Morning Commentary

July corn down 2 ¾ at $3.31

July beans down 3 ¼ at $8.615

The DOW is down

USD is stronger

Crude oil down $.44 at $37.75

Good morning,

Corn traders are digesting a U.S. crop that’s 97% planted and now rated 75% GD/EX vs. only about 80% planted last year at this time and only about 59% rated GD/EX. Iowa is rated 85% GD/EX vs. 58% last year. Most inside the trade think some weather problems in Brazil may have trimmed a little second-crop corn production. On the demand side of the equation, the recent weakness in the U.S. dollar and talk of China perhaps wanting to bring in higher quality U.S. corn directly to end-users to the south is helping to create some bullish interest. we also have improved ethanol conditions with OPEC agreeing to extend production cuts and the global economies restarting. The trend for July corn is positive. Stable action above 328.75 would support a rally to 340. A close under 325 cautions for a retrenchment phase.

Soybean traders see the U.S. crop is now 86% planted and still well ahead of schedule. At the same time, the USDA shows 72% of the crop now rated GD/EX which is better than average and a +2% improvement over last week. Similar to corn, bears are pointing to Illinois conditions improving +11% last week, North Dakota improving +9%, Tennessee +8%. We have big production states like Iowa, Minnesota, Nebraska, South Dakota all showing +82% of their respective soybean fields rated GD/EX. Technically, we are up +40 to +45 cents from the recent lows and at levels we haven’t seen in a couple of months. Bulls are happy to see the Chinese still buying U.S. supply as many bears were betting that would come to an end in the wake of U.S. political pressure regarding corona and Hong Kong.

Cattle: Week to week it becomes hard to know what the market is going to focus on and choose to form price direction from. As we start the new week, we know that beef is coming down but potentially near a mid-term low. We know that cash has turned softer and the willingness of the packer, at this time, to support the market to the same extent is slightly softer but still exists. Anecdotal evidence points towards another week of softer cash trade as we get early feels from northern sale barns. From a speculative standpoint, many of those inclined to be more friendly are looking at the discount the nearby futures are to average cash (94.00 versus 112.00/CWT) and assuming that the futures must converge to cash with the risk tool gaining. The more cautious traders are cognizant of the fact that some cattle would trade at or even below current futures prices, many cattle have been delayed into the Jul-Aug marketing period either purposefully or out of necessity and the slaughter pace has seemingly created a large number of cattle on the front end of the market at heavy weights and diminishing feedyard returns. Interestingly, from a hedging or commercial perspective, prices are too low for most to hedge cattle purchased in recent history, and those cattle that may present better estimated profitability are begrudgingly hedged at these levels, if at all. At the risk of being overly simplistic, in many ways this is at the core of why the market is apparently stalled in the recent range. Indecision and a lack of clear direction on the spec and unwillingness by the commercial to make many long-term business decisions creates a stale market. We certainly do not have this all figured out, but it typically takes one of two scenarios to solve a conundrum such as this. We either press the futures far too low and the spec community sees opportunity and least attractive risk-reward relationship, or futures prices move substantially higher and the commercial producer takes advantage by laying physical price risk-off. We have obviously done neither but maybe closer to the former than the latter. Today marks first notice and come down day for Jun20 LC. We may see some tepid deliveries through the month but should see the Jun20 LC spreads heal up after being battered by spec liquidation. As mentioned, cash may be lower on average this week and will likely maintain a wide range of prices. Beef is starting the week off softer but is likely going to find some hand to mouth support. Slaughter should be larger yet again this week although we will see the Saturday totals pull back some. Trey Warnock – Amarillo Brokerage Company

An American Farm Bureau economist says establishing a mandatory minimum for negotiated cash trade in cattle markets could result in negative consequences for the cattle industry. Michael Nepveux, who has written a “Market Intel” report on the issue, says it would likely mean more government intrusion into the industry. “The issue becomes, who is going to mandate it—and whenever you have a mandatory minimum, it starts to invite further regulation upon the industry,” Nepveux says. “And who is going to enforce that—the federal government is going to have to be the one involved there.” Nepveux says while enhanced price discovery is a good thing, it does not necessarily mean it will result in higher prices, as some proponents of minimum thresholds contend. “Price discovery is not the same as price determination and what’s going on with fundamental supply and demand,” he says. “So I’m not saying it won’t result in higher prices, I’m just saying that may not necessarily be the case.”(Source: Brownfield Ag)


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