

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.8.2
2017-08-02T02:32

Corn had a small rebound from yesterday’s loss, +2 ½ at 3.65 (Sept) and +2 ½ at 3.79 (Dec). FC Stone came out with their U.S. yield prediction at 162.8 bushels/acre, which if right, would be a big haircut off the USDA’s 170.7 bushels/acre. This coupled with uncertainty in the market with weather, crop progress reports, etc., brought back a measure of sanity to trading. It is thought the market is likely trading a bpa in the mid to upper 160’s to this point. EIA Ethanol reported production was down 10,000 barrels from the previous week to 1.0 million barrels/day, a 0.20% decline from last year. Ethanol Stocks were also down 667K barrels to 20.85 million barrels, which is up 1.21% over last year. Corn used for ethanol was 105.21 million bushels, which is well over the 82.874 million bushel average needed to hit the USDA target for the year. Brazil released government trade numbers yesterday and they showed July corn exports were 2.322 MMT compared to July 2016’s 1.045 MMT.

Soybeans took Turnaround Tuesday the wrong direction yesterday, but made a modest correction today by trending positive, +6 ½ at 9.70 ¾ (Sept) and +5 ¾ at 9.77 ½ (Nov). The market is wrestling with the competing factors of too little rain in some areas, late plantings and small plant heights vs. better soybean genetics and the nature of the plants to make big rebounds late in the summer with timely rains. Will WASDE lower U.S. soybean carryover by at least 20-30 million bushels on the report next Thursday due to the increase in old crop exports? FC Stone pegged soybean yield at 47.7 bushels/acre compared to the last USDA number of 48. The USDA reported the soybean crush for the month of June was well above the expected 146.9 million bushels at 154.1 million bushels. Crush marketings were up modestly over last year, while soy oil stocks were right in line with estimates. With China under-bought, what level will be low enough for them to step in and resume buying? Currently, U.S. soybeans are over $.25 a bushel less expensive than Brazil, which could trigger a shift in export sales. 

Wheat was down with spreading and fund liquidation, as Minneapolis was not able to lead its counterparts higher, although the hard red spring variety was up +4 ¼. Chicago soft red winter and KC hard red winter were – ½ and – ¾ respectively. With the weak U.S. Dollar, American wheat is the currently the world’s least expensive option, so this is helping to keep the bears at bay. An aspect of the August 10th report that will be closely watched by wheat traders is – how many prevent plant acres and failed acres make up the total HRS pie? This number could be much higher than an average year and will impact the total HRS wheat acres that will be reported on September 30th. In global news, it is worth noting that Australia has experienced extremes this season, with July temps 2.62 degrees Celsius above the highest average on record coupled with below average rainfall. Some analysts believe this could take the crop below 20 MMT compared to the USDA prediction of 23.5 MMT 

Live Cattle traded both sides of unchanged before surging across the finish line, +1.725 (Aug). It was reported that retail beef features fell the 2nd half of July, with the retail beef feature activity index down 8% from last year same time. Fed cattle slaughter is up well above last year’s levels with last week showing a 7.5% increase. A saving grace is that cattle weights are lower this year which has helped to offset some of the large slaughter numbers. The Choice beef cut-out was down $44/cwt from mid-June to $206.96 led by a decline in retail action. Brazil released government numbers showing July beef exports to be up over June’s 100,233 MT to 106,397 MT.

Hogs were able to bounce in spite of a weak technical posture, +2.150 (Aug) and +1.825 (Oct). Cash and futures moved closer together, as the cash index fell -.650 yesterday to 88.100. The pork cut-out is at its lowest level since June 19th, at $97.98. Last week was at $101.97. Brazil reported that their pork exports were down from June’s 54,004 MT to 48,713 MT. The weakening Dollar provided support, as it is now at a 15-month low. 

In other newsit was announced by the CME Group that trading volume was down 1% in July 2017 in comparison to July 2016. July 2017 options volume was down 8% to 2.9 million contracts/day vs. last year. Of the options, 2 million were electronic options which is up 21% over last year same time. Open interest at the end of July was 113 million contracts, which is 9% higher than the end of July 2016

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 they may not be suitable for all investors.

Water Street Solutions Daily Report 2017.8.1
2017-08-01T02:15

Corn had another small downgrade in crop conditions but still managed to lose ground in the markets, -8 ¼at 3.62 ½ (Sept) and –8 ¼ at 3.76 ½ (Dec). The USDA pegged crop condition ratings at 61% good/excellent, down from 62% last week and well behind the lofty 76% posted last year at this time. It is noteworthy that Iowa, the largest corn producing state, decreased by 3% from last week. And, the poor to very poor category went up 1% overall. However, until the trade perceives a significant change in a yield production below 165 bpa, other indicators do not seem to be registering with the same impact. With the future looking favorable for cooler weather during grain fill, the big question is – how much irreversible damage has been already done in July? The next big date on the calendar is the 10th of this month when the USDA will give their Crop Production and Supply & Demand reports. In exports, the USDA announced a private sale of 100K MT of corn sold to Colombia for 2017/18.

Soybeans fell hard today on long liquidation selling as continued improved weather forecasts and an upgrade in crop conditions provided weakness, -35 ¼ at 9.64 ¼ (Sept) and -35 ½ at 9.71 ¾ (Nov). The USDA bumped up soybeans to 59% good/excellent from 57% last week, with IL showing a 7% improvement and Indiana up 4%. However, the crop is still well behind last year’s 72% G/E. And, it is worth noting that 35% of beans in South Dakota were rated poor to very poor. However, the market has thoughts of large carryout and record South American crops on its mind. And, a rumor of the Chinese possibly auctioning 2-3 MMT of soy did not help positive sentiments. What will the crucial month of August bring in the way of new developments? In outside markets, the Dollar continues to provide support to U.S. pricing, as it is now below 93, from its high of over 103. 

Wheat had a hard time getting going with soy being down sharply. Crop conditions were supportive to wheat yesterday, as they showed spring wheat declined another 2% from last week to 31% good/excellent compared to 68% last year and 69% average year-to-date. Of the spring wheat crop, 43% is considered poor to very poor, an increase of 3% from last week. And, there is growing concern about stress on the crops in Canada. It is thought by some that the Canadian wheat crop could be down as much as 4 MMT from the last WASDE report. The USDA crop progress yesterday pegged winter wheat at 88% harvested, which is 2% above the five year average. Export loadings/inspections were solid this week, 670K MT over this time last year. Ending numbers showed Minneapolis HRS -14 ¾, Kansas City HRW -9 ½, and Chicago SRW -13 ¼

Live Cattle was led by feeders to a strong close on the day, +.800 at 112.800 (Aug) and +.925 at 112.875 (Oct). Export demand will be a big key to help balance looming large supplies. With a new open door to China, the long-term outlook has upside. However, withdrawing from TPP is costing U.S. producers, as they have been hit with a big tariff increase from Japan due to a lack of a bilateral trade agreement.

Hogs have experienced less than stellar technical action on the charts, -.500 at 79.800 (Aug) and –1.625 at 64.400 (Oct). The pork cut-out was at $99.09 after the close yesterday, which is up from Friday but down from $101.27 the previous week. The big appetite for bacon has been the driver behind pork belly demand this year and has kept the cut-out at very high levels late in the season. The large cash premium to futures is encouraging producers to move hogs as soon as they can get packers to take them. Packer kills are up 9K over last week. 

In other newsit was ruled by the courts that the EPA’s methodology on determining how much biofuel is blended into gasoline was flawed (for 2014-2016 calculations). Hearings are being conducted for 2018 and 2019 to set RFS levels. This developing story could be a win for farmers if ethanol demand is increased as a result

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 they may not be suitable for all investors.

Water Street Solutions Daily Report 2017.7.31
2017-07-31T01:44

Corn gapped lower to start the week and settled the session with modest losses, -3 ½ at 3.70 ¾ (Sept) and –3 ¼ at 3.84 ¾ (Dec). Improved forecasts and cooler temps have put a damper on the market. Not too many traders want to stick their necks out too far before the August 10th USDA report. And, farmer selling has slowed to a halt as many are hoping for a late rally to boost prices. USDA weekly inspections were positive, as they were over expectations at 989,105 MT compared to 950K MT. The USDA announced a private sale of 150K MT of corn sold to Colombia for 2017/18. AgRural is pegging Brazil’s safrinha corn crop 63% harvested and on record pace.  The Commitment of Traders report on Friday afternoon showed managed funds with a solid long position of 106,815 contracts, which was up 2,145 over last week. The bulls will continue to require a steady diet of weather uncertainty to maintain their long stance. Crop condition ratings are expected to improve by 1-2% later this afternoon.


Soybeans are likely to keep trading in their established range until August weather has a more definitive impact on yield for better or worse, -6 ½ at 9.99 ½ (Sept) and –5 ¾ at 10.07 ¼ (Nov). It is thought soybeans will have a modest improvement in crop condition ratings by 1-2% later this afternoon due to the improved weather last week. USDA weekly inspections for the week ending July 27th were announced at 476,186 MT vs. estimates of 430K. The Commitment of Traders report on Friday showed managed funds grew their net long position in soybeans by 12,534 contracts to 50,885. As has been previously discussed, August weather will make or break beans, so traders are looking for assurance that they are on the right side of the bull/bear line. It is likely trade will remain in a sideways trend until the August 10th USDA report to see if/how much yield is reduced.

Wheat reacted to overall pressure on the grains due to more favorable weather forecasts, as spring wheat is showing signs of having put in its high for now. Minnesota HRS finished –6 ½ while Chicago SRW was –6 ½ and Kansas City HRW was –6 ¼ (Sept). If yield ends up poorly and abandoned acres are a bigger impact than predicted, a demand rationing rally could follow later in the season. In USDA weekly inspections today, wheat came in above expectations at 578,649 MT compared to estimates of 475K MT. In global demand, Egypt’s Supply Minister announced that they expect to increase their imports in 2017/18 from the previous target of 6.2 MMT to 7.0 MMT. As of now, Egypt’s wheat reserves contain about 6.4 months of consumption, and they are very dependent on world supply (as they are the largest importer). The Commitment of Traders report on Friday showed traders covered some of their long positions by reducing them by 8,076 contracts to 27,850.

Live Cattle continued to trend lower on large supplies, -.900 at 112.000 (Aug). On the world market, the weak Dollar is providing support, making U.S. beef more affordable. However, the lack of a bilateral trade agreement with Japan is starting to inflict pain, as they have raised the tariff from 38% to 50% on U.S. beef. Export sales are a critical component and will be vital to helping pare down the large supplies on the horizon, with 3rd quarter up a record over 2nd. The market also needs to see Chinese demand pick up quickly. Keep an eye on cattle weights as they are a barometer to be watched as steers are down 9 lbs and heifers 12 lbs from last year.

Hogs were down today but the futures large discount to cash kept selling from getting out of hand, -1.100 at 80.300 (Aug) and –.475 at 66.025 (Oct). Overall, hogs are staring at bearish fundamentals with large supply and weakening demand from China, as well as a negative technical picture on the charts.

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.7.28
2017-07-28T03:21

Corn showed mixed emotions as traders are wary to overcommit, closing even at 3.74 ¼ (Sept) and + ¼  at 3.88 (Dec). The drought monitor is showing expansion to the southeast from Montana and the Dakotas, and the big question remains as to how this will impact yield and overall production? The trade appears to be a bit conflicted on whether there will be another reduction in crop conditions on Monday afternoon. It is probably more likely to continue its downward track to the tune of 1-2%. The extended forecast is trending dryer with the next rain event about a week away, keeping the bears at bay. Outside markets were also supportive today, with crude and gold up and the Dollar weak.  The Commitment of Traders report will be announced later this afternoon, which will bring clarity to managed fund position changes since last week.

Soybeans found support in dry weather outlooks and soyoil prospects, +6 at 10.06 (Sept) and +5 ½ at 10.13 (Nov). With 14% of the soybean crop planted in the Dakotas where they are seeing poor to very poor conditions at 33% and 25%, there is major concern for beans. If the market perceives carry-out to be cut in half for instance, due to a lowered production estimate, the market is going to rally. Supply driven rallies are not typically of long duration, especially with the next South American crop around the corner, so it will be important for farmers to act in a timely manner when opportunity presents. On a weekly chart, it is clear we are at a point of decision, with the weather report to start the week pivotal. Look for a test of resistance up in the $10.35-10.45 area or a possible fall to levels below $10. Soy oil made a nice gain today as it was announced that a court decision ruled against the EPA regarding their reducing the RVO in biofuel. Will the EPA appeal? It is likely but in the meantime this only adds to bullish sentiment.

Wheat was up again but finished timidly, with Minneapolis in the lead. The Spring Wheat Tour wrapped up yesterday, and estimates were not impressive. The yield was tabulated at 38.1 bpa compared to 45.7 bpa last year and 46.8 bpa five year average. A question left unanswered is how many acres were lost to abandonment? Minneapolis futures used this to their advantage, gaining +5 ¾ at 7.42 ¼ (Sept). The wheat market has made a large correction after its recent highs, but export demand should stay strong, helping neutralize large supplies. Chicago SRW ended +1 ¼ at 4.81, while Kansas City HRW was even at 4.81 (Sept).

Live Cattle succumbed to pressure that has been building on the market this week with cash trending down and large supplies on the horizon, -1.400 at 112.900 (Aug) and –1.150 at 112.425 (Oct). The large traders are still holding a huge net long position, so long liquidation is definitely a factor. Japan is moving to increase its tariff on U.S. frozen beef from 38% to 50%. They have the right to impose an emergency tariff if imports increase by 17% over prior year. Australia and Mexico are exempt because they have a free trade agreement with Japan. But, Japan has a big appetite for U.S. beef and it is unlikely that this is going to slow down demand by that much in the short term. The total U.S. beef cow herd is 4% larger than last year, so any threat to demand is to be taken seriously.

Hogs followed cattle’s lead, giving way to bearish fundamentals with large supplies ahead in the 3rd and 4th quarters, -.850 at 81.400 (Aug) and –1.175 at 66.500 (Oct). The pork cut-out values that came out after the close yesterday, confirmed continued declines, down $.78 from Wednesday to $99.23, and down from last week’s $103.35. This coupled with weak Chinese demand, did not entice buyers today.

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.7.17
2017-07-27T03:43

Corn was up today on news of less rain falling in Iowa than predicted and a dry extended outlook into August, +1 ½at 3.74 ¼ (Sept) and +1 ¾ at 3.87 ¾ (Dec). The market is losing confidence in weather model predictions, particularly the GFS, and is taking a more measured approach this time around. Will crop conditions see another drop on Monday afternoon? It is estimated that 32 million acres of corn has been planted in the dearth areas of the Northern Plains and NW Midwest, with Western Iowa getting the most attention. According to AgResource, the Des Moines area has only received 40% of normal July rainfall and 17 days of temps over 90 degrees. USDA weekly export sales were within expectations at 584,600 MT compared to estimates of 400K-900K MT. Exports were heavy on new crop as they made up 486,600 MT of the total. Customers this week featured Mexico and Japan.

Soybeans built in more premium today as traders are concerned over long-term models showing dryness in August, ending the session +6 ¼ at 10.00 (Sept) and +7 ¼ at 10.07 ½ (Nov). Weekly export sales reported by the USDA were right on track with expectations of 400K-1.2M MT at 835,200 MT. Of that total, 303,400 MT was for 2016/17 and 531,800 MT was for 2017/18. Buyers of old crop soybeans included Netherlands, China, Thailand, Japan and Egypt. In the same vein, the USDA announced a private sale of 264K MT of soybeans to “unknown” destination, with 198K MT for 2016/17 and the rest for 2017/18. It appears beans are establishing a trading range while the market gets a better feel for production. It is still too early to predict with certainty, as August is the key month for beans and there is plenty of time for them to improve their prospects.

Wheat was up today on U.S. dry extended weather forecasts and European concerns, with both the German and Polish crops receiving daily downgrades. Also, today is the last day of the Spring Wheat Tour, and the results have been less than stellar, with abandoned acres hard to quantify. The markets have reflected the sentiments this week, with Minneapolis leading again today, +6 ¼ at 7.36 ¼. Chicago and Kansas City followed the customary pattern of gains but at a lesser pace than spring wheat, +2 at 4.79 ¾ and +5 ½ at 4.81 (Sept). USDA weekly wheat export sales did not disappoint as they were at the higher end of the range of expectations, coming in at 498K MT vs. estimates of 300K-600K MT. The U.S. is 5 million bushels ahead of last year in sales.

Live Cattle was able to hold steady after yesterday’s gains, finishing even at 114.300 (Aug). According to Hightower, October cattle normally trade at a premium of $1.30 futures to cash at this time of year, so the discount of $7.25 left the market feeling cheap. Long-term fundamentals are weakening, so keep an eye on whether technical support levels are violated as an indicator that more selling may be ahead.

Hogs saw short-covering early as the discount of futures to the cash index weighed on trade, but rallied to finish +.250 at 82.250 (Aug) and +.025 at 67.675 (Oct). Bellies continue to be a bright spot at unprecedented highs. Factors providing market weakness include growing supply, declining pork cut-out prices (down $1.96 from Tuesday to Wednesday) and slowing Chinese demand.

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.7.26
2017-07-26T01:54

Corn traded both sides before charging to the finish, +4at 3.72 ¾ (Sept) and +3 ¾ at 3.86 (Dec). Storms across MN, NE and IA have brought a measure of relief, but dryness is expected to follow. Managed funds are still long over 80K contracts coming into today. Is a $3.80 Dec corn price in line if the carryout ends up 1.8 billion bushels? Traders seem mesmerized by short-term weather forecasts more than the effect heat has had on pollination and damage that has been inflicted on the Western Corn Belt. EIA Ethanol released their weekly data, and it showed production was down this week by 14,000 to 1.01 million barrels/day, but still up 1.40% over last year. Ethanol stocks were down 608K to 21.53 million barrels, but 5.59% higher than last year. Corn used for ethanol was well above the weekly average needed (86.687 million bushels) to hit the USDA annual estimate of 5.45 billion bushels, as weekly production was pegged at 106.26 million bushels. Given the condition of the crop this season, is the market under-valued?

Soybeans dipped below the 200 day moving average before rebounding for a nice gain, +7 ¾ at 9.93 ¾ (Sept) and +7 ½ at 10.00 ¼ (Nov). While there have been rains and cooler temps in the forecast, long-term there is more uncertainty. There will need to be above average rainfall in August to have a chance at trend yield, as crop conditions have shown to be well off average to this point. Upcoming crop condition reports will be closely monitored and will carry more weight. Some are pondering, is a $9.90 Nov bean price in line if U.S. stocks are above 400 million bushels in the end? Or, will beans rocket higher on demand and a below trend U.S. production? 

Wheat took a breather from fund liquidation and was up across the complex, led by Minneapolis at +10 ¼. Chicago and Kansas City followed at a more modest pace, +3 ¾ and +2 ¾ (Sept). The Spring Wheat Tour completed their first day, looking at areas in the Eastern Dakotas which were not hit as hard with drought, showing a bpa of 37.9 compared to the five year average of 45.7 bpa. Today, they toured some of the tougher areas, and the results will be reported later today. If anything, it would be expected that price values would increase once these results are tabulated. Abandoned acres may not be properly reflected in the final numbers. Algeria is tendering for 50K MT of wheat for October shipment

Live Cattle is not ready to succumb to the bears, even with weakening long-term fundamentals, +.600 at 113.375 (Aug). Futures are at a discount to cash and boxed cut-out values have remained solid at $207.62, down modestly from last week’s $208.05. If technical support levels are violated, expect more selling as traders are sitting with a large net long position.

Hog futures are showing a tendency to want to spike before giving in to seasonal downtrends, +.550 at 82.000 (Aug) and +.800 at 67.650 (Oct). The cash index declined to 91.13 from 92.50 but is still at a large premium to futures. With pork markets and cash bellies still strong, the door is open for recovery bounces.

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 they may not be suitable for all investors.

Water Street Solutions Daily Report 2017.7.25
2017-07-25T03:11

Corn experienced long liquidation selling on improved weather forecasts with cooler temps, -8 ½ at 3.68 ¾ (Sept) and –8 ½ at 3.82 ¼ (Dec). Corn crop condition ratings fell 2% to 62% good/excellent. Last year was at a lofty 76% good/excellent at this same time. Iowa was down 3% and Nebraska was down 4%. However, the market does not view corn stocks below a 1.8 billion bushel reserve with current conditions, which is deemed plenty in combination with record South American crops. With regard to rain, it is the “haves” vs. the “have nots”, as many areas that have been well supplied with precipitation got more rain while those that really need it did not have such luck. The crop needs soaking rains and not scattered tenths of an inch. The weather ridge is moving back West which will allow cooler temps across the growing region, at a critical time post-pollination. China is looking to clean out its bins as it is offering 537,400 MT of 2013 and 800K MT of 2014 reserve corn on Thursday and 3.65 MMT of 2013/14 reserve corn on Friday

Soybeans confounded conventional wisdom and plunged lower (after being up over 10 overnight) in spite of a large drop in weekly crop conditions as weather trumps all, -16 ½ at 9.86 (Sept) and –17 ¼ at 9.92 ¾ (Nov). Soybeans had the largest drop in crop condition ratings, at 57% good/excellent, with Illinois showing the biggest decline, off 8%. Illinois soybeans are also estimated to be a month behind in maturity. Last year at this time, the crop condition rating was 71% good/excellent. However, beans are at a point in the growing cycle that yield could be greatly improved with good weather. How the month of August sets up will shape their destiny. Traders are wary of soybeans’ history of showing the ability to recover yield potential late in the growing season. In Brazil, the Ag Ministry is estimating the 2017/18 crop to be down from this year’s 113 MMT to 110.7 MMT. A story that has been on the back burner relates to Argentine and Indonesian biodiesel exports into the U.S. The Department of Commerce is expected to report the results of their investigation on dumping into our market. If action is imminent to penalize the offenders and the imports are shut off, this will lead to increased demand for domestic soyoil and biodiesel production. 

Wheat shed some length today led by Minneapolis, as funds liquidated a batch of the long positions they have built recently. Like the rest of the grains, the improving weather outlook seems to be pushing the declining crop conditions to the side. Will the Spring Wheat Tour add any fuel to the fire? The tour starts in North Dakota today, with the results scheduled to be released at its conclusion on Thursday at 1:30pm CDT. The Dollar is at a low level, so this should be supportive to the U.S. competing for tenders on the global stage. Egypt is back in the market for a tender of three cargos of wheat for September – offers will be in today and results later today. Minneapolis HRS –35 ¾ at 7.14 ¾, Kansas City HRW –14 ¾ at 4.72 ¾, and Chicago SRW –14 ¾ at 4.74 (Sept)

Live Cattle saw technical selling as traders balanced their large net long positions, -1.625 at (Aug). Beef cutouts were up to begin the week, with yesterday penciling in Choice cuts up $.55 and Select up $3.09, and today with more of the same. The Cold Storage report yesterday showed beef stocks at the end of June at 101% of May and 90% of last year. Stocks are at a three month low and June is the second month in a row that is at least 10% under last year. Cattle inventory is at the highest level in a decade at a 103 million.

Hogs gapped higher at the open and were able to forge gains, +1.075 at 81.450 (Aug) and +.400 at 66.850 (Oct). News of very sluggish Chinese demand is not helping the export story. The pork cut-out is at its lowest level since June 26th, at $101.27 ($1.13 lower than Friday). The June Cold Storage had frozen pork down 4% and pork bellies down 65% - this is the underlying reason bellies have held up in price, as the market is relying on fresh product for bacon demand. Is the high in, and will the cash market fall back into line with futures?

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 they may not be suitable for all investors.

Water Street Solutions Daily Report 2017.7.24
2017-07-24T02:26

Corn was down on recent rains over the weekend and a longer term forecast with normal to below normal temps, but showed scrappiness in battling back from session lows, -2 ½ at 3.77 ¼ (Sept) and –2 ¾ at 3.90 ¾ (Dec). Even though the market is attempting to price in the favorable weather shifts, there is still plenty of uncertainty with soil moisture levels in many areas still inadequate. The key will be where future rains fall and in what amounts. Western Iowa in particular is being closely watched. The USDA reported a private sale to start the week of 135K MT of corn to “unknown” destination for 2017/18.  Weekly corn inspections were pegged at 935,262 MT, basically in line with the expected 960K MT. The crop condition rating report later this afternoon will be closely watched, as the trade is expecting an overall 1% decline. Will yield achieve the 165 bpa level that the market is now expecting? It is likely going to take fears of 162 bpa or below to help encourage the funds to continue to defend their long position.

Soybeans traded lower on evolving predictions of less heat stress on crops entering the August time frame, -11 ¾at 10.02 ½ (Sept) and –12 ¼ at 10.10 (Nov). Soybean crop condition ratings this afternoon are expected to show a slight decline from last week. There is still a lot of important weather ahead in August for beans, and the market may be heavy to the downside. The USDA announced soybean weekly inspections at 596,920 MT for the week ending July 20th, well over expectations of 325K MT. Dicamba drift continues to be a big topic of discussion this year, as multiple states are reporting injury to crops in nearby fields. Symptoms of exposure do not show up until 14-21 days after many times, so could be mid-August in some cases before it becomes apparent. The higher the temperature, the higher the volatility of dicamba. How extensive will this problem turn out to be this year? It will not be evident until harvest. 

Wheat was lower today on market selling and news of weekend rains across a swath of the Dakotas: Chicago SRW –10 ½ at 4.88 ¾, Kansas City HRW –8 ½ at 4.87 ½. Minneapolis HRS saw the biggest correction, dropping below previous July lows, -13 ¼ at 7.52 ½ (Sept). USDA weekly wheat inspections came in below expectations of 525K MT at 451,665 MT. The Spring Wheat Tour will be in full swing this Tuesday to Thursday, and should shed some light on how bad the situation stands. Crop condition ratings this afternoon are expected to continue to decline, with possibly a 1% decline overall in good/excellent and 2% in the poor/very poor category. Winter wheat harvest should now be around 80% complete

Live Cattle experienced a steep sell-off after the “bearish” Cattle on Feed report’s numbers came out Friday afternoon. Feeders were lock limit down in the near month while Live Cattle was lock limit down in October and December, with August finishing –2.550 at 113.875. The biggest surprise from the report was the increase in Placements to 116% of last year and well ahead of the predicted 106.1%. On Feed and Marketings were in line with estimates. Steer and heifer weights will be important to watch as weights have been down this year and could make the number of placements look worse than reality. Will cattle be able to shake off today’s action and return to a more positive trend?

Hogs were down on technical selling and bearish fundamentals, -.725 at 80.375 (August) and –.775at 66.450 (October). Hog supplies in the 3rd and 4th quarters are predicted at record levels, and this against a backdrop of slowing Chinese demand. Cash pork prices have continued to hold their value as well as the cash index is holding a significant premium to futures.

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 they may not be suitable for all investors.

Water Street Solutions Daily Report 2017.7.21
2017-07-21T04:27

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Corn futures experienced a setback, with pressure from rains overnight in dry areas of Iowa, the Dakotas and Nebraska, -11 ¼ at 3.79 ¾ (Sept) and –11 ¼ at 3.93 ½ (Dec). The rains were considered “spotty”, varying from .5” to 1.5”, but were still welcomed by anxious farmers. The inconsistent nature of the weather models has made for volatile markets this season. The placement of rains the next few days will be key during this critical pollination phase. As of now, the outlook is tending toward more dampness and less intense heat than previous forecasts. On the global scene, keep an eye on eastern Ukraine and Europe, as they have been trending too hot and dry. The Commitment of Traders report will be released later this afternoon, and this will be closely watched as a barometer of managed funds’ sentiments. And, the On Feed cattle expansion expected to be announced is also supportive to corn. Look for a 1-2% reduction in crop condition ratings again on Monday.

Soybeans were down also with news of rains across parts of Iowa and the Northern Plains, -4 at 10.14 ¼ (Sept) and –4 ¾ at 10.22 ¼ (Nov). The rains were localized and still below normal for the week, but influenced market action nonetheless. It looks like the extreme heat will be abating, but the big story for soy is still over a week away. August rains will make or break the bean crop. What will the weather runs on Sunday tell us heading into next week? Export demand is being helped by a weak U.S. Dollar (8% decline, extended into new lows) and an improving Brazilian Real. Seasonal soybean export demand rose 100% in a week. 

Wheat did not have a lot of fresh news heading into the weekend. The spring wheat tour begins next week – two opposing factors that will be considered are the more fruitful Red River Valley crops vs. abandonment of acres in the western Dakotas (some are expecting up to 30%). With spring wheat positions held by funds extremely long, today featured a shift with shedding some market length. All wheat classes bled red today: Chicago SRW -6 ½ at 4.99 ¼, Kansas City HRW -7 ¾ at 4.96 and Minneapolis -8 at 7.70 (Sept). Other positive factors for wheat this week included strong weekly export sales and a weak Dollar. Monday afternoon will feature another crop condition ratings report, and it is expected to show another decline in spring wheat conditions from last week

Live Cattle shrugged off a weaker beef trend and hot weather, +.550 at 116.425 (Aug). The drought in the Dakotas has likely added to the increasing, recent national cow slaughter numbers, as overall they are up 6% in the last three months. More feeders may also have gone to the feedlots early. Look for Cattle on Feed results later this afternoon. Estimates are: On Feed 102.9%, Placements 106.1% and Marketings 104.7%.

Hogs have experienced some technical weakness, and this was most apparent in the deferred months’ trading, as August was even on the day and October -.625 at 67.225 (Oct). U.S. pork exports for the week ending July 13th were down sharply from the previous four week average of 18,450 MT to 11,700 MT. And, 3rd and 4th quarter production lends a bearish mood with very large output expected. The Cold Storage report is on Monday – expect low belly stocks as they are selling briskly into new price highs (up $4).

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 they may not be suitable for all investors.

Water Street Solutions Daily Report 2017.7.20
2017-07-20T03:16

Corn was up once again with hot temps in the Western Corn Belt over the next three days and growing concerns about the Plains and western 2/3 of Iowa, which is in desperate need of rain, +8 ½ at 3.91 (Sept) and +8 ½ at 4.04 ¾ (Dec). Also providing strength was the USDA weekly export sales report, as of July 13th, at 466,500 MT of 2016/17 crop and 212,100 MT of 2017/18 crop. Expectations were in the range of 350K-700K MT. U.S. corn sales are up 16.5% over last year. The drought in Montana and the Dakotas is spreading east and south on the Drought Monitor and poses further risk to crops. Will crop conditions on Monday show another 1-3% reduction in good/excellent ratings? Another leg lower in crop conditions could confirm thoughts of a sub-165 BPA.

Soybeans were up again today on weather forecasts showing warm/dry in the West both in the 6-10 and 8-14 day forecasts, +14 ¼ at 10.18 ¼ (Sept) and +14 ½ at 10.27 (Nov). USDA reported soybean weekly sales a solid 409,600 MT of 2016/17 and 1.522 MMT of 2017/18, with expectations in the range of 1.4-2.0 MMT. The large 2017/18 sales were a reflection of last week’s contract signing by Chinese crushers. Chinese demand does not look to be letting up in the slightest. Other customers this week included Mexico, Japan, Indonesia, and Costa Rica. Brazilian farmers have been less interested in selling this week due to the strengthening Real. The market continues to be in a day-by-day weather trade mode, and the bountiful supplies on hand in the U.S. and abroad are keeping rallies from becoming too extreme. 

Wheat has labored under long liquidation of spec funds recently, as Chicago and KC notched new lows in the overnight. But, the pull of corn and beans coupled with global dryness concerns (Australia in particular) helped to spark a turnaround. The Dollar is also weak in relation to other global currencies, which is providing support to exports. Wheat came in with a strong showing on the weekly export sales log, as the USDA announced 2017/18 sales of 669,500 MT, well over expectations of 250K-500K MT. The largest buyer this week was the Philippines – other customers included Korea, Mexico, Venezuela, Nigeria, Taiwan and Japan. Also, influencing trade are rains expected to cover 35% of the spring wheat acres over the next several days. Ending session numbers tallied Minneapolis +3 ½, Kansas City +3 ½, and Chicago +2 ¾

Live Cattle were pressured by weaker cash cattle from yesterday, with light trade in OK and TX at the $118.50 level compared to $120 last week. August futures were down –1.400 at 115.875. Also, providing weight on the market are declining boxed beef prices. The beef cut-out yesterday was 32 cents lower at $207.73 and markedly down from last week’s $212.69. USDA Cattle on Feed report and semi-annual Cattle report are due tomorrow at 2pm CDT.

Hogs gave back a good portion of yesterday’s gains, -1.475 at 81.100 (August) and -.950 at 67.850 (Oct). On the one hand are the bearish production numbers on the horizon for the 3rd and 4th quarters, and on the other are persistently high pork prices and a lower Dollar, which is helping export demand.

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 they may not be suitable for all investors.

Water Street Solutions Daily Report 2017.7.19
2017-07-19T03:30

Corn rallied on weather concerns as the Midwest continues to step through pollination windows, +5 ½at 3.82 ½ (Sept) and +5 ½ at 3.96 ¼ (Dec). Traders are putting the major focus on corn, with July being the critical month that will make or break the crop. By this Friday or Monday, it should become apparent if rains in the present weather patterns were enough to satisfy the current trend yield predictions. There is a lot of disparity between weather models, which is only adding to the chaos. The main attention will be on Western Iowa, as it is a critical growing area experiencing acute dryness and in desperate need of rain. Managed funds are currently seen as having moved their position into the “long” column, so it will be important for bullish news to emerge to continue the buying. EIA Ethanol weekly data was released this morning showing ethanol production up 19K barrels to 1.03 million barrels/day. This is up 1.89% over last week, and one of the best weekly grinds going back to March. Ethanol stocks were also up for the week ending July 14th by 956K barrels to 22.14 million barrels, up 4.51% vs. last week and up 4.63% vs. last year. Corn used for ethanol in last week’s production was 107.73 million bushels, well ahead of the needed 89.542 million bushels needed per week to attain the USDA estimate of 5.45 billion bushels for the year. Ethanol margins for producers have continued positive, estimated at around 10 cents/gallon.

Soybeans had a strong day with traders adding in risk premium, rallying +10 ¼ at 10.04 (Sept) and +10 ¾ at 10.12 ½ (Nov). Severe heat and concerns of inadequate moisture in some areas are keeping the market propped up. The EU and GFS weather models have not been in agreement, which has caused a degree of confusion and uncertainty. However, more than sufficient soybean supplies and a stronger Dollar provided a check and balance to the market overheating. The August timeframe will be the most critical to beans and as to whether the bears or the bulls come out on top. 

Wheat sent mixed signals based on Minneapolis’ lead, -1 ½at 7.79 (Sept). Chicago and Kansas City have been the followers on this ride, - ¾ at 5.03 and -2 ½ at 5.00 ¼ (Sept) respectively. Managed funds are still liquidating market length in wheat. KC in particular bears monitoring, as the large spec funds are heavily long, while Chicago is still positioned short. However, if MN has another rally in the works, you can be sure the effect will trickle down. The lower quality Chicago wheat is also heavily influenced by corn, as the two can be substituted for each other in feed. Wheat is also heavily influenced by global fundamentals. Australia’s dryness concerns along with Europe and other regions will play a role. The overall trend of a weaker Dollar (down 7.5% against world currencies) is likely to persist through the summer, which should help U.S. pricing on the global front

Live Cattle added big gains today in spite of negative news, +2.200 at 117.275 (Aug). The U.S. market had a minor scare when it was announced that an 11-year-old cow from Alabama was confirmed with “atypical” BSE (Mad Cow) after showing signs of the disease. However, the USDA reassured that the cow did not enter the food chain and does not pose a risk to health due to being “atypical”, which is not the classic form that can infect humans. Sales last week were $2-3 higher, and the market will be watching the Fed Cattle Exchange results today for price direction for the rest of the week. Also, recent reductions in price at retail stores, due to declines in beef cut prices, has helped bolster demand.

Hogs continue to run counter to typical seasonal trends with a huge bar to the upside on the charts, +2.075 at 82.575 (Aug) and +.925 at 68.800 (Oct). The pork cut-out continues to rise, up 43 cents yesterday to $103.95. Futures are trading at a large discount to the cash index. However, the long-term outlook is showing a production increase in the 3rd quarter of 155 million lbs., which is the largest in 8 years. The 4th quarter is expected to follow suit with a 710 million lb. increase, which would be the highest in 3 years. However, 1stquarter production is estimated to decline by 465 million lbs., according to the Hightower Report.

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 they may not be suitable for all investors.

Water Street Solutions Daily Report 2017.7.18
2017-07-18T02:13

Corn gained some momentum today on hot weather forecasts and declining crop conditions, +2 at 3.77 (Sept) and +2 ¾ at 3.90 ¾ (Dec). The USDA weekly crop condition update showed corn down 1% to 64% good/excellent from last week. However, the national rating does not tell the whole story, as digging deeper into the state-by-state numbers reveals the Big Four were: Iowa (biggest corn state by 2 million acres this year) down 6%, Nebraska down 3% and Illinois and Minnesota down 1%. States that helped prop the number up are less important to the big picture production, i.e. Pennsylvania (+8) and Texas (+5). Additionally, corn silking was at 40% compared to last year’s 53% and the five year average of 47%. This in conjunction with several extremely hot days on tap for the Central U.S. with triple-digit temps, where a considerable chunk of pollination will take place. In South America news, Brazil’s government inked corn exports during the first half of July at 820K MT which is up 65% over the same period last year.

Soybeans also reacted to weather concerns and a decline in crop condition ratings, +4 ½ at 9.93 ¾ (Sept) and +4 ¼ at 10.01 ¾ (Nov). Crop condition ratings showed a 1% decline overall in good/excellent ratings with Iowa down 4%, Nebraska down 3% and the Dakotas down 5% and 7%. Recent forecasts include a lot of heat and rains that lack adequate coverage across the growing area. The pending two week outlook is prompting enough concerns to help drive the market higher. A weather rally combined with strong fund buying could take the market to new heights. All that said, if August turns to a wetter trend, beans will be fine, and with bearish fundamentals including plenty of stocks and great South American crops, the market could turn bearish quickly. In outside markets, the Dollar is weak in comparison to other global currencies, and this is supportive to U.S. bean export trade. The soybean market entered the day with managed funds still short, which helped buying and adding back in risk premium. 

Wheat was mixed, led once again by Minneapolis’ story. Spring wheat crop conditions were downgraded to 34% good/excellent, against a backdrop of more intense heat and drought in the Northern Plains. Included in the crop condition ratings was an increase of 2% to 41% in the poor/very poor category. Minneapolis closed at 7.82 ¾ up +15 ½ (Sept).  Chicago SRW and Kansas City HRW were not able to keep pace, -2 ¼ at and -3 ¾ at (Sept). Winter wheat harvest is now 75% complete, and no longer in weather markets. So, it is harder for them to rally even with Minneapolis’ strong action. Yesterday afternoon, Egypt announced they are looking for wheat for late August shipment. Their last purchase was from Russia, and with the weaker Dollar (hit lowest level in 10 months overnight), hopefully the U.S. will be competitive for this offer. Egypt is the world’s largest wheat importer, with 1.835 MMT of orders since May 17th

Live Cattle were down sharply in all contracts, led by August, -1.875 at 115.075 (Aug). Feeders followed the same trend. Is a seasonal low ahead later this month? Technically, the market challenged support at the 100-bar moving average a couple weeks ago and bounced back higher while today featured a sell-off. All beef and proteins are experiencing high global demand right now. Retailers have shown to be active buyers at these levels, so this should add support.

Hogs traded both sides of unchanged, exhibiting selling exhaustion later in the session, -.275 at 80.500 (Aug) and –.175 at 67.875 (Oct). The deferred months tested support at the 100-bar moving average before bouncing back. The cash index is at over a $12 premium to August futures. Record high belly prices have been driving the market. Lower prices will be needed to help the market absorb the surge in pork supplies (record levels expected this fall), according to the CME’s Daily Livestock Report.  They also feel that maintaining the marketing pace and allowing hog weights to get out of control will be key to the hog market this fall.


In Other newsNAFTA negotiations are only 30 days away. The Trump Administration is looking to address the $64 billion imbalance with Mexico. It is felt the agreement needs to be modernized to benefit all three partner countries. More than 75% of Canada’s exports go to the U.S., and they have shown a desire to continue a strong trade relationship. The Ag industry is watching closely to see how this plays out.

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.7.17
2017-07-17T01:51

Corn made a recovery off of overnight lows, receiving support from solid weekly inspections, but still finished slightly down, -1 ¼ at 3.75 (Sept) and -1 ½ at 3.88 (Dec). The USDA announced weekly corn inspections at 1.109 MMT for the week ending July 13th compared to expectations of 950K MT. The Commitment of Traders report Friday afternoon, showed that managed money had increased their corn net long position to 100,964 contracts, a shocking amount considering last week’s position of net short 46,715 contracts. Of this, 110,000 were short-covering and 38,000 were new longs in the market. While lower prices were a negative for most in the trade, ethanol producers benefited handsomely with estimated Midwest margins of 25-35 cents/bushel. It is all about weather, and continue to expect day-to-day volatility with important pollination windows on the line. Models continue to show drought in the Northern Plains while Southern Minnesota, Northern Iowa and parts of Nebraska will be wetter in the near-term.

Soybeans bounced back from lows in the overnight, but the momentum was stifled by a slightly bearish NOPA report and subpar inspections, -3 ½ at 9.89 ¼ (Sept) and –4at 9.97 ½ (Nov). The USDA announced weekly soybean inspections lower than expectations, as 350K MT were estimated and actual was 285,972 MT. The Commitment of Traders report on Friday showed soybeans going from net short to long (as of July 11th). A lot of contracts have changed hands, which has contributed to the wild swings and volatility. Beans are expecting a decline in crop conditions this afternoon by a point or two. Will beans be able to achieve trendline yield with 14% of the crop planted in the drought-stricken Dakotas? As they say, beans are made with August rains, so there is still a lot to be determined at this point. June NOPA Crush numbers were unimpressive, as the soybean crush was estimated to be 143.1 million bushels but limped in at 138.07 mb. Prior month crush was 149.25 mb. June NOPA soyoil stocks were 1.703 billion lbs, lower than the estimated 1.710 billion lbs and prior month’s 1.749 billion lbs. NOPA showed soymeal exports to be well below last month’s 592,924 tons at 562,684. 

Wheat is following Minneapolis’ lead, as the story lies in the high quality spring variety and the anxiety surrounding the crop this season. Hard Red Spring futures were up double digits, +11 ¾ at 7.69 ¾ (Sept). Chicago and Kansas City continued to slip lower on plenteous supplies, returning after the weekend break to register losses, Chicago SRW –4 ¾ at and Kansas City HRW –7at (Sept). USDA weekly export inspections were bullish for wheat, as they exceeded expectations with 578,627 MT announced compared to thoughts of 500K MT. The Commitment of Traders report on Friday showed managed funds had continued to build a long position in wheat, at 44,685 contracts. Will spring wheat show another decline in crop conditions this afternoon? If so, this may help to level off selling, and help get things pointed in the right direction for the entire complex. Global weather overall has become more favorable with the exception of Australia and parts of the FSU (Former Soviet Union). Australia is the world’s fourth largest wheat exporter and they are on pace to miss the mark on yield by up to 20%

Live Cattle declined today in the near month but gained in the deferred, as prices for beef are falling, -.850 at 116.950 (August). Beef demand is expected to decrease with hot weather forecasted for the next couple of weeks. Will packers hesitate to pay up for cattle this week? It appears packer margins are coming back into line with normal levels, as they have been enjoying very profitable $200-300 margins. Carcass weights are catching up as they were as much as 30# behind last year and that number is now reduced to 9#.

Hogs saw correction after experiencing a degree of selloff last week, +.875 at 80.775 (August). Although pork prices have recovered a bit, there are concerns that hogs may have peaked and started the trek down with seasonal trends. Big supply is ahead, so a degree of caution is warranted.  However, demand for pork continues to grow – for example, Americans purchased 14% more bacon in 2016 than just three years earlier in 2013.


In Other news, Steve Censky, CEO of the American Soybean Association, has been nominated by Sonny Perdue to be his Deputy Ag Secretary. This is viewed positively by the industry as Mr. Censky has extensive experience with trade and exports, and will be a strong advocate for maintaining trade agreements and relationships with key nations. American farmers and ranchers have been big beneficiaries of trade agreements, and it is essential to negotiate prudently.


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 they may not be suitable for all investors.