Consolidation Ignites Talk of Possible Bottoming Action
Jul 19, 2018
Good Morning! From Allendale, Inc. with the early morning commentary for July 19, 2018.
Grain markets are consolidating without updated news on tariff negotiations. The US row crops look good in most areas although the good/excellent declined this week. Rainfall will be important to maintain the yield potential trade is expecting.
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Weekly Export Sales estimates for the report due to be released at 7:30 am CDT: wheat 150,000-500,000 tonnes, old crop corn 300,000-600,000, new crop 200,000-500,000 tonnes, old crop soybeans 200,000-500,000 tonnes, new crop 100,000-500,000 tonnes, old crop soymeal 50,000-200,000 tonnes, new crop 25,000-150,000 tonnes and soyoil 8,000-40,000 tonnes.
Trading volume was light in grains on Wednesday as funds were estimated to have been net buyers of 4,000 corn, 2,500 soybeans and net sellers of 2,500 wheat contracts.
Cash grain bids were steady-firm across the interior of the Midwest on Wednesday as farmer selling was limited. River terminals were weak as export demand wanes.
China summer grain output fell 2.2% to 138.72 million tonnes in 2018, as reported by the National Bureau of Statistics. China's summer grain is mostly wheat, but also includes barley, buckwheat, potatoes and yellow peas.
Harvesting winter wheat in Northern Illinois has become a chore as quality issues are leading to deep discounts at the elevator. Test weights are averaging 52 to 57 pounds when the test weight should be 60 pounds. Heavy rains during late June and early July is cited as the major reason for the quality issues.
Mexican Economy Minister Ildefonso Guajardo who is Mexico's top trade official, told reporters that the three countries were "resuming negotiations" on the North American Free Trade Agreement (NAFTA) and that he would travel to the U.S. capital for a bilateral meeting on Thursday, July 26. He said he would later meet with Canadian officials but did not specify when. (Reuters)
Cattle on Feed report will be released on Friday at 2:00 PM CDT. Trade estimates are: On Feed July 1, 104.0%, Placed 100.6%, Marketed in June 101.1. Allendale is expecting placements during June higher than trade average due to feedlots selling cattle on basis and lighter than normal. Feedlots likely replaced marketed cattle with lighter cattle as feed cost continued to slide during June.
Cash cattle has seen packers raise bids as feedlots continue to ask for more. Packers profit margins are well in the black and cheap corn is giving the feedlots a slight edge for now. However, supplies of market ready cattle are expected to increase. The question is when will they get here? Another surprise is the beef demand during the dog days of summer.
Chart action on Wednesday was positive as the August contract closed 2.50 higher and set new highs for the month of July. The August Live Cattle futures seem to have set a target in the 111.00 to 112.00 area. Support crosses at 106.00
Cash hogs, pork product, and lean hog futures are all traveling in the same direction, which is down. Fund selling continues to add fuel to the bear's fire. Chart analysis shows the lean hog futures as oversold and spreads are indicating the trade may have more emotion in their positions than necessary. Market is telling us to manage risk.
Dressed beef values were higher with choice up .41 and select up .23. The CME Feeder Index is 148.59. Pork cutout value is down 1.85.