Stewart-Peterson Market Commentary

Closing Commentary - July 18, 2018
Top Farmer Closing Commentary 7-18-18

CORN HIGHLIGHTS: Corn futures edged higher in quiet trade as Dec led today's small gains, closing 1-1/4 higher at 3.61. Futures had a trading range of near 3 cents. Slightly higher beans and stable wheat prices seem to be enough to provide support despite a good recovery in the dollar yesterday and follow through buying this morning. This week's crop ratings were considered slightly supportive, and the question now is whether or not there will be good enough weather for the crop to follow through with what appears to be a record yield, or at least above last year's 176.6 bushels per acres. The last USDA report was 174, but most feel the market has been trading something closer to 179 or 180 million bushels. Portions of the Midwest remain critically dry, and while rain may be beneficial, some of the crop is beyond help. This will likely be a small percentage, and in other parts of the Midwest, in particular major regions of the "I" states (Iowa, Illinois, Indiana) will likely see record yield for many producers. Still, the crop is not in the bin, and weather is a factor. With prices at or near long term lows, we find it difficult to be very bearish.

SOYBEAN HIGHLIGHTS: Soybean futures finished with gains of 2-1/2 to 3 cents with Sep leading today's gains, closing at 8.48 after posting a low of 8.40-1/2 and a high of 8.53-1/4. New crop Nov finished at 8.57-3/4, up 2-1/2. Meal was down 1.00 to 1.60, while soy oil gained 34 cents as traders were likely exiting long meal and short oil. We do believe that spread is poised to turn around. Earlier in the year, soymeal was in a strong uptrend, pushing into new contract highs on a monthly basis until it peaked in mid-May, while soyoil was in a downtrend, pushing into new lows. The reason was because the Argentine soybean crop was short due to a drought; crushers in the US were crushing beans for exportable meal, and consequently there was leftover soybean oil. That trend reversed in May with meal losing ground to oil but has since bottomed three days ago and is now consolidating at an area the trade will now focus on meal and securing long term needs, as it has become a strong value to end users.

WHEAT HIGHLIGHTS: Wheat futures finished 3-1/4 lower in Sep Chi, 3 lower in Sep KC and 5 lower in Sep Mpls. Sep spring wheat is now trading at 5.28, near contract lows after posing a high on 5/29 at 6.54-1/2 with today's close at 5.30-1/4. We feel the market has probably moved down enough, but ratings remain high and expectations are that, due to higher prices last year, acreage would be up. So far, that has proven to be the case. If yield is increased from last year, then carryout will grow. It is no surprise spring wheat is in a downtrend. Overall, the wheat market continues to be volatile, but trade is in a base building pattern, which would suggest SRW and HRW wheat prices will eventually move higher. The world has to deal with a smaller projected supply in the year ahead.

CATTLE HIGHLIGHTS: Live cattle futures closed sharply higher today, finding buying interest on recent support levels and ideas that the cash market could stabilize this week. The nearby Aug contract closed 2.52 higher to 108.95, Oct closed 2.15 higher to 110.65, and Dec closed 1.57 higher to 114.20. Today's online fed cattle exchange had 428 head offered but only 142 sold. The lot was moved at 112, essentially steady with last week's trade. This was viewed as supportive because cash trade often finds a way to build off of the fed cattle exchange prices later on in the week. Choice cut values may be trying to stabilize, up 63 cents yesterday afternoon to 204.39 and up another 26 cents today to 204.65. Friendly news on both the cash and beef front provided solid buying interest today. All three nearby live cattle contracts surged higher, with the Aug and Oct contracts closing just below their 200-day moving average levels. The Dec contract was able to hold its 200-day moving average at the close. Technical momentum may be turning higher, and with short term fundamentals looking friendly, there appears to be potential for more upside.

LEAN HOG HIGHLIGHTS: Hog futures found more sellers today in the face of negative fundamentals, with the Aug contract closing 70 cents lower to 67.20, Oct down 27 cents to 51.92 and Dec down 45 cents to 47.02. The CME lean hog index was down 65 cents today to 79.69. This leaves the Aug contract at a discount of almost 12.50 versus a normal seasonal discount of 5.00. Oct futures are at a discount to the cash market of almost 28.00 versus a normal seasonal discount of about 17.50. Basis levels this wide should normally attract buying interest, but with much uncertainty still in the marketplace due to trade issues with China, Mexico and Canada, buyers are difficult to come by. Carcass cutout values tried to stabilize yesterday, up 83 cents to 84.20 but were down 1.74 to 82.46. The sharp decline was led by losses in loins, ribs and hams, down 4.14, 2.26 and 2.89 respectively. Both the Aug and Oct contracts made new lows today, but the Dec contract was able to stabilize above its contract lows. Technical momentum indicators are giving oversold readings, but fundamentals currently look bearish enough to keep bottom pickers away at this point.


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