The CRB/CCI index declined to new 2017 lows this week. And in doing so, it confirmed a new bearish trend. The key question going forward is whether the CRB will halt the decline at the 50% retracement at $394 or continue its fall to test support at $377-380.00? Since US crude prices appear unlikely to fall below $40.00, our bet is that the 50% correction level should hold this break. Energy paced the decline with the metal markets in tow. The next level of support for spot crude oil futures rests at $40-42.00, the old lows from 2016. Spot gold prices have traded in a range of $1,100-1,300 for much of the past 18 months, and there is no reason to expect that the prevailing range should change. The US Central Bank raised its lending rate .25% as expected, and there was no noticeable impact in world equity prices. Amid a world economy that keeps offering improvement, we would caution against becoming bearish the CRB into late 2017.
July corn fell 4 cents on back and forth weather forecasts, and as some moisture relief impacted the Northern and Eastern Corn Belt late in the week. Crop conditions at 67% GD/EX are decent, and argue for a yield near trend. ARC’s concern is the early season heat (June temp records have already been broken) and the lack of a lasting wet pattern forecast into July. Despite the recent rainfall, soil moisture deficits remain, and are becoming severe across the Plains and Western Corn Belt. Like wheat, demand news is lacking and S American corn offers are historically cheap. But our best guess on US national yield today rests at 165-167/Bu, which changes the balance sheet enough to offer strong support at $3.80 basis December. Spot futures have exceeded long held highs, and a new range of $3.70-4.00, spot corn looks to be established without a rapid improvement in the US weather pattern. Ukraine and Western Europe are also very dry. We’re sellers of strong rallies, but increasingly a test of $4.20-4.40 Dec is becoming likely.
Wheat futures soared to gains of 20-33 cents, once again led by spring wheat contracts in Minneapolis. Decent rain fell across the Dakotas this last week, but drought & severe moisture deficits persist. And with 60-70% of the wheat crop in the heading stage in South Dakota, new rainfall will only have so much benefit. Our work suggests the US will have to ration its available supply of high protein wheat, particularly as protein in the S Plains remains disappointing. A test of $6.80 basis spot MGE, lies ahead. Otherwise, other weather hot spots include much of Western Europe, China’s N Plains and now Australia, where very little rain has fallen in June and where very little rain is forecast for the next two weeks. A meaningful demand driver is absent, but major exporter production estimates are in retreat. Russian wheat, the world’s cheapest milling origin, is offered at $4.50. The downside price risk is limited to 10-15 cents. Wheat chart patterns are supportive. Await a test of $4.90, spot CME/KC for catch up on sales.
Soybean futures saw a quieter week of trade, with neither rallies nor breaks able to get much traction. At the week’s close, July beans were down just 2.5 cents. Better than expected rains across the Midwest limited gains through the week, while a larger than expected May soybean crush offered support. Based on the preliminary demand data, the USDA is expected to lower the old crop crush estimate, but likely to increase exports in the July WASDE report. However, old crop stocks are historically large. Funds still hold a significant net short soybean position, but began to cover a portion of it last week. The near term price outlook looks to be directed weather forecasts over the next 4-6 weeks. ARC lookS to use weather driven rallies to clean up old crop and extend new crop soybean sales. The initial upside target is $9.90.
It was a week of liquidation in the futures market, that left both live and feeder cattle futures lower at week’s end. Funds began unwinding their large net long position in cattle futures several weeks, and liquidation accelerated this week on ideas that the market has finally reached it’s seasonal high. Sales in the cash market were slow and took place over several days, with early business starting out $6-8 lower at $128-130, and prices were even lower later in the week. But while cattle prices headed south, the beef market traded firm through the week, and pushed higher just ahead of the weekend, taking the week’s estimated slaughter margins on to knew highs. August cattle finished the week back at the bottom end of a trading range that began developing in early May. The nearby outlook for the CME is neutral, on still higher cash cattle and beef prices.
It was a sharply mixed week of trade in the hog market, with July hogs trading back and forth in a wide range, while other months sold off sharply in the last half of the week. And while futures prices were sharply mixed through the week, trade the cash market continued higher every day, reaching the highest level since last July. Slaughter margins remain exceptionally strong as the pork belly market continues to move higher on tight stocks, which has maintained good packer demand for hogs. The belly market alone has added nearly $10 to the hog carcass value in the last 6 weeks. The spring high in belly prices is still another $16 higher, and once again a top in the cash hog market is likely to occur with a top in belly values. CME hogs are expected to hold in a broad range into the end of month USDA inventory report.