Stewart-Peterson Market Commentary

Closing Commentary - July 29, 2016

Top Farmer Closing Commentary 7-29-16

CORN HIGHLIGHTS:Corn futures firmed late in the session, finishing with solid gains of 3-1/4 to 4 cents as Dec led today's rally, closing at 3.4275. This compares to last Friday's close of 3.4175. For the week, a penny gain does not sound like much, considering it looked like prices consolidated in front of very good weather for the week. We are encouraged that prices are beginning to hold. Weather the next three weeks will dominate the picture. The near term continues to suggest rain, yet the longer range forecast between the 6-10 day and 10-15 day outlook suggests above normal temperatures and below normal precipitation for most of the Midwest. The bean market may have reflected this most today, gaining 23 to 29 cents. A sharp break in the US dollar helped provide support today as it lost nearly 1.5%. This was one of the biggest down days for the dollar in the last two months.

SOYBEAN HIGHLIGHTS:November soybeans finished the last trading day of July with flying colors, gaining 25 cents on the day and closing at 10.03. Weather uncertainty is of the utmost importance at this time of year, and that is reflected in the week-to-week movements in prices. Last week, November beans dropped 69 cents on good forecasts, and this week, beans regained 14-3/4 cents on slightly more bullish weather predictions and some short covering. August will bring even more weather-driven volatility. Today was also the third day in a row with soybean sales, with 4.7 million bushels being sold to unknown destinations split evenly between old and new crop. The November soybean contract put in a strong bullish reversal today, with prices falling below yesterday's low and later thrusting through and finishing a quarter above yesterday's high. Bean futures also finished above the 10-day moving average for the first time since July 18. The next upside target for November soybeans is currently at the 100-day moving average of 10.21 and the next downside target is the low-to-mid $9.80 support range.

WHEAT HIGHLIGHTS:Chicago wheat futures were the only major grain unable to finish positively going into August. The September contract dropped 2-1/2 cents today and closed at 4.0775. Despite good, strong trading in the grains today and a weakening dollar, wheat futures were unable to make gains on these related markets. Instead, wheat prices succumbed to pressure of an overly plentiful world supply. Russia appears to have picked up much of the slack in wheat production that France's rain created. US wheat production is 4.2 bushels per acre under projections, but again, there is just too much world supply to let lower US yields act as support. While last week was a relatively neutral week for September wheat with gains of 1/4 cent, September wheat lost 17-1/2 cents this week. September wheat futures finished at the lowest possible support level, but did briefly dip below it. The next upside target for September wheat is 4.14 and, if wheat prices continue to experience a similar pattern as they did from July 5 to July 20, the 3.90 area is the next downside target. Today's closes were the lowest yet for both the September and December contracts.

CATTLE HIGHLIGHTS:Cattle futures finished uneventfully, losing 25 in Aug and 37 in Oct, while June gained 37 points, closing at 104.20. Feeder cattle were mixed with bear spreading noted. Front month Aug closed 42 lower at 140.05, while deferred January gained 45, closing at 131.77. Estimated slaughter was 112,000, vs 103,000 a year ago. Expectations for warm temperatures may have provided support this week as weight gain in some regions has been minimal. High dew points are also expected. As for the next few weeks, we expect volatile activity, but the overall trend remains lower. Rallies should be viewed as opportunities to buy puts and sell calls. We are just not seeing enough strength in the cash market. A.M. cutout values indicated choice cuts down 85 at 197.91 and select up 15 at 189.86. Yesterday saw 32 cents lower in choice and 34 in select.

LEAN HOG HIGHLIGHTS:Hog futures ended the day mixed with nearby Aug gaining 12 points, closing at 68.97 and deferred months down 15 to 20 with May leading today's drop. June gained 47, closing at 74.12. It was another rough week for the hog market, as it extended losses from the previous three weeks. Aug hogs closed at 68.97, down from last Friday's close of 75.27, or a drop of well over 6.00. This after another drop of near 6.00 the prior week. Since peaking at over 90.00 in mid June, the market has now dropped over 21.00. Slowdown in demand in China as well as concern that overseas demand elsewhere was diminished with a 4% increase in the dollar during the month of July all contributed to the recent turndown. We have argued the daily slaughter numbers, even when prices were moving upward in May, seemed to be too large to sustain a firm market tone. Eventually the bigger numbers took their toll, and concerns about packer capacity and increase in cold storage supplies late in the third and fourth quarter seemed to have enough impact to push prices significantly lower. There may be some downside, but we view the market is undervalued. We would not be surprised if momentum carried prices down another 2.00 to 3.00, but we are looking for long term support at 65.00 to hold the Aug contract in place. Dec is trading near 55.00, and we believe this market has factored in expectations for increasing supply that ultimately could provide underlying support, as this provides an excellent long term buy hedge value for end users.

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