Stewart-Peterson Market Commentary

Closing Commentary - June 20, 2018

Top Farmer Closing Commentary 6-20-18

CORN HIGHLIGHTS: Corn futures finished unchanged to 1/2 higher, as Jul led today's small recovery, closing at 3.54-1/4. Dec gained 1/4, closing at 3.75-3/4 with a range of 3.78-1/2 to 3.69. A recovery in wheat prices late in the session may have been enough to pull corn prices from losses of 5-6 cents into the noon hour to positive territory by the close. Oversold conditions? Probably, but funds are net short by an estimated 59,000 contracts, and this is a stark contrast to being long in the 200,000 contract range this spring. Continued good weather is in the forecast, as most of the Midwest should see adequate rainfall, and then again another shot of adequate rainfall by the end of next week with drying this weekend. Temperatures are expected to be normal to above normal, which could lead to good growing conditions as well. There are very few producers we are having conversations with who are concerned about crop conditions at this time. Look for choppy to lower price activity as the market will continue to struggle with tariff talk as well as poor technicals and what now appears to be funds aggressive sellers. From a long term perspective, prices are likely in the lower half of the market for the year, if not the lower one third or fourth, as world supplies continue to tighten.

SOYBEAN HIGHLIGHTS: Soybean futures saw choppy trade with prices closing mostly unchanged. Jul gained 1/2 cent, closing at 8.89-1/2, and Nov was down 1/2 at 9.10-1/2. Today's trading range was wide with Nov reaching a high of 9.17-1/2 and a low of 8.98-1/2 before changing very little by day's end. It looked as though the market may be poised for a sell-off, as futures dropped more than 10 cents heading into the noon hour, but a rally late in the wheat market and a lack of new selling interest after prices moved lower seemed to be enough to have traders reversing positions. Weather, for the most part, looks conducive for plant growth and maturity, as rainfall and warmer temperatures are expected in the 6-10 day forecast for most of the Midwest. Tariff news continues to be the overriding factor of uncertainty, as no one has a good handle on what might or might not prevail with talks between China and the US. NAFTA is also on the front burner, and in general, the market does not like this type of uncertainty. Funds are now estimated to be short 45,000 contracts of soybeans and 87,000 contracts of soyoil coming into today. They are still long 60,000 contracts of soymeal, which is reflective of expectations for tighter meal inventory, due to a drawdown in the Argentine soybean crop as drought has reduced their crop size by nearly 20 million metric tons.

WHEAT HIGHLIGHTS: A late session rally helped propel wheat prices to positive territory, with Jul gaining 10-1/2 Chi to 5-3/4 KC and 3-1/4 Mpls. Good crop conditions for spring wheat will keep rally potential in check, as this weak contract was a follower of Chi and KC. Chi continues to gain ground on KC and is now priced within 1/2 cent after KC wheat was holding premiums with 30-40 cents throughout much of the spring months. We are surprised the spread between KC and Chi has narrowed so rapidly considering most of the dry weather this season has had a greater impact on the HRW, or KC crop. The precipitous fall in the spread as a late reflex is a bigger concern that demand for HRW wheat is declining, in particular with the US dollar rising to its highest level since last July. Harvest pressure is also more prevalent in KC wheat as well.

CATTLE HIGHLIGHTS: Cattle futures closed moderately higher on mixed cash fundamentals and expectations for a friendly Cattle on Feed report Friday afternoon. The nearby Jun live cattle contract closed 50 cents higher to 109.02, Aug closed 22 cents higher to 106.65, and Oct closed 77 cents lower to 109.27. The online Fed Cattle Exchange trade was more active than usual this morning. The first 7 of 13 lots offered were sold at 110, with the last 6 lots passed over at 112. Beef values were sharply lower for today's session. Choice cuts closed 101 lower yesterday afternoon to 219.70. This was their lowest close since 4/26. By midday today, beef values were down another 30 cents to 219.40. Though estimates have yet to be published, expectations for Friday's Cattle on Feed report are friendly. Due to lower weights recently, the market is expecting a high marketings number. Placements are expected to come in relatively small compared to last year. The Aug and Oct contracts were unable to close above their 100-day moving average levels today, which was slightly disappointing, considering the test of those levels early in today's session. However, Stochastics and Bollinger bands are both indicating that futures are overbought in the short term.

LEAN HOG HIGHLIGHTS: Hog futures closed sharply lower, putting in bearish hook reversals out of their most recent trading ranges. The nearby Jul contract closed 1.85 lower to 80.02, Aug closed 2.57 lower to 75.5, and Oct closed 1.90 lower to 61.27. The market is starting to feel the pressures of a very uncertain supply and demand outlook moving forward. The market is expecting near record pork production this year, and if export opportunities begin to evaporate due to trade deals, there is a massive amount of pork supply to pressure prices. Despite all this, cash fundamentals have been relatively strong. The CME lean hog index was up 1.19 today to 84.05. The index has not been this high since last October. Carcass cutouts were up 30 cents yesterday afternoon to 74.71 and were up another 16 cents today to 84.87. This is the highest pork cutout value since early December. Much of today's selling was fundamental in nature but could lead to trapped length and increased liquidation selling. The Aug contract fell below its 10, 20 and 50-day moving average levels today. This was the lowest close since 5/23 and has brought the weekly change to a negative number so far.

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