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Futures Cash Info Evening Comment for 7-11-18

 

 

 

 

 

 

 

 

FUTURES CASH INFO, LLC.

 

Advisory of Ag Markets Infusing a Forward Outlook

 

July 11, 2018

 

 

There was no morning comment via audio as our emailing service was not working properly.

 

We discussed the change the USDA is making in WASDE and NASS reports on sharing information in lockdown 90 minutes before the data is released with news media. The change may not affect this week’s report as it is expected to be in effect on August 1^st. (where is this year going?)

 

Thus far, China has matched dollar for dollar US tariffs in their trade battle. However, President Trump held to his word that if China retaliated he would enact a 10% tariff on $200 billion of Chinese products. That said, China does not import enough to match the $200 billion in goods from the US. So, now what? Liquidation of US bonds?

 

 

 

Tariffs in essence are a tax and tend to import inflation. The Federal Reserve has been watching inflation and trying to manage the rate that the US inflates with increasing interest rates slowly. Increasing interest rates serves to only hurt the farmer/producer.

 

We feel compelled to share that China’s retail landscape is changing. Imported food consumption growth is shifting away from China’s major coastal metropolitan areas such as Shanghai and Beijing to the dozens of Second-and-Third Tier cities around China. China is experimenting with new retail models such as 24-hour unstaffed convenience stores and expanded mobile payment platforms. E-commerce sales continue to grow, but major e-commerce retailers are competing for shrinking numbers of new consumers.

 

 

WEATHER:     Vegetative health is surprisingly low for Russia’s winter wheat crop and Ukrainian far eastern wheat. But the bigger question now is how the US corn and soybean crops will fare should Central US heat return. Heat is forecast to be prevalent for another 3 days with highs in the 90s pretty common. A forecast of a cold front that produces the best chance of rain should follow this cold front with .25 to 1.25 inches of rain across the Corn Belt. After that, a broad Ridge/Trough pattern is expected to form across North America by the end of next week and move eastward. Actually, this pattern is quite favorable for crops with milder temps.

 

We note, that since May 1^st, the heat that has prevailed across the Central US has been warmer than the drought of 2012 for the same period and actually, the warmest since the 1930s. Some will argue that crops are bred up to handle this consistent heat but we argue that night time temperatures remaining so warm is pushing the crops along quickly and only time will tell how the yield impact will be. I think the night time temps may be more adverse than that of the daytime.

 

Looking at the GFS model run, (not a fan of) we would believe the forecast calling for a cooler period after July 20^th should be quite ideal for corn fill.  However, it is also thought rainfall will dip below normal and perhaps the above normal rainfall is done for the summer of 2018? Bottom line, a return of heat like that of May would be viewed as detrimental to Midwest crops and especially in Iowa where corn is believed to be shallow rooted.

 

CORN:     Corn slipped today on tariff news and concerns over an added 1 million acres of corn planted in the US along with fear that the yield may be increased. We do not look for much of a yield increase but if weather is kind into August, then an increase would be expected in the August S&D report. Still, a million more acres may be daunting to traders in a negative environment of trade wars.

 

The average trade guess for production is 14.269 billion bushels with a yield of 174.9 bpa versus June estimate of a yield of 174 bpa. The June production number was 14.040 billion bushels.

 

CONAB stands at 82.9 MMT for Brazilian corn production which is down 2 MMT and we wonder if the WASDE will lower from their last estimate of 85 MMT.

 

From the July report to the final production report in January, corn has seen the yield increase in each of the last 5 years.

 

For tonight and tomorrow, September corn has resistance at 346 and 349 with support at 339 and 335.

 

December corn has resistance at 359 and 363. Support is found at 351 and 347.

 

SOYBEANS:     Soybeans remained defensive for much of the trading session. The announcement of $200 billion of Chinese ag and horticulture products with 10% tariff sent the bean market south in the face of a USDA WASDE report on Thursday that is viewed as increasing the carryout on more acres planted from the June report. The average trade guess estimate for soybean production is 4.313 billion bushels with June’s estimate slightly less at 4.306 billion bushels. Traders anticipate a yield of 48.6 bpa. From the July report to the final production report in January, the soybean crop saw an increased yield in each of the past four years.

 

CONAB raised their Brazilian soybean estimate to 118.8 MMT which we reported in yesterday’s report. 

 

We note, November soybeans closed at 848 today and a WAVE 5 is 836.5.

 

The weather has not been viewed as testy and therefore, soybeans remain unable to add a weather premium in. Still, Wave 5 can be the “wall of China” no pun intended.

 

Ethiopia is set to see sesame and soybean production rise in 2018/19 while Niger production is expected to remain unchanged. However, consumer demand is growing and sesame is the country’s top oilseed followed by Niger seed and soybeans.

 

Basis levels coming into today at Brazilian ports was as high as $2.40 to $1.60 over the September board. This is likely caused by expectation of Chinese sales after cancellations of 20 US cargoes last week and the hike in freight costs causing farmers to be reluctant shippers.

 

For tonight and tomorrow, August soybeans resistance is 845 and 856 with support at 827 and 820.

 

November soybeans have resistance at 862 and 874 with support 842 and 834. FCI is 40% sold on new crop soybeans.

 

Today’s move to new lows now leaves last Friday’s high of 898 as the latest corrective high and new key risk parameter to recoup to threaten a deeper count. The market is flirting with November 2015’s key 844 low that has supported this market for three years.

 

We also take note that the bullish consensus is at 32% and the April low turned on 33%. However, last October and January lows were supported with a percentage of 24%.

 

WHEAT:     It was a sea of red on the screens today with Chicago wheat losing 15-18 cents. KC wheat was down nearly 19 cents. We note, Chicago wheat marked a new low.

 

Traders estimate export sales to be 200 tmt to 500 tmt with last week’s sales pace at 440,102 mt.

 

Trade estimates for WASDE’s all wheat crop is 1.865 billion bushels which is an increase of 40 million bushels from the report in June. (we note the average trade guess is 125 million bushels over last year) Still, in the last 9 of 10 years the USDA’s July winter wheat production was above the average trade guess with last year as much as 19 million bushels more.

 

SWW harvest is starting in Oregon while, Michigan is wrapping up their SRW harvest. There is talk of vomitoxin of elevated levels in SRW in Pennsylvania. Much of the winter wheat harvest should be wrapping up this or next week.

 

GASC purchased 175 tmt of Russian wheat.

 

We note, Australian wheat production is forecast at 21 MMT for 2018/19 which is down 12.5% from last year due to hot conditions and low rainfall in eastern Australia.

 

Bottom line, it seems like the grains and soy are playing good guy – bad guy. September Chicago wheat has resistance at 486 and 497 with support at 467 and 459.

 

KC September wheat has resistance at 488 and 501 with support at 468 and 461.

 

CATTLE:     Well, the bounce in fats was anemic and barely noticeable. That said, we had thought cattle could offer a minor tradeable bounce in October live cattle outright but we suspect this may not be the case. Still, the feeder cattle did what was expected with the indicators on daily data screaming sell. That said, here is how the indicators appear tonight:

 

The August feeder daily TRx is negative. The floater is 71% negative and the timer is 91% negative. We suggest any rally effort should offer a sell.

 

August fats have also turned negative on all three indicators. The floater is 36% negative and the timer is 21% negative. If we were to trade the market it would be to enter the long August and short October spreads and can do so anywhere near where the close of today was. Good support is at 302 to the October and breaking that support would be a sign of time to uncle. Besides that, the hourly data is overdone and we still think a buy is in store. We suggest buying the December 112 calls and selling the December 122 calls. If so inclined one could sell the 104 December put and all this could be done for 50 cents but the 112-122 call spread offers comfort from margining very much. Once the market moves through 122 the spread should be either liquidated or rolled. Still, as long as these indicators are tenuous, we suggest picking good down days like this one to buy.

 

There is an old saying that “as goes the S&P so goes the cattle.” Well, neither one was worth a salt today.

 

 

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