Stewart-Peterson Market Commentary

Closing Commentary - August 16, 2018

Top Farmer Closing Commentary 8-16-18

CORN HIGHLIGHTS: Corn futures finished with gains of 3-3/4 cents on most futures contracts, as sharp gains in beans and strength in wheat provided underlying support. The catalyst was renewed optimism that talks between China and the US will resume and consequently work toward resolution to trade disputes. Corn traded 5 or more cents higher much of the session but fell back late into the close, on what we believe was an increase in farmers selling as producers cleaning out the bins may have likely hampered corn's ability to move upward from earlier in the session. Dec corn reached a high of 3.82 today, its highest level since prior to the USDA report last Friday. Positive margins for ethanol plants, along with continued strong expectations for record demand, will provide underlying support.

SOYBEAN HIGHLIGHTS: Soybean futures are called mixed to higher on follow through after yesterday's strong technical gains. Futures found renewed buying interest on news that a delegation of officials from China would visit Washington later this month in hopes of working toward resolution to trade disputes. China is the world's largest consumer of soybeans, and many have argued that China cannot purchase US soybeans in some capacity. Today's news was the first positive news on the tariff talk in some time. What appears to be a conducive weather forecast in the near term, with most of the Midwest expecting to see below normal temperatures and above normal precipitation, could help to solidify high yields for many producers. The question is whether or not this month's USDA report was too aggressive in pushing yield close to 52 bushels per acre. Export sales at 4.9 million bushels old crop and 21 million new crop were termed neutral.

WHEAT HIGHLIGHTS: Wheat prices recovered with strong gains today on all three exchanges. Chi gained 10 to 11-3/4, Mpls 11-1/2 to 12-3/4 and KC 12 to 13-1/4 cents higher. Short covering was noted. KC futures picked up nearly 3 cents against Chi. Export sales were supportive at 29.5 million, but more importantly, the market seemed to take more of a world focus today and acknowledged continued dry weather concerns elsewhere. The technical picture is a little less certain. Bullish traders will argue that the market double-bottomed in June and July and raced into new contract highs for the season. The recent downturn is nothing more than a correction in a market that saw significant managed money long wheat for the first time this year. When prices set back, there will be some liquidation. Ultimately, bullish traders will argue this setback will spur additional buying interest. At this point, we concur, as the world exportable supply of wheat continues to shrink.

CATTLE HIGHLIGHTS: Cattle futures finished slightly higher, capitalizing on spillover support from hog markets. The nearby Aug live cattle contract closed steady at 108.32, Oct gained 27 cents to 109.27 and Dec gained 40 cents to 113.20. Feeder cattle had a more impressive session, with Aug up 1.22 to 150.27 and Sep up 97 cents to 150.12. Export sales data released this morning was very supportive with 21,600 tons of beef reported sold for the week ending 8/9 versus the previous 4-week average of 12,225 tons. Cumulative export sales for 2018 are now running at 19% ahead of last year's pace. This is the highest weekly total since 6.7. Boxed beef values put in their highest close yesterday since 7/3, up 31 cents to 209.95, following the seasonal jump approaching the Labor Day holiday. Cooling temperature might also help spur demand, but choice beef was off 94 cents this morning to 209.01. Early session support was also noted from reports that China and the US will begin more serious, though still low level, trade negotiations late this month. Currently, China is the world's largest beef importer, but the US share is less than 1%. This represents a great deal of potential new export business if some progress can be made. Technically, live cattle markets were unable to make much progress higher and couldn't muster more than an inside session. Oct futures were able to hold their 50-day moving average level. Feeder cattle futures had a more impressive day, closing above their 10-day moving average for the first time since the most recent sharp sell-off last Tuesday. Feeder futures have broken out of their most recent consolidation range to the upside, but an ominous head-and-shoulders formation still gives bearish traders a downside target.

LEAN HOG HIGHLIGHTS: Hog futures closed with limit up gains in the three nearby contracts, finding fundamental support on possibly improving trade relations, as well as short covering action. Oct, Dec and Feb contracts all closed 3.00 higher to 55.47, 52.45 and 59.35 respectively. News overnight that China will be sending a trade delegation to the US at the end of August to discuss various trade topics was the main source of support today. In addition, the market believes that the US is close to working out a deal with Mexico, which should be a huge boost to pork exports as well. Speaking of exports, sales data released this morning was supportive, with 26,700 tons reported sold for the week ending 8/9, versus the previous 4-week average of 25,350 tons. This leaves cumulative sales for 2018 6.1% above last year's pace, currently at 860,300 tons. Sales over the past four weeks have increased greatly from the previous four weeks, also a positive force. Yesterday afternoon, carcass cutout values were down 1.25 to 68.49, their lowest value since 4/27. Cutout values bounced 28 cents this morning to 68.77. Technically, today's session was extremely impressive. The best traded Oct contract gapped up by 80 cents, and the Dec contract gapped higher by 83 cents. Both contracts put in their highest closes since 7/6, and the Dec contract closed above its 50-day moving average for the first time since mid-June. Much of today's price action was likely technical short covering, as those with short positions exit the market due to positive feelings about current trade situations.

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