June 19, 2019

USDA Confirms Importance of Good Yields in 2018

Good Morning! From Allendale, Inc. with the early morning commentary for June 13, 2018.

Grain markets are reacting to news stories that President Trump could put tariffs on Chinese products as soon as Friday. However one could expect some buying support from the tighter stocks in the USDA report on Tuesday. Money flow and weather forecast will likely be dominant factors as we approach the all-important US Planted acreage report on June 29th. Trade negotiation headlines will be a factor and a reason for excitement over the next few weeks. Economic traders are expecting another bump in interest rates from the Fed today.

USDA's June Supply and Demand report helped grains and oilseeds recover from the recent sharp selloff. The USDA increased demand for corn exports by 75 million bushels in 2017/18 marketing year and increased corn for ethanol production by 50 million bushels in 2018/19. They lowered feed and residual use by 25 million bushels in 2018/19 in-order to project a drop-in corn ending stock to 1.577 billion bushels. US stocks-to-use dropped to 10.8%, the tightest since 2013 and a level which historically is supportive to prices. World corn stocks-to-use is 14.2% which is the smallest in eight years, 2010/11.

Soybean balance sheet adjustments were made by raising soybeans for crush from May to June estimates and lowering ending stocks for 2018/19 to 385 million bushels. Stocks-to-use went for 9.4% in May to 8.7% on the June report.

On the wheat balance sheet, minimal adjustments were made to exports and production to reduce ending stocks slightly from the May report. Wheat endings stocks for 2018/19 are projected at 946 million bushels and stocks-to-use at 45.1%.

USDA lowered Brazil’s corn production by 2 mmt to 85.0 mmt. They raised Brazil’s soybean production by 2.0 mmt to 119.0 mmt for the 2017/18 marketing year. Argentine corn was the same at 33.0 mmt while soybean production was lowered by 2.0 mmt to 37.0 mmt.

CONAB released their estimates for 2018/19 Brazil’s soybean crop at 118.1 mmt, which was up from the 117 last month. Corn production for 2018/19 was estimated at 85.0 mmt versus last guess of 89.2.

Funds were estimated to have been net buyers of 26,000 corn contracts, 15,000 wheat contracts and 3,000 soymeal. They were sellers of 6,000 soyoil and flat in soybeans on Tuesday.

A week after the White House suspended its bid to reform the nation's biofuels policy to aid oil refiners, the head of the Environmental Protection Agency on Tuesday dangled a tantalizing prospect to Midwest corn farmers, saying the agency has the power to expand sales of higher ethanol gasoline blends. (Reuters)

FOMC meeting concludes today with trade expecting another rate increase.

Cash cattle offers are starting at 118 live and 190 dressed. Packers margins are well in the black, however, they are being tight with their money knowing wholesale prices will drop after the July 4th holiday. Showlists this week increased by 29,000 head is also giving packers a reason to play tough.

Fed Cattle Exchange has 443 head being offered at auction this morning.

August live cattle are trading at a deep discount to cash values as traders anticipate a wall of cattle coming to market and the historical “dog days of summer” just ahead of us. Futures are still showing overbought on the technical indicators, however, the August contract bounced off the 50-day moving average on Tuesday. Short-term trend is still up with key resistance at 106.67.

Cash hog prices continue to work higher as supplies are tighter and demand remains good. Packer margins are in the black and they would prefer to keep the chain speed as high as possible. Market ready hogs should continue to tighten as we move into July.

July lean hog futures closed at highest level since February 28, 2018. Resistance comes in at 83.00 level with support at 78.62.

Dressed beef values were mixed with choice down .21 and select up .59. The CME Feeder Index is 140.95. Pork cutout value is up .86.

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