Will New Money Show Up This Week?
Jul 31, 2017
Good Morning! From Allendale, Inc. with the early morning commentary for July 31, 2017.
Grain markets deal with the potential of an improvement in crop conditions and a weather forecast for cooler temps this week. Last trading day of the month could see some position balancing before the close today. Will new investor money provide support in grain markets as a new month begins this week?
U.S. crop areas will have a mostly favorable environment for summer crops in the upcoming week. Mild to cool weather later this week preceded by rain will assure no serious shortage of moisture occurs outside of a few pockets in the western Corn Belt. Crop conditions will be mostly good and the late reproductive and filling season for corn will be good.
Weekly crop conditions report out this afternoon has trade looking for a improvement of 1% in G/E for corn compared to last week’s 62% and 76% last year. In soybeans the trade is looking for unchanged to up 1% compared to 57% last week and 71% last year. Hard red spring wheat conditions are slide another 1 to 2% from last week’s 34% G/E.
Soybean oil is the one market that should continue to find some support as the ruling on Friday against the EPA on their authority on cutting volume is still being digested.
CFTC Commitment of Traders report showed funds were net buyers in corn of 2,145 contracts and 12,534 contracts in soybeans. They were net sellers of 8,076 contracts of wheat. They remain net long in all three major grain contracts.
European Commission lowered its forecast of EU corn production for 2017 down from 62.1 mmt to 58.4 mmt. They also lowered their wheat forecast down from 138.9 mmt to 138.6 mmt.
Weekly Drought Monitor report last week showed the area under stage 4 of dryness, Extreme Drought, slightly increased in North Dakota, South Dakota, and Montana. The limited areas in stage 5 level dryness, Exceptional Drought, also increased in North Dakota and Montana.
US oil rig count increased by 2 to 766.
Japan announced that between August 1 and March 31 they will increase tariffs on frozen beef imports from the US and other countries from 38.5% to 50%. Nations with an Economic Partnership Agreement with Japan will not be affected. This means some of U.S. competitors such as Australia, Mexico, and Chile will not be affected. There is no increase in tariff rates for chilled beef. Japan is the top buyer of US beef and in 2016 they purchased 656 million lbs. out of our 2.550 billion lbs. (26%). Of those purchases from the US, so far, this year 44% has been of frozen product. This will not stop US beef exports to Japan or US frozen beef exports to Japan, only trim them a bit. Back of the napkin math... 26% of exports, 44% of that is frozen. That leaves 11.4% of our exports affected.
Managed money funds were net sellers last week in live cattle and lean hog futures.
August live cattle futures closed at the weakest level since April 2017. Technical traders will likely come out of the chute applying new pressure looking for further liquidation. Long-term downside target would project to 106 to 108 level.
USDA estimated last week's hog production was 2.239 million head which was a little higher than was expected and the largest in 10 weeks. On the positive side, Last week’s production was 2.1% over last year and a bit under the 4% higher that was implied by the June Hogs and Pigs report.
Lean hog futures in the October contract has remained in a trading range between the 50 and 200 day moving averages. Technical support is 65.80.
Dressed beef values were lower with choice down .21 and select up .16. The CME Feeder Index is 149.36. Pork cutout value is down 1.19.
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