Stewart-Peterson Market Commentary

Closing Commentary - August 13, 2018

Top Farmer Closing Commentary 8-13-18

CORN HIGHLIGHTS: Corn futures edged lower with small losses of 1-1/4 to 1-1/2 cents. Nearby Sep finished at 3.56-1/2, and new crop Dec was down 1-1/4 at 3.70-1/2. After a hard slide on Friday after the release of the USDA report, which estimated yield at over 178 bushels per acre and weakness on the overnight trade, which saw corn futures 3-4 cents lower, the comeback late in the day suggests the market may now have already factored in the report. On the surface, the report was negative because yield was higher than expected, which increased production higher than anticipated, close to an additional 170 million bushels. However, the USDA also raised usage, so the net of the reports was very neutral, as old crop carryout, while it did grow, only gained 11 million bushels. Projected new crop carryout for 18/19 gained 54 million, another neutral figure. With the crop ahead of schedule, expectations are that, farmers who need to clean out bins will sell corn and that early harvested corn will be more available to the market than typical.

SOYBEAN HIGHLIGHTS: Soybean futures had a challenging overnight with prices 10 cents or more lower but managed to rebound late in the session, finishing with gains of 6-1/2 to 7-1/2 cents. On one hand, it appeared selling interest dried up, and traders took this as a cue to either take profits off the quick sell-off from Friday's 40-cent plunge, or expectations are that the USDA's yield number is just too high at 51.6 bushels per acre. The market was anticipating 49.8, and the July estimate was 48.5. In addition, a round of hot temperatures in the northern Midwest, in particular the drier Dakotas, may have traders taking a shot at a legitimate expectation that yield could be reduced next month. Whatever the case, prices posted a hook reversal with nearby August gaining 7-1/2, closing at 8.53-1/2 and Nov 7 higher at 8.68-3/4 with prices finishing in the upper edge of a 20-cent trading range for today. Soymeal and oil finished higher with meal gaining more than 5.00 and oil with small gains of 20+ points. Export inspections at 21.3 million were also termed supportive.

WHEAT HIGHLIGHTS: Wheat futures were the laggard in the grain markets today, with long liquidation causing strong losses. Sep Chi wheat lost 13-1/4 cents to 5.33-1/2, while Dec was down 16 cents to 5.33-1/2. Other wheat markets saw Sep HRW wheat drop 19 cents to 5.40-3/4, while Sep Mpls spring wheat dropped 16 cents to 5.92-3/4. Despite Friday's supply and demand numbers showing tighter US and global supplies overall, the numbers did come in slightly above expectations. As the report failed to meet goals, the market has been susceptible to long liquidation after posting new contract highs in Chi last week. Managed money moved closer to 100,000+ long contracts combined in the wheat markets, and with the short term picture not as bullish as it seems, this report provided a good opportunity to soften on those long positions. Global weather continues to stay in focus, as dryness and drought conditions across Europe, former soviet states, the Black Sea region and Australia may limit additional global production. US wheat harvest is moving along steadily, and the market is closely monitoring yields.

CATTLE HIGHLIGHTS: Live cattle finished with triple digit losses, falling below technical support due to a lack of positive cash fundamentals. The nearby Aug live cattle contract closed 1.05 lower to 107.20, Oct closed 1.10 lower to 108.15, and Dec closed 1.10 lower to 112. Aug feeders were down 1.25 to 148.65, and Sep feeders were down 1.07 to 148.45. Cash cattle only traded as high as 111.50 last week versus 114 the previous week. This was bearish, especially considering that the market was expecting steady to higher cash trade on the week. On Friday afternoon, choice cuts were up 55 cents to 206.61 and were up another 64 cents this morning to 207.28. Beef values have retained value fairly well, but with the seasonal peak likely in place, lower trending beef should be another fundamental pressure point. On Friday's Supply and Demand report, the USDA pegged an increase in beef production from quarter 3 to quarter 4 at 225 million pounds. Beef production normally declines between 150 and 300 million pounds from quarter 3 to quarter 4, so the large increase is very bearish, and in fact, the most negative fundamental setup for this timeframe since 1974. Depending on where you draw your support line, futures may or may not have broken some channel support today. Feeder cattle held trend line support today, though a pennant formation may be developing, which could indicate a break below support coming soon.

LEAN HOG HIGHLIGHTS: Hog futures continued their track higher today, though were unable to close near the highs of the day. The nearby Aug contract closed 72 cents higher to 55.52, Oct closed 47 cents higher to 51.65, and Dec closed 1.10 higher to 48.57. On Friday afternoon, carcass cutouts were down 38 cents to 71.07 but rebounded today 1.14 to 72.21. Loins were up 2.23 to 78.17, and bellies were up 3.64 to 99.39. Though bellies are still down sharply over the past 4 or 5 weeks, any hint that bellies are stabilizing will support carcass values. The CME lean hog index is down 1.84 to 60.04, its lowest value since the end of April. Technically, though today's closes were positive, it is still not clear if a low is in. The Oct contract closed well off its highs today, but its close above its 20-day moving average was the first since 6/16. That is a significant development and may spark some short covering this week. Dec futures put in their second consecutive close above their 20-day moving average as momentum studies start to turn higher.

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