Stewart-Peterson Market Commentary

Closing Commentary - May 27, 2016

Top Farmer Closing Commentary 5-27-16

CORN HIGHLIGHTS:Corn futures had another solid day, gaining 2-3/4 to 4-1/2 cents as July led today's rally closing at 4.12-3/4. Today's move was impressive, and the market is on the verge, for old crop July, of testing the Oct 7 high of 4.21. Today's high was 4.13-1/2. Dec corn finished up 3-3/4 at 4.13-1/2, another new calendar year high close. The last time prices closed this high was also in Oct. The Oct high is 4.21, and it, too, looks like it's in striking distance of futures. For the week, Dec corn finished up 13-3/4 cents but more importantly broke overhead resistance that exited since Apr 21. Lastly, the market ended on a very strong note for the day, the third day this has happened in a row. News of consequence that soybeans and soybean meal continue to look firm, and that could mean more activity for exports of DDGs. In addition, China was a noted buyer of U.S. corn today. Lastly, it was a good week of export sales with yesterday's figure at 54.4 mil bu, which brings the total year-to-date figure at 1.646 bil. This is catching up to last year's 1.692 bil for the same time.

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.

WHEAT HIGHLIGHTS:Wheat prices continue to go nowhere fast with this very evident today. After a strong upturn yesterday, prices failed to follow-through to the topside. The good news is it didn't drop off. By day's end, July wheat finished 1/4 cent higher at 4.84-1/2 while deferred contracts finished steady to 1/4 lower. Mpls finished down 4 to 6, and KC down 2 to 3. Harvest lies just around the corner and will likely exert some pressure, especially if wheat yields as good as some producers have led us to believe. Crop ratings also suggest a good-yielding crop. We just don't see much outside of wet weather to suggest that wheat prices can move higher right now, and despite yesterday's good showing, the lack of follow-through today despite higher corn and bean prices, would suggest traders may have been more interested in buying wheat yesterday on technical activity as well as reversal of wheat/corn and wheat/bean spreads. Whatever the case, we'll look for consolidation. Weather will be watched closely. If it rains heavier or more widespread than currently forecasted, harvest could get off to a very slow start.

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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