Stewart-Peterson Market Commentary

Closing Commentary - August 20, 2018

Top Farmer Closing Commentary 8-20-18

CORN HIGHLIGHTS: Corn futures moved lower today with losses of 2 to 2-1/4 cents, with Sep closing at 3.62 and Dec at 3.76-1/2. Sharp losses in the wheat complex weighed on corn futures as did the idea that harvest will gradually pick up steam as this year's crop was running 1 to 2 weeks ahead of schedule for most producers. Row crop selling has also weighed on corn prices in recent weeks. In addition, while not new, cases of African Swine Fever in China could suggest herd liquidation and declining need for corn and meal. This may be a bit of a stretch, but at least it's worth being aware of. Today was a very typical late-August trading session with prices rangebound, but not moving directionally in much of a hurry. We would stress consolidation continues as Dec corn futures are trading at the same price that they were three weeks ago. Yet, for the third consecutive session a failure to stay above the 10-day moving average into the market close suggests that futures could be growing tired, and with harvest pressure prices could slip. Therefore, we'll sell the remaining old crop corn. We're comfortable with positions on new crop.

SOYBEAN HIGHLIGHTS: Soybean futures had a quiet close with Sep gaining 1/4 and closing at 8.81-3/4 and Nov up 1/2 at 8.93-1/4. Prices rallied in the early morning session but gave back most of these gains late as expectations that recent rains will be viewed more as beneficial than not. In addition, as mentioned in our corn report, a third case of African Swine Fever in China may suggest less demand for meal as the herd could shrink in size if producers liquidate. However, our bias is the liquidation will likely come from poor internal prices as a very ample supply of pork in the very near term has plagued prices for hog producers in that part of the world. The early results from the Pro Farmer Crop Tour suggests SD and OH are indicating yield expectations at or better than anticipated. At this point, I would suggest we are not surprised as these two areas seem to have had very good weather for most of the growing season. Export inspections at 23.5 million bushels was enough to meet USDA projections for 2018 at 2.006 billion bushels. This would imply inspections next week could suggest a small revision upward for exports for the year.

WHEAT HIGHLIGHTS: Wheat futures have been very sporadic as of late, and today was not a disappointment. After surging on Friday with strong gains, today's losses were just as strong with futures losing 13 to 18 cents in KC and Chi, while Mpls lost 13 to 14-1/4. Nearby Sep Chi lost 18-1/4 closing at 5.42-1/4, the same level that prices closed on Thursday last week. The inability to follow through to the topside after trading steady to higher on the overnight may have spooked traders into moving to the sidelines. Last week's news that Russia may limit exports to 30 million metric tons gave prices a boost but is now old news and may be lacking substance as in confirmation of this report. Whatever the case, traders headed to the sideline today.

CATTLE HIGHLIGHTS: Cattle futures put in lower closes today, mostly unable to find strength on improving cash fundamentals. The nearby Aug live cattle contract closed 35 cents lower to 109.07, Oct closed 42 cents lower to 110.45, and Dec closed 5 cents lower to 114.57. Aug feeders were down 1.32 to 149.62 and Sep feeders were down 72 cents to 151.10. On Friday afternoon, choice cuts surged higher, up 2.28 to 211.38. This is the highest beef value since July 2. This morning, choice cuts resumed their strength, up 1.98 to 213.36. The U.S. will begin traded negotiations with China tomorrow, and some are predicting that beef could be a topic of discussion. Currently, the U.S. share of China's beef import is only 0.5%, so if China does begin to import more beef from the U.S., prices should rally. However, most suspect that a formal deal may not be done until November. In the meantime, beef and cattle supply is hefty, keeping a lid on extended rallies. Technically, today's price action was relatively uneventful. The Aug and Dec contracts were able to hold their 200-day moving average support, while the best traded Oct contract fell back below its 200-day moving average. Trading ranges today were tight, and the nearby live cattle contracts traded inside of Friday's ranges today. Feeder cattle briefly pushed through Friday's highs but were unable to hold onto early gains.

LEAN HOG HIGHLIGHTS: Hog futures closed sharply lower today, correcting from last week's huge gains. The nearby Oct contract today closed 2.12 lower to 56.47, Dec closed 1.05 lower to 54.22, and Feb closed 80 cents lower to 60.85. The CME Lean Hog Index was down 1.27 to 52.94, with the current premium of futures to cash likely a reason for today's pullback. Normally, Oct futures are at a discount of almost 13.00 to the cash index at this time of year, so the premium of almost 2.00 means that futures need to fall, or cash needs to rally quickly. News that a third case of Swine Fever was discovered in China over the weekend was supportive, but currently, the market appears to be pricing in a massive reduction in Chinese hog herd, so the impact was muted. Rumors that the U.S. and Mexico may unveil a trade deal in the middle of this week was supportive, but again, prices were too overbought to show much reaction. Technically, though today's price action was not friendly looking, some major support levels were held as futures pulled out of overbought levels. The Oct contract opened higher, then fell sharply lower but held its 50-day moving average level. Oct's close is back within its Bollinger Band range, and stochastics have almost crept out of overbought levels as well.

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