Good morning friends!
Corn (K17) 358’2 -‘2
Soybeans (K17) 995’0 -3’6
Chi Wheat (K17) 422’4 +’2
KC Wheat (K17) 444’0 -‘6
Cotton (Z17) 75.49 +.33
Good morning friends
The Brazilian meat scandal enters day 3, with the Chinese government weighing in on things and banning Brazilian poultry and beef from entering the country. They join a host of other nations across the globe who are turning away Brazilian product at the port. ON average over the last year, Brazil books close to 70 million dollars worth of beef per day. Yesterday they booked just over 70k. In the short run, I don’t think its a stretch we see the demand for feed fall. Now, folks are still going to eat poultry and beef but the world markets will need time to adjust. This could be a very good thing for US ag in the long run, its definitely good for US beef and poultry in the short run, but it could be negative for feed grain prices in the short run too as this whole thing washes out.
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Corn’s slide continues amid rising South American production estimates – and thus rising competition for export demand, and now this situation in Brazil. Ethanol production was better than expected, but this brings more DDG’s to the feed market as well. A weather scare is needed to spark better interest from speculators as the fund short has come back into vogue. Fresh news that has appeared in recent days/weeks has been mostly negative, and with US wheat production threats in retreat amid coming rainfall, and amid record crops in South America, it’s tough to be bullish corn but from my history of doing this when it feels the worst is when it usually is the best time to buy it. Longs should stay liquid for a test of the low 360/high 350’s in July corn. The good news is that US corn export inspections were solid this week, near the top end of expectations. That may be enough to stop the slide as April options expire this week.
Wheat’s falling as corn slides, with KC futures falling through support with Egypt reportedly canceling a totals of 10 cargoes from the black sea since the year started. . Turkey has also added Germany, Romania and even the US to its list of unacceptable origins, which erases hope the US could ship 20-30 Mil Bu to Turkey in the next 2-3 months. So there is some weak demand out there. On the supply side, the forward moisture forecasts look like this, which means wheat weather premiums are coming out of the market. My long July positions from between 450-460 feel heavy here, especially since the Brazil story adds more feed on to the market but I think selling here is myopic. I am willing to hold these positions to the summer lows in the 430’s. The market needs a spark to recover. Rainfall in the next 10 days across the Southern Plains has allowed a substantial portion of the market’s weather premium to be shed, and amid near normal precip/above normal temps across Europe and Russia, funds short covering doesn’t appear imminent. Wheat export sales were within expectations.
Soybeans continue to baffle the bears, given the action we see in the outside markets. Both Dalian soybeans and Brazilian bean prices are taking out lows as the supplies pile up south of the equator. Is the market really just waiting for US new crop soybean data before legging lower? The feeling is that we chop until the report at the end of next week. I think we will see a test of 980 before the report, but to leg lower from there we probably need to see the acreage number come in on expectations. From there, its all about US weather.
Cotton futures remain on the bid as the demand tone remains positive. China sold 71% of yesterday’s offering in the reserve auction which was lower than in recent weeks. At some point, the market will focus on new crop supply and demand. Given all of this bullish data we have gotten over recent months, global stocks to use is still fat. I think we could see US acres come in north of 12 million which makes our balance sheet look bloated on a new crop. 75 cents feels like a good spot for new crop cotton while July runs into resistance near 80. I also worry a little about the waning US Trump optimism that has pushed prices domestically. At some point, higher incomes need to be realized and not spoken about for prices to stay up here. We have seen bearish action in almost every market out there except for two, cotton and equities. At some point these longs will be forced to a decision.
Stay well today!
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