The Allendale Wake-Up Call

Charts Need Higher Closes to Change Trend

Good Morning! From Allendale, Inc. with the early morning commentary for July 18, 2018.

Grain markets are oversold after nearly 7 weeks of declining prices. Trade is trying to anticipate the fallout of the effect from tariffs on US agricultural products. It also is likely a sharp rally could ensue with any hope of a resolution. Crop Insurance is providing protection for many farmers this year. It may be important to analyze ways to protect the insurance benefits currently on the table.

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Soybean prices in US plus the tariffs are very near parity with South American beans at current levels. Trade negotiators have no meetings publicly planned, however, Chinese leaders will be in Argentina this weekend with Secretary Mnuchin and the EU leader will be visiting the White House next Wednesday.

Technical traders in soybeans will be watching the outside-day up on Monday and the 2 days in a row of higher closes as a possible bottoming action. Of course, a close above 8.76 ¾ (current 20 day moving average) in November soybeans is needed to change the down trend.

Funds were estimated to have been net-buyers of 15,000 corn, 8,500 soybeans, 9,500 wheat contracts on Tuesday.

World Weather Inc. says: “After several weeks of frequent rain in China’s Yangtze River Basin, a high-pressure ridge will promote drier than normal weather during the next two weeks. A drier-biased environment will also evolve for much of the North China Plain outside portions of Hebei and northern Henan through early next week before spreading across the entire region during the last week of July. These areas have ample moisture to maintain aggressive plant development during the next ten days. A few pockets may trend a little too dry toward the end of the month, but no significant negative crop development impacts are expected unless the dryness lasts into August.”

Brazilian demand for fertilizer will fall this year for the first time since 2015 due to disruptions caused by the strike and increased transportation costs after the government agreed to set minimum freight prices in a deal to end the demonstrations, according to INTL FC Stone analyst Fábio Rezende. (Reuters)

Cattle on Feed report will be released on Friday at 2:00 pm CDT. Trade estimates are: On Feed July 1, 104.0%, Placed 100.6%, Marketed in June 101.1%. Allendale is expecting placements during June higher than trade average due to feedlots selling cattle on basis and lighter than normal. Feedlots likely replaced marketed cattle with lighter cattle as feed cost continued to slide during June.

Packers have not showed up at feedlots yet this week. They anticipate a larger supply of front end cattle in weeks ahead. We are also in the “dog days of summer” where product demand is at seasonally one of the weakest during the year.

August live cattle futures are in a slight uptrend for the past month and half. Funds are supporting the rally on setbacks. Current resistance is 108.45 with 105.25 support. Look for choppy trade into the USDA report on Friday.

Cash hog markets are trending lower as tariffs placed on China and Mexico will slow export demand. Current lean hog index is $12.00 premium to the August lean hog futures which is historically wide which could provide some support to futures.

August lean hog futures set new contract lows on Tuesday which makes it very difficult to find support levels, resistance crosses at the 71.00 level. Funds appear to be building net short positions.

Dressed beef values were higher with choice up .63 and select up 1.19. The CME Feeder Index is 148.27. Pork cutout value is up .83.