Commodity Index
The CRB/CCI finished the week slightly higher as the US dollar declined to fresh 8 month lows as speculators started to secure the energy complex as demand ahead of the winter heating season is expected to rise across the Northern Hemisphere. ARC would note that world emerging stock markets broke out to the upside as the health of the world economy continued to improve. The falling USD and improving economic outlook argues that there is limited downside in raw material prices into yearend.
The ongoing political stalemate in Washington should allow for the US dollar to test $93.00 on the index, the 2016 lows.
As the USD declines, it pressures the profitability of world commodity producers and slows future supply expansion.
This along with a strengthening demand profile argues for a measured rally of the CRB index into yearend. For ag prices, its cautions producers not to be as bearish as prior years.
Corn
CBOT corn futures fell 15 cents on fluctuating weather forecasts, an increase by USDA in old and new crop US corn stocks, as well as major exporters’ stocks/use in its June WASDE. ARC points out that changes to corn balance sheets were completely within expectations – they simply accounted for NASS Stocks and Seeding data – and that Northern Hemisphere yields are far from being determined. The major forecasting overnight Saturday maintain a pattern of warmth and dryness, particularly across the South Central US through July 25th. And Central US weather conditions since early June suggests trend yield will not be met. Our work suggests a new plateau has been reached. Sales are advised above $4.00, basis Dec 17, while seasonal lows are likely to be scored in early fall at $3.50-3.60 – vs. $3.20 last year. Longer term, another large S American crop will need to be confirmed to turn significantly bearish of corn.
Wheat
Wheat futures ended mixed, with winter contracts lower and spring wheat higher, which adequately reflects the USDA’s first pass at US by-class balance sheets. SRW stocks will be record large, HRW stocks will be down sharply from last year, but still comfortable, while HRS stocks are below pipeline with demand rationing needed. And our work indicates the USDA is still some 30-50 Mil Bu too high with its HRS production forecast – abandonment was left untouched – and so through basis and spreads, spring wheat rationing will be on ongoing process. Otherwise, like corn, a new price range has been established, and as too much rain falls across N Europe and Central Russia, and as Canadian and Australian droughts expand, we doubt spot CME futures can trade below $5.00 for any length of time. Target $5.50+ basis Sept CME, to catch up on any sales.
Soybeans
It was a wide week of trade in the soybean market that left spot July down 11 cents and November was near 13 cents lower. The Commitment of Traders report showed that that through Tuesday, funds had covered all of their net short position and held a modest net long position for the first time since late April. It was a record week of fund buying, while hedgers were large sellers on the rally. Weather forecasts and then crop ratings on Monday look to direct trends in the week ahead. The Eastern Cornbelt saw good rains last week, while drought looks to drift out of the Dakotas and push south and east. Crop ratings have been trending lower, and based on rains in the last week we expect that crop ratings on Monday will be steady to 2% lower from a week ago. Weather premium should be added until ratings start improving. We are not anxious sellers of new crop under $10.00 and look to rallies back to $10.50-11.00 to make sales.
Cattle
After a slow start to the week, cattle futures traded up on Tuesday and then surged to limit gains at midweek on better than expected cash cattle trade. The beef market has fallen sharply since the start of the month and expectations were that cattle would sell steady to a couple dollars lower this week. However, cash trading got underway on Wednesday with sales $2 to $3 higher at $120. While cattle traded higher, the beef market continued it’s decent, with cutout values sliding $2-3 every day. Packer margins were squeezed as beef and cattle prices moved in opposite directions, which is expected to cap cash cattle trade in coming weeks. Longer term, 4th quarter beef production is expected to be record large amid the big summer placement rates, which is expected to dampen 4th quarter beef and cash cattle rallies.
Hogs
Hog futures finished the week mostly lower, with the exception of July. The cash index continued to inch up and was higher every day which supported July hogs ahead of Monday’s expiration, but the rest of the market turned down on expectations that a market top is forming. Cash pork bellies forged a new record high and finished the week lower which is likely marking a longer term top, and will also signal a high in both the pork carcass value and cash hog prices. At week’s end, the spread from July to August hogs was more than $10, and basis against August is at an all time high which is expected to offer support under $80. However, hog supplies should increase in the coming weeks, while carcass weights should start gaining by summer’s end. Strong rallies at the CME should be used for longer term sales