Stewart-Peterson Market CommentaryClosing Commentary - May 27, 2016
Top Farmer Closing Commentary 5-27-16
SOYBEAN HIGHLIGHTS:Soybean futures ended the week on a firm note, gaining 5-3/4 to 7 cents as Jan beans led today's rally closing at 10.54. Nearby July closed 6-3/4 higher at 10.86-1/2 and Nov up 5-3/4 at 10.56-1/4. For the week, beans gained 6-3/4 cents in Nov futures. Just as impressive, however, was the comeback from the low earlier in the week in which Nov beans reached down to 10.18-3/4. The market, as a whole, continues to look firm with the recent consolidation formation on charts suggesting prices are now prepared to break to the topside. We call this a triangle formation which would provide an upside objective in Nov beans over 11.00. Again, be cautious. This is just a technical objective and doesn't mean that beans need to go that high. We do think that farmers will likely, in some areas, move from corn to bean acres due to wet weather conditions. An export sale to China of 110,000 mmt was viewed as supportive as was continued wet weather. Soybean meal continues to be the leader of the pack as it has reached well over $100 higher per metric ton from its recent lows. However, July meal is down 7.00/ton today. Our bias is this was longs exiting before a long 3-day weekend.
CATTLE HIGHLIGHTS:For the second consecutive session, prices finished higher with gains of 77 to 107 points with Aug leading today's charge, closing at 116.42. Nearby June closed at 119.70. With steady to firm cash activity and expectations for good movement of product over the holiday weekend, the market ended the week on a firm note. Yet, this morning's cutout values had choice down 41 at 222.31 and select down 1.53 at 201.73. As we look ahead, we anticipate the market will be choppy. If one looks at cutout values, despite today's weaker session, there is still plenty of room for futures to move higher especially on deferred months. We'll come back from a 3-day weekend and then soon be in the month of June, and with June running premium to Aug and Oct cattle, we'll look for these contracts to begin moving upward. Yet, we'll stay defensive. We're not trusting the cattle complex or, for that matter, the entire meat complex. We are of the opinion that a shortfall in Brazilian corn could lead to liquidation of cattle in that country, and consequently, the world may view beef supplies as ample, and in turn, U.S. prices may struggle. Markets move on perception, and this perception could be reality.
LEAN HOG HIGHLIGHTS:Hog futures ended quietly. June lost 2 and July 20 points. Deferred months gained 7 to 12 points. Front month June now rests at 80.52 with the cash index at 78.60. Prices have been choppy the last 2 months, and our bias has been defensive when prices rally. We'll continue that approach. We don't feel there's a good long-term direction to prices, and consequently, the market has a tendency to move lower easier in that environment than higher. More importantly, we continue to believe that with cheap grain prices the last two years, the push higher in production was well underway as profit margins were strong in the hog and beef sectors along the way. Poultry rebounded strongly from bird flu issues.
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