Barchart Commodity Futures Morning Update

Grain prices this morning are lower with Jul corn -2.00 (-0.53%), Jul soybeans -9.25 (-0.97%)), and Jul wheat -7.75 (-1.45%). Grain prices on Tuesday closed higher on a supportive USDA WASDE report: Jul corn +10.25 (+2.79%), Jul soybeans +0.25 (+0.03%), Jul wheat +20.00 (+3.89%). Corn rallied after the USDA cut its U.S. 2018/19 ending stocks estimate to a 5-year low of 1.577 bln bu, below expectations of 1.652 bln bu, and after they cut their global 2018/19 corn ending stocks estimate to a 6-year low of 154.7 MMT, below expectations of 157.5 MMT. Soybeans moved higher after the USDA unexpectedly cut its U.S. 2018/19 soybean ending stocks estimate to 385 million bu, less than expectations for an increase to 440 mln bu. Gains in soybeans were limited after the USDA raised its global 2018/19 soybean ending stocks estimate to 87.0 MMT, above expectations of 86.8 MMT. Wheat closed higher after the USDA unexpectedly cut its U.S. 2018/19 wheat ending stocks estimate to a 4-year low of 946 mln bu, below expectations of an increase to 957 mln bu. On the negative side the USDA unexpectedly raised its global 2018/19 wheat ending stocks estimate to 266.2 MMT, above expectations for a cut to 263.4 MMT. Jul corn fell to a 3-1/2 month nearest-futures low Monday and Jul soybeans dropped to a 5-month low on bearish factors that included (1) favorable growing conditions in the Midwest that should boost early development of the just planted U.S. corn and soybean crops, and (2) lingering trade concerns that may lead to reduced foreign demand for U.S. grain supplies. A bullish factor for wheat was the action by IKAR on Friday cut its Russian 2018/19 wheat crop estimate to 71.5 MMT from a previous estimate of 73.5 MMT, due to excessive dryness. A bearish factor for wheat is increased wheat exports from Russia that may curb foreign demand for more-expensive U.S. wheat supplies with Russian wheat exports from Jun 1-May 23 up 47% y/y to 37 MMT. China's National Grain and Oils Information Center recently projected China 2018 soybean imports may decline by -1 MMT to 95 MMT, the first decline in 15 years.

Monday's USDA Crop Progress report showed 77% of the U.S. corn crop in good-to-excellent condition as of Jun 10, down -1 point w/w but +10 points ahead of last year. The Crop Progress report also showed 74% of the U.S. soybean crop was in good-to-excellent condition as of Jun 10, down -1 point w/w but +8 points ahead of last year at the same time. 38% of the U.S winter wheat was in good/excellent condition as of Jun 10, up -1 point w/w and down from 50% last year. The NWS reported that the wheat-growing region from Texas to southwest Kansas had the driest Dec-Feb on record.

Livestock prices on Tuesday closed higher: Aug cattle +0.125 (+0.12%), Jul hogs +2.050 (+2.58%). Aug cattle on Tuesday closed higher after wholesale beef prices rose for the first time in the last five sessions. Wholesale beef prices had dropped to a 1-1/2 month low Monday, a sign of weak domestic beef demand. Another negative is the decline in beef packer profit margins to a 3-week low, which may curb packer demand for cattle. Cattle prices posted a 2-1/2 month high Monday on speculation packer demand for cattle will remain firm after beef packer profit margins rose to a record high June 1. Cattle supplies remain ample as USDA slaughter data shows 14.102 mln head of cattle processed this year through Jun 9, up +3.1% y/y. Also, the May 22 USDA Cold Storage report showed beef in cold storage in Apr rose +1.6% m/m and +2.9% y/y to 471.545 mln lbs. The USDA in the May 10 WASDE report projected U.S. 2018/19 beef production will climb +1.8% y/y to a record 27.778 bln lbs. Nearest-futures (M18) cattle on Apr 1 fell to a 1-year low on news of China's implementation of a 25% tariff on U.S. pork exports to China and by news that beef is on the list of products subject to China's proposed 25% tariff on $50 billion of U.S. products. Foreign demand for U.S. beef is robust with U.S. Jan-Apr beef exports up +13.2% y/y at 983.716 mln lbs and with the USDA projecting that U.S. 2018/19 beef exports will climb +3.5% y/y to a record 3.150 bln lbs.

The May 25 USDA Cattle on Feed report was mixed as it showed cattle on feed as of May 1 rose +5.1% y/y to 11.558 million head, below expectations of +5.2 y/y, but still the second-highest May 1 inventory since data began in 1996. Cattle placements in feedlots during Apr fell -8.3% y/y to 1.695 million head, a smaller decline than expectations of a -9.6% y/y. Also, cattle marketed for slaughter in Apr rose +5.9% y/y to 1.803 mln head, above expectations of +4.0% y/y.

July hog prices on Tuesday rallied to a new 3-month high. Supportive factors included (1) improved domestic pork demand after wholesale pork prices rose to a 4-month high, and (2) strength in the cash market after cash hog prices surged to a 9-3/4 month high. Further upside may be limited on concern packer demand for hogs will collapse after pork packer profit margins fell to their most negative in 3-years. Trade concerns remain as well after Mexico, the largest importer of U.S. pork by volume, imposed reciprocal tariffs on some U.S. goods, including pork, for the U.S. tariffs on Mexican steel and aluminum exports. The USDA in the May 10 WASE report projected that U.S. 2018/19 pork production will climb +3.1% y/y to a record 27.624 bln lbs. USDA slaughter data shows 53.932 mln hogs processed this year through Jun 9, up +2.9% y/y. The May 22 USDA Cold Storage report was negative as it showed overall pork supplies in Apr rose +5.0% m/m and rose +8.7% y/y to 641.407 mln lbs. Foreign demand for U.S. pork is solid with U.S. Jan-Apr pork exports up +8.9% y/y at 2.064 bln lbs and the USDA projects that U.S. 2018/19 pork exports will climb +3.5% y/y to a record 6.125 bln lbs.

The USDA Q1 Hogs & Pigs report (released March 29) was bearish as it showed that the U.S. pig herd as of Mar 1 rose +3.1% y/y to 72.908 mln, which was a record high for a March 1st (data from 1964). Also, sows retained for breeding as of Mar 1 rose +1.7% y/y to 6.2 mln, more than expectations of +1.4%, and hogs marketed for slaughter rose +3.3 y/y to 66.708 million, more than expectations of +2.2% y/y and a record high for a March 1st (data from 1964). In addition, piglets per litter in Q1 rose +1.4% y/y to 10.58, higher than expectations of +1.0% y/y and a record high for a March 1st (data from 1964).

Softs this morning are mixed with Jul sugar +0.01 (+0.08%), Jul coffee -0.60 (-0.51%), Jul cocoa -12 (-0.50%) and Jul cotton -0.67 (-0.70%). Softs on Tuesday closed mostly higher: Jul sugar unch, Jul coffee +0.25 (+0.21%), Jul cocoa +41 (+1.73%), Jul cotton +0.48 (+0.51%). Jul sugar on Tuesday closed unchanged. Jul sugar on Monday rose to a 1-week high as a rally in the Brazilian real to a 2-week high against the dollar fueled fund short covering in sugar. Jul sugar last Friday sold-off to a 3-week low after the Brazilian real plunged to a 2-1/4 year low against the dollar, which spurred fund selling in sugar on concern the weaker real will spur Brazil's sugar producers to increase more-profitable sugar exports. Unica reported Brazil's Center-South 2018/19 sugar output through May was 5.49 MMT, down -3.93% y/y, with the amount of sugar converted to ethanol at 6.555 mln liters, up +51.88% y/y. Sugar prices posted a 2-1/2 year nearest-futures low in late-Apr on the prospects for abundant global supplies. The Thailand Office of Cane and Sugar Board reported Thailand 2017/18 sugar production rose to a record 14.47 MMT, while the ISO raised its global 2017/18 sugar surplus estimate to +11.1 MMT from a Mar estimate of +5.15 MMT and projected a global 2018/19 sugar surplus in excess of 4 MMT. Researcher Green Pool raised its global 2017/18 sugar surplus to an all-time high of 18.4 MMT and forecast a global 2018/19 sugar surplus of 6.6 MMT. Also, India's SMA boosted its estimate for India's 2017/18 sugar production to a record 31.5 MMT from a Mar forecast of 29.5 MMT, although India's sugar exports may be limited after the government approved a plan to establish domestic sugar stockpiles of 3 MMT. The USDA's Foreign Agricultural Service (FAS) projects a record 2017/18 global sugar surplus of 10.73 MMT and record global 2017/18 sugar production of 184.95 MMT. On the positive side, Conab projects Brazil 2018/19 sugar production will fall -6.3% y/y to 35.5 MMT, a 3-year low.

Jul coffee on Tuesday closed slightly higher as it consolidates recent losses. Jul coffee last Friday fell to a 3-week nearest-futures low on concern Brazil's coffee producers may boost more-profitable coffee exports after the Brazilian real slumped to a 2-1/4 year low against the dollar on Thursday. Coffee prices posted a contract low and 2-1/4 year nearest-futures low (K18) last month as the outlook for robust coffee supplies fueled fund selling of coffee futures. Conab projects Brazil 2018 coffee production of 58 mln bags, up +29% y/y, as crops are in the higher-yielding half of their biennial cycle. Researcher Olam forecasts a global 2018/19 arabica coffee bean surplus of +6.1 mln bags following a -4.1 mln bag deficit in 2017/18. Also, Columbia, the world's second-largest arabica producer, reported its Apr coffee exports rose +3% y/y to 920,922 bags, and ICE-monitored coffee inventories rose to a 2-1/2 year high of 2.038 mln bags on Monday. Vietnam said it expects its 2018 coffee exports to rise +9% y/y to 1.55 MMT. ICO projects global 2017/18 coffee production will climb +0.8% y/y to a record 158.93 mln bags. On the positive side, the USDA projects that global 2017/18 coffee ending stocks will fall -8.6% to a 5-year low of 29.3 mln bags, and U.S. Apr green coffee inventories fell -2.3% y/y to 6.733 mln bags. ICO reported global coffee exports from Oct-Apr were 70.65 mln bags, up +1.2% y/y.

Jul cocoa prices on Tuesday climbed to a 1-week high as signs of tighter supplies boosted fund short-covering after Ivory Coast farmers delivered 1.739 MMT of cocoa beans to Ivory Coast ports during Oct 1-Jun 10, down -2.0% y/y. Cocoa prices have trended lower over the past month to a 3-1/4 month nearest-futures low last Thursday as weather concerns eased in West Africa, which prompted fund selling of cocoa futures. Forecasts now call for normal to above-normal rainfall in the Ivory Coast over the next month. Cocoa prices rallied to a 1-1/2 year high in late-Apr on signs of stronger global demand along with concern excessive dry conditions in West Africa would reduce Ivory Coast and Ghana cocoa yields. Cocoa purchases from the Cocoa Bard of Ghana, the world's second-biggest cocoa producer, have fallen -8.4% y/y to 722,182 MT from Oct 13-May 10. European Q1 cocoa processing rose +5.5% to 358,432 MT, more than expectations of +3.4% and the most for a Q1 in data going back to 2001, and Asian Q1 cocoa processing rose +7.2% y/y to 190,244 MT, stronger than expectations of +6.2% y/y. ICCO projects that 2017/18 global cocoa production will fall -3.4% y/y to 4.587 MMT and that the global cocoa surplus will fall to +10,000 MT from 2016/17's 6-year high surplus of 300,000 MT. On the negative side, the recent rally in cocoa prices may be crimping global demand after Barry Callebaut, the world's top cocoa processor, reported recently that global chocolate sales rose +2.0% y/y in the three months through Jan, the slowest pace of increase in a year. Also, the National Confectioners Association reported Apr 20 that Q1 North American cocoa processing unexpectedly fell -1.1% y/y to 120.152 MT, weaker than expectations of a +1.5% y/y increase.

Jul cotton on Tuesday closed higher but remained below Monday's 4-1/4 year nearest-futures high. Cotton moved higher after the USDA in Tuesday's WASDE report cut its U.S. 2018/19 cotton ending stocks estimate to 4.7 mln bales, below expectations of 4.8 mln bales, and cut its global 208/19 cotton ending stocks estimate to 83.0 mln bales, less than expectations of 83.1 mln bales. Cotton prices have rallied sharply over the past month on U.S. crop concerns. Drought conditions have worsened in Texas, the largest cotton-growing state, after U.S. Drought Monitor data on Thursday showed 32% of Texas was in a severe-to-extreme drought as of Jun 5, up +1 pt w/w. Also, stronger foreign demand for U.S. cotton is supportive as U.S. Apr cotton exports rose +34% y/y to 479 MT. The China National Cotton Information Center forecasts China 2018/19 cotton imports will surge +66.5% y/y to 2.06 MMT. Chinese cotton demand has been weak due to trade tensions with China Jan-Apr cotton imports down -6.7% y/y at 450,000 MT. Cotton prices on Apr 4 plunged to a 3-3/4 month low on the Chinese proposal to slap 25% tariffs on U.S. cotton exports. A negative is increased cotton output in India, the world's second largest cotton producer, as India projects its 2017/18 cotton production will climb +9.8% y/y to a 3-year high of 37 mln bales. Cotton demand is a major supportive factor as the USDA projects that global 2018/19 cotton use will climb to a record high of 125.35 mln bales. Monday’s USDA Crop Progress report showed 42% of the U.S. cotton crop in good-to-excellent condition as of Jun 10, up +1 point w/w but -24 points behind last year at the same time.

Jul WTI crude oil prices this morning are down -14 cents (-0.21%) and Jul gasoline is +0.0010 (+0.05%). Tuesday's closes: Jul crude +0.26 (+0.39%), Jul gasoline -0.0150 (-0.71%). Jul crude oil and gasoline on Tuesday settled mixed with Jul crude at a 1-week high. Crude oil prices were boosted by the EIA's hike in its 2018 U.S. petroleum demand forecast to 20.41 million bpd from a May forecast of 20.38 million bpd and by expectations for Wednesday's weekly EIA crude oil inventories report to fall -1.5 million bbl. Crude oil prices were undercut by a stronger dollar and by the slide in the crack spread to a 2-1/2 week low, which reduces incentive for refiners to purchase crude oil to refine into gasoline.

Metals prices this morning are mixed with Aug gold -0.9 (-0.07%) at a 1-week low, Jul silver +0.034 (+0.20%) and Jul copper -0.002 (-0.05%). Tuesday's closes: Aug gold -3.8 (-0.29%), Jul silver -0.061 (-0.36%), Jul copper -0.0075 (-0.23%). Metals on Tuesday closed lower on reduced geopolitical risks from North Korea on a potential peace deal between the U.S. and Korea, which reduces the safe-haven demand for precious metals. Metals prices were also undercut by expectations for a Fed rate hike at the conclusion of Wednesday's 2-day FOMC meeting and by optimism a strike by copper miners at Chile's Escondidia copper mine, the world's largest, can be averted after workers at the BHP Billiton Spence copper mine in Chile agreed to a wage settlement.