Daily Grain / Hogs Marketing Outlook Written by: Jim Gerlach 5/24/2018

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1 Daily Grain / Hogs Marketing Outlook Written by: Jim Gerlach 5/24/2018 Early Call 8:45am EDT: Corn up $.02, soybeans up $.09, wheat up $.08. Overnight trade into early Thursday morning saw soybeans continue to roll higher, with contracts posting double-digit gains. Corn followed along, at a distance, as it continues to build bullish momentum. Wheat also showed a solid rally on what looked to be commercial buying interest, holding contracts near session highs. Outside markets were quieter than 24 hours ago, with the U.S. dollar index lower and DJIA futures showing little movement. Grains: Grain and soybean futures rose Wednesday on weather issues and bets China could start buying more American crops. Washington and Beijing indicated earlier this week they were suspending planned tariffs on each other's goods as part of a deal that would likely involve China importing more agricultural products from the U.S. While negotiations were still ongoing, traders were trying to parse what the increase in demand could mean for grain and soybean futures, helping to push corn prices in particular near a two-year high. There's a lot of speculation out there about what exactly this U.S. and China deal is going to entail. For the corn market, the speculation is are we going to see China import U.S. corn or ethanol? China is the largest buyer of American soybeans, but a less significant source of corn demand. Traders on Wednesday responded to rumors Chinese buyers were looking to return to the U.S. soybean market, though some questioned how far that would go given Brazil's exportable surplus is currently more competitively priced. The U.S. Department of Agriculture earlier this month forecast a large reduction in Chinese corn stocks next year, which some are betting could translate into better demand for American grain. Wheat prices bounced on global weather threats, with days and in some cases weeks of dry weather expected everywhere from the U.S. Plains and Canadian Prairies to the Black Sea region and Australia. Corn futures for July delivery rose 0.9% to $4.08 1/2 a bushel at the Chicago Board of Trade, the highest close since June July soybean contracts gained 0.9% to $ /4 a bushel while July wheat climbed 1.8% to $5.31 a bushel. 1

2 Scattered northwest Midwest rains continue today, but will be wettest next week starting on Tuesday, leading to slow seeding in the wettest pockets (see 7-day NOAA forecast map). Good, late seeding conditions occur in the rest of the Midwest until showers arrive Thu and Sat in the OH Valley, with more extensive rains in the day period. Highs will peak in the mid 80s/low 90s the next 10 days in the Midwest before a milder/wetter early June trims the driest areas to the southwest ¼ of the belt. 40% of U.S. corn was drier than normal over the last 30 days, but only 15% had less than half of normal. Showers next week aid the Delta, but hinder late seeding in the Southeast, with isolated flood risk. Intermittent showers aid the Canadian Prairies, with the northeast 1/3 rd the driest, while frequent rains slow late northern Plains seeding. 90s/100s will draw down recent moisture in TX/OK but aid quality. Central Plains rain early next week aids heading. The International Grains Council said Thursday that it has trimmed its forecast for global grain production in to 2,091mmt due to lower expected soybean production. The new forecast is a decrease of 2mmt from the previous 2,093mmt forecast and a 2.3% drop from the previous season's record 2,139mmt, the IGC said. The IGC raised its production forecast, upping last month's estimate by 1mmt to 2,089mmt. That figure would mark a second season of declining production after 's record high. The IGC data revealed that an increase in corn and rice forecasts outweighed reduced soybean and wheat predictions. Driving the fall in the global grain forecast was a 3mmt drop in expected soybean production, now seen at 336mmt. Corn forecasts shed 2mmt to 1,044mmt and the IGC's rice estimate rose by 2mmt to 488mmt. The report said estimated wheat production remained at 758mmt. A noted, South American crop scout pegged Argentina s soybean crop at 36mmt vs. the USDA at 39mmt. He also lowered his Brazilian corn crop estimate to 83mmt vs. the USDA at 87.0mmt and noted analytical firm Safras at 79mmt earlier this week. Cold temps and high winds over the weekend are thought to have further damaged the drought-affected crop. Brazil's environmental agency announces $29 million worth of fines to major grain trading companies, including international giants Cargill and Bunge, for transgressing the country's deforestation policy by purchasing soybeans from protected areas. Deforestation for decades has been blamed on farmers' push to convert millions of Brazilian land over to crops, and international grain companies have pledged to help curb the practice. 2

3 Corn futures continue to hang at/near recent highs, with new crop Dec now having posted a fresh high at $4.29 ½ this week. This looks to be a function of tightening balance sheets in both the U.S. and globally and thus traders looking for assurance of trend or better U.S. yields. Our first crop ratings of the season from NASS on U.S. corn should start with next Monday s report. While those ratings are likely to show initial conditions favorable/above average, we re getting calls from producers in eastern NE, MO, central IL and IN who have become concerned about dry soils and plants showing some stress. Additionally, Midwest temps are expected to increase and remain elevated over the next two weeks (see NWS 6-10 day map). The warming trend comes at a time when precip totals over the last 45-days have run well below normal (20-50% of average) in a big swath across MO, southern IA, central IL and IN (second map). Some IL producers report no rain since their crop was planted 2-3 weeks ago, which is very unusual for May. 10-day precip outlooks a bit variable depending on the source, but don t give a lot of hope to resolving that situation anytime soon as totals are light for the dry areas as a whole. While it s certainly too early in the process to press the panic button, the market is watching and sensitive to this issue, especially with what looks like at least some amount of acres coming out of corn and switching into beans in the wet northern regions of the belt. Producers in northern IA, MN and the Dakotas, where rains look to be the heaviest, will soon face final planting dates for Prevent Plant coverage that fall between 5/25 and 6/01. Based the historical planting pace to date vs. the March to June acreage percentages, it may be difficult to increase corn acres to that 89 million acre number (+1 million vs. the USDA) many private analysts have been touting. This ultimately adds more pressure to an already tight corn balance sheet and pushes more bean production/carryout to the bottom line. For now, I m advising patience with 3

4 regard to adding to corn sales/hedges. Over the last several years, the $4.50 mark has been key resistance vs. the current print of $4.29 ½. There is some idea that the air is getting a bit thin for grain futures after their latest climbs. Kansas City hard red winter wheat ended the last session at the highest for a spot contract in nearly three years, and corn at the highest in nearly two years. But futures managed to climb a bit further anyway in early deals on Thursday, helped by the same cocktail of weather worries and hopes for extra demand for U.S. agriculture from China following the recent political accord. There s talk that China may step in and buy U.S. soybeans, corn, cotton, energy, DDGs and ethanol. The strongest rumors are that the China state reserve company Sinograin may buy as much as 10mmt of U.S. soybeans for the China s strategic stockpile in order to strengthen China s hand the next time it gets into a trade dispute with the U.S. There is also more talk of China s willingness to take the 8mmt quota of corn imports allowed each year from the U.S. as well. Of course, there are some questions about how strong actual Chinese demand is, with ideas that weak margins for hog producers, for instance, are depressing demand for soymeal, in turn squeezing soybean crushers profits. U.S. soybean export offerings remain the highest priced in the global market. The rumors around are largely of Chinese orders for the August-to-December timeframe, when the U.S. harvest gives it the seasonal edge in international markets. As for the weather worries, these are more of a factor for wheat markets, although corn concerns are growing too. Some surround the potential for farmers in U.S. northern areas, where sowings have lagged, to switch to soybeans, which have a slightly later seeding window. In other areas, there are some initial worries over heat and dryness for what has been seeded. Some runs have hinted at a ridge building across the northern and central U.S. over June 1-6. The Midwest weather outlook has much of the region with warming temperatures and scattered showers likely through the next two-week forecast. The sporadic nature of precipitation may lead to overall drying in the region, and concerns over subsoil moisture may become evident. Many western areas have lower than last year s levels to start with. While bears feel you will need an actual U.S. weather problem to trade much higher, bulls feel prices may need to trend higher due to current dryness in parts of the central U.S. Midwest, talk of dryness in parts of Russia and this year s lower South America corn crops. A series of weather worries in wheat are more immediate, with hot and dry climatic conditions in the Black Sea suggesting production prospects lower than last year mainly in Russia. In Russia, dry conditions are still observed in southern parts of winter wheat areas and should remain until the beginning of June during the grain filling stage. In the spring wheat production areas such as the Volga, Oural or Siberia, wet and cold conditions are raising concerns in a context where sowings are registering an important delay. In Ukraine, low precipitation 4

5 totals are not sufficient to ease concerns. Nearby, dryness is raising worries over U.S. winter wheat and Canadian spring wheat prospects. On the demand front, the USDA this morning announced a 264,000mt sale of 2018/19 soybeans to an unknown and a 132,000mt cancellation of 2017/18 sorghum to an unknown. Asian palm oil prices ended 0.7% higher Thursday as broader positive sentiment boosted commodity prices. A rise in crude oil prices, which might lift production of palm-based biodiesel, lent support. Trade sources report Sino Grain (Chinese state grain stockpiler) bought 1 U.S. PNW August soybean cargo, with rumors state export/import company COFCO has the green light to import U.S. soybeans. Soybean meal has struggled of late due to aggressive Argentine cash meal offers pressuring U.S. cash values. However, with crush margins above $1.50, processors will stay active buying soybeans. Even with Argentina s crop down 20mmt from last year, they crushed 3.36mmt of soybeans in April, sourcing soybeans from Brazil, Paraguay and the U.S. to defend their market share. Specs are still heavily long soybean meal, with the peak a few weeks ago in July contracts some 40,000 contracts higher than the previous record in 2017/ The next several weeks could see meal spreads struggle until open interest gets down to more manageable levels. Ports in Argentina will be shut down on Thursday due to a strike by workers demanding better conditions and wages. China s plan to expand to an E10 mandate by 2020 should spark an expansion of ethanol demand and boost imports of U.S. ethanol. Some energy analysts have penciled Chinese ethanol imports could reach $5-$7 billion per year, which would equate to billion bushels of corn using an ethanol yield of 2.8 bushels/gallon. Meanwhile, the second-largest U.S. refining company, Marathon, as reportedly requested an RFS hardship waiver from the EPA for one of their facilities. Hardship waivers can be granted provided the plant is under a 75,000 barrel/day threshold regardless of the size of the parent company. Marathon s smallest capacity refinery is 93,000 barrels/day but could meet the criteria if it operated at 75,000 bpd or less for Chevron and Exxon have also submitted waiver requests, but the status of which is unknown. Indonesia s government is reportedly planning on raising their biodiesel requirement from 20% to 25% in early This morning s weekly U.S. grain export sales saw corn, soybean meal, soybean oil and wheat, while soybean sales were below expectations. Wheat sales of 112,300mt for delivery in marketing year 2017/2018 were up 78% from the previous week, but down 29% from the prior 4-week average. For 2018/2019, net sales of 340,000mt were reported. Corn sales of 854,300mt for 2017/2018 were down 13% from the previous week, but up 3% from the prior 4-week average. For 2018/2019, net sales of 273,400mt were reported. Soybeans saw net sales reductions of 139,500mt for 2017/2018 that were down noticeably from the previous week and from the prior 4-week average. For 5

6 2018/2019, net sales of 6,900mt were reported. Soybean meal sales of 239,500mt for 2017/2018 were down 36% from the previous week, but up 2% from the prior 4-week average. For 2018/2019, net sales reductions of 42,600mt were reported. Soybean oil sales of 17,700mt were up 74% from the previous week, but down 36% from the prior 4-week average. U.S. ethanol production for the week ended 5/18/18 declined to million barrels/day (302 million gallons/week) from million barrels/day the week prior and was 1.8% above last year's same-week production of million barrels/day, right in line with the average needed year-over-year production gain necessary to allow 2017/18 corn for ethanol usage to reach the USDA's current billion bushels annual target. Over the last four weeks, ethanol production averaged a 3.2% year-overyear gain, while production during the 2018 calendar year so far has averaged just a 0.9% gain. So far during the 2017/18 corn marketing year, weekly ethanol production has averaged a 2.3% year-over-year increase. Ethanol production last year over the coming 4-week period generally declined into mid-june, which should allow the yearover-year production increases easily maintaining the needed pace and support the USDA's annual corn for ethanol usage estimate heading into the next WASDE report on June 12. U.S. ethanol stocks posted an unexpected large rebound last week to 929 million gallons ( million barrels) from 903 million gallons the week prior, with the 26 million gallon rise being the largest in 10 weeks. Since mid-march, ethanol stocks have been on a steady, but solid, decline, resulting in a year-over-year deficit in stocks of 8.2% as of the previous week's data and the largest weekly reduction since December However, with this week's increase, combined with a solid decline in last year's stocks this week, only a 2.4% year-over-year difference in stocks existed as of this week's data. Hogs: Cash hogs are called steady to $1 higher, although most bids are expected to be steady through Thursday morning. Limited interest is seen in cash hog markets through the last half of the week, with traders focusing on the pullback in pork values and generally weak market tone in the last week in all markets. The national bid lost $.04 yesterday to close at $64.73, while the IA/MN bid lost $.26 to close at $ The CME Lean Hog Index was up $.33 from the previous day to $68.69 on May 21 st. The USDA pork carcass cutout value was down $1.33 at $74.81 on average movement of 270 loads. The loin led the way, down $3.36, with the belly the only cut reported higher. Seasonal pork clearance continues to remain supportive through the middle of May as additional increases in seasonal domestic demand of pork continue to help support most primal values. Increased buying is likely to develop following higher demand in all meat products through and after the Memorial Day holiday. Weekly kill is up 3.62% over a year ago. Estimated packer margins were $15.59/head for non-integrators and 6

7 $29.45/head for integrators vs. $17.35 and $31.79 the previous day. Weekly pork export sales of 20,600mt for 2018 were down 6% from the previous week, but unchanged from the prior 4-week average. Export shipments of 25,100mt were up 12% from the previous week and 5% from the prior 4-week average. July hogs are now the lead contract because its volume is higher than the June volume. August opened at $75.20, dipped to the low ($75.17) then burst higher, trading to the session high at $ This is just under the May 11 th high at $77.47 (June contact). It couldn t hold onto its gains and broke down to $ It recovered at the end of the day and settled at $76.22, right at the $76.22 key level and will be the key level for trade on Thursday. A rally above $76.22 could test trendline resistance at $76.57 and then the Wednesday high. Resistance then comes in at $77.47 and $ A failure from $76.22 could see price test support at $75.62 and then $ Hog futures are pegged to move moderately higher in early trade based on followthrough buyer support moving back into the complex. This may help to draw increased trade into the complex, which may spark some additional trade over the near future. Livestock futures shrugged off recent pressures to rise on Wednesday. Live cattle contracts for June delivery rose 0.5% to $ a pound at the Chicago Mercantile Exchange, while June-dated lean hog futures rose 2% to 74.6 cents a pound. The hog pressure earlier in the week quickly opened up the opportunity to draw additional buyer support back into the market. There is growing uncertainty as to just how much additional support will develop through the rest of the week with little fundamental or technical changes expected. The bounce off of recent market lows could help draw some follow through support, but the overall tone of the market remains weak. Traders were partly responding to increased optimism about trade with China, but also reacting to chart patterns that suggested prices could head higher. China signaled earlier this week that it would suspend plans to levy tariffs on a wide range of U.S. agricultural goods but didn't rescind its duties on American pork. With the 25% tariff on U.S. pork and a strict inspections process, traders believe Chinese demand for U.S. pork is very slow. China imports 110,098mt of pork in April, up 3.4% from last year but down 19% from March. Cumulative imports for the year reached 434,098mt, down 4.1% from last year. The slow export pace is putting more pork on the U.S. domestic market to absorb. Cattle prices in particular climbed for three consecutive days, despite a recent slide in beef prices and expectations that cash prices for physical cattle would fall this week. Futures have rallied nicely and it's also spurred a rash of bullish enthusiasm in the industry. However, being bullish live cattle futures at this time of year in the face of record large beef production is simply not what we're advising. Meatpackers didn't buy any cattle at the online Fed Cattle Exchange auction on Wednesday morning, which often helps set the week's physical price direction. Meatpackers and feed yards continue 7

8 to haggle over prices, with market observers putting bids as low as $105 and asking prices around $115, in line with last week's average. Traders mostly looked past a U.S. Department of Agriculture report that showed stocks of red meat building in commercial freezers, with farmers and meatpackers increasing their production in recent months. But they are looking ahead to another report due Friday at noon EDT, in which the USDA will give an indication of future cattle supply. Analysts expect the agency to show that feed yard operators placed 9% fewer cattle on feed for fattening in April than the same time last year, as lower profits push them to slow herd expansion. The total number of cattle on-feed as of May 1 is expected 5% higher than a year ago, according to an average of estimates compiled by The Wall Street Journal. Taking a closer look at Tuesday afternoon s cold storage report, there is more pork in cold storage compared to a year ago, but the inventory build has been in line with what we have seen in recent years. Still, with more pork expected to come to market in late spring and summer, and softer export demand, the larger inventory may temper the seasonal price increases we see during this time of year. Ham inventory was million pounds, 0.5% higher than last year and 4.5% lower than the five year average. Ham inventories increased 16.5% vs. the previous month compared to a 25% average increase we have seen in the last five years. Ham prices have been quite weak recently and we think in part this is due to a lower than normal inventory build. With record pork supplies expected later in the year, end users are reluctant to put hams in cold storage at this time. The lower inventory build may also suggest a slowdown in export business. Pork belly inventories were 64.6 million pounds, 92.5% higher than a year ago but just 2% higher than the five year average. Current belly stocks are more in line with normal levels. With the belly primal trading in the mid 80s back in April, it appears processors were willing to accumulate inventory ahead of summer demand. Inventories in April rose 9% compared to the previous month, while in the last five years inventory build averaged 11%. Pork trim prices have been weak and it appears more product has ended up in the freezer. Combined with the weak ham prices, we think this will continue to keep pork trim values in check as we go into the high demand summer months. Total trim inventory at the end of April was 57.5 million pounds, 41.6% higher than a year ago and 13% above the five year average. Trim inventories in April rose 2% compared to the previous month when on average they tend to decline during this period. Weather: The U.S. and European models are in only fair agreement today. This is a very complex weather pattern at this time with several areas to watch. The trough over the western U.S. continues to feature chances for scattered rains over the northern Plains crop region and at times the western Midwest area during the short and the extended range periods. This should also include the southeast portion of the Canadian Prairies grain belt, but the balance of the Canadian Prairies region remains somewhat drier. The 8

9 trough in the Gulf of Mexico continues to show signs of picking up a low now in the northwest Caribbean near the Yucatan Peninsula and bringing it northward. The U.S. model continues to feature a track further east than the European model would suggest. A compromise between the models suggests a target somewhere in the southeast U.S., most likely between eastern Mississippi and western Georgia, centering on Alabama. Development on this system would be slow to occur however heavy rains would occur regardless of development. The south-central U.S. ridge remains in the picture and ranges from the southern Plains to the western Delta. This will promote above normal temperatures and below normal rainfall for the region, especially from southern Kansas southward, likely including much of Arkansas as well. A weak to moderate jet stream continues to move just north of the south-central U.S. ridge position, which means a few thunderstorms could occur, at times, from central Kansas northward into Nebraska. The area likely sees above or well above normal temperatures and overall near to below normal rainfall, but some local areas may benefit from the local thunderstorm activity. Finally, today's U.S. model features a deepening of the eastern Canada trough late in the period. As a result of this, the model sends a somewhat cooler surface high southward into the Midwest region at the end of the ten-day period. This may, if real, increase the chance for rain in the Midwest on the cold front ahead of this high. However, as this is a new feature and it is not supported by the other models I am tending to shy away from this idea for now. Rains of fell in northern IA and southern MN. Things were mainly dry elsewhere and temps were above average and in the 80 s for highs in most cases. The pattern looks to continue to bring enough rainfall to help feed planted fields welcomed moisture, with enough periods of dry weather to allow for remaining planting to progress. The next system will bring light to moderate totals to most of IA, MN and western WI for the second half of this week and weekend. Those rains will then go on to produce mainly light totals to the rest of the Midwest Saturday and Sunday. Things will then be quieting down in most areas for early next week. Another rain event is still indicated for the second half of next week and looks to bring close to average results. Temps will be running average to above average for the next week to ten days. Rains of fell across the panhandles of OK and TX in the past 24 hours, with dry weather dominating the rest of the region yesterday. Temps ran above average, with highs in the 80 s and 90 s. The forecast still sees some afternoon showers and thunderstorms to bring mainly light to isolated moderate totals to most of KS, OK and the TX panhandle the next 2 days. Things then look to be fairly quiet for the first half of next week, with some light rains to fall by the second half of next week. Those rains look to favor the east. Temps will be running average to above average across the southern Plains for the next week to 10 days, with highs largely in the 80 s and 90 s. Rains of fell across around 75% of the northern Plains region in the past 24 hours. Temps were above 9

10 average and in the 70 s and 80 s for highs. The forecast sees hit and miss rains to bring totals of in the next day or two, with things quiet for tomorrow into most of the weekend. Another system is now showing up Mon-Tue of next week and currently looks to bring.40-1 to most of the region. Another system is seen to bring moderate rains by the second half of next week. Temps will be running above average for most of the next week to ten days. North American Weather Highlights: Dryness is of increasing concern for crop areas of the southwestern Midwest, especially with the current well above normal temperature pattern. Elsewhere in the region, mostly favorable conditions for planting, germination and early development occur at this time. A few showers and isolated thundershowers will be in the central/southern Plains region during the 3-5 day period, especially from central Kansas northward. However, the activity last night also occurred as far south as the Texas Panhandle. Hot temperatures surge northward during this period as well, increasing stress on developing winter wheat and any early planted summer crops. The northern Plains will see generally favorable conditions for planting and developing spring wheat, corn and soybeans throughout the northern Plains. Episodes of scattered showers help to ease dryness concerns. Heavy rains are likely to hit the southeast U.S. crop belt during the next 7 days. This may also include a tropical system coming out of the Gulf of Mexico. Development of any tropical would be slow to occur due to wind shear currently over the region. However, the heavy rain would occur even without development of a tropical. It is uncertain whether this rain would hit as far west as the Delta crop belt. Global Weather Highlights: A strong cold front brought moderate to heavy rain to Parana, Brazil and light to moderate with locally heavier in Mato Grosso during the weekend period. This will ease stress to pollinating and filling corn. However, the dry season remains well established with further losses to later developing corn likely. The Canadian Prairies see favorable weather for planting spring wheat and canola at this time. Dryness is becoming of increasing concern. A portion of Manitoba received beneficial rainfall during the weekend period. A second disturbance will bring beneficial rains to eastern Saskatchewan and Manitoba during the next couple of days. The drier pattern appears to be easing somewhat in eastern areas, while central and west areas continue under a below normal rainfall pattern at this time. China s winter wheat and rapeseed areas see generally favorable moisture conditions for filling crops. Key corn/soybean growing areas of northeast China received beneficial rainfall early this week. The highest amounts and best coverage favored the key corn growing areas while the main soybean areas also had light to locally moderate showers as well. This should favor development of recently planting crops while briefly delaying the planting effort. The longer-range outlook shows a drier pattern during the next 10 days, with some 10

11 periods of above or well above normal temperatures. Rain is needed in West Australia to support wheat planting. A cold front passage at the end of this week may bring some shower activity to the area but probably not enough to encourage widespread planting. Macros: The macro markets were mixed as of 8:30am EDT, with Dow futures down 0.2%, the U.S. dollar index is down 0.3%, crude oil is down 1.2% and gold is up 0.6%. The S&P 500 on Wednesday closed 0.32% higher, the DJIA gained 0.21% and the Nasdaq gained 0.87%. Bullish factors included a strength in technology stocks and the minutes of the May 1-2 FOMC meeting where policy makers said they would welcome a modest overshoot of their 2% inflation target, which signals they are in no hurry to speed up the pace of their rate hike schedule. Bearish factors included negative carryover from a slide in European stocks to a 2-week low on economic concerns after the Eurozone May Markit manufacturing PMI fell 0.7 to a 1-1/4 year low of 55.5, weaker than expectations of 0.1 to 56.1, and weakness in energy stocks as crude prices fell 0.50%. The federal funds futures curve yesterday eased substantially after the release of the May 1-2 FOMC meeting minutes. However, the market is still discounting the odds at 100% for a rate hike at the next FOMC meeting on June since the minutes said that a rate hike would be appropriate "soon." The federal funds futures contracts eased by 6-9 basis points for the contracts. The market is now discounting the odds for a fourth rate hike this year in December at only 44%, down from 70% before yesterday's minutes. The market cut expectations for the overall Fed rate hike by the end-of-2019 by 7 basis points to 101 basis points from 108 basis points on Tuesday. The less hawkish medium-term Fed view was sparked by the acknowledgement in the minutes that a temporary period of inflation "modestly above 2% would be consistent with the committee's symmetric inflation objective and could be helpful in anchoring longer-run inflation expectations." That provided confirmation that the Fed is not going to panic and accelerate its rate-hike schedule if inflation rises above 2%. In addition, the Fed said it was not even sure that inflation will remain as high as 2% with its statement that, "It was noted that it was premature to conclude that inflation would remain at levels around 2%, especially after several years in which inflation had persistently run below the committee's 2% objective." The minutes also displayed concern among some members about the flattening yield curve and continuing trade tensions, which argue for a less hawkish Fed policy. The market consensus is for today's Apr existing home sales report to show a -0.9% decline to 5.55 million units, reversing most of March's 1.1% increase to 5.60 million units. U.S. home sales remain in strong shape at only 2.1% below the 11-year high of 5.72 million units posted in Nov While demand for homes is strong, home sales are being curbed by relatively tight supplies. There is only a 3.5 month supply of homes on the market, which is much tighter than the long-term average of 7 months and the 11

12 pre-crisis average of 4.5 months. The market consensus is for today's Mar FHFA house price index to show another strong increase of 0.6%, matching Feb's 0.6% increase. Home prices continue to march higher due to strong demand and tight supplies. The FHFA home price index is sharply higher by 7.2% and has now risen by a total of 46% from the housing bust low. Overnight, Bloomberg News reported that European stocks climbed and U.S. futures were steady as a dose of calm returned to markets on Thursday, though concerns surrounding global trade were not far away. The yield on 10-year Treasuries edged back above 3 percent, while the euro and pound gained. The Stoxx Europe 600 Index managed to claw back a little ground following Wednesday s selloff, even as carmakers took a hit after President Donald Trump ordered a probe into automobile imports to the world s biggest economy. That news also dragged the MSCI Asia Pacific Index lower. Major American equity benchmarks were poised to open little changed. Sterling rallied thanks to an April retail sales beat, while the lira resumed its slump as traders weighed whether an emergency rate hike was enough to stem losses. Safe-haven assets including gold and Japan s yen climbed. Oil slipped. It s been a torrid week across markets so far, with investors forced to navigate escalating geopolitical and trade risks, from Trump s decision to back away from an agreement with China to North Korea warning of a nuclear-to-nuclear showdown. Questions are swirling around the Italian populist government s economic policies, while Brexit negotiations loom large over British assets. Amid the noise, the impact of somewhat dovish minutes from the Federal Reserve appeared to fade. Meanwhile, emerging-market currencies rose despite the lira move, and developing-nation stocks also advanced. The euro strengthened after falling to a six-month low as traders await the latest minutes from the ECB. The Stoxx Europe 600 Index climbed 0.3 percent as of 10:51 a.m. London time. Futures on the S&P 500 Index increased less than 0.05 percent. The U.K. s FTSE 100 Index declined 0.1 percent. Germany s DAX Index advanced 0.1 percent. The MSCI Emerging Market Index jumped 0.5 percent. The MSCI Asia Pacific Index decreased 0.2 percent to the lowest in more than two weeks. The Bloomberg Dollar Spot Index dipped 0.1 percent to the lowest in a week. The euro gained 0.3 percent to $1.173, the biggest climb in two weeks. The British pound climbed 0.3 percent to $1.3392, the largest climb in more than five weeks. The Japanese yen advanced 0.3 percent to per dollar, the strongest in more than a week. The yield on 10-year Treasuries advanced one basis point to 3.01 percent, the biggest gain in a week. Germany s 10-year yield gained one basis point to 0.52 percent. Britain s 10-year yield increased one basis point to percent. Italy s 10-year yield decreased six basis points to percent. West Texas Intermediate crude declined 0.7 percent to $71.32 a barrel, the lowest in more than a week on the biggest drop in almost two weeks. Gold increased 0.2 percent to $1,

13 an ounce, the highest in more than a week on the largest climb in two weeks. Brent crude sank 1 percent to $79.00 a barrel, the biggest tumble in more than two weeks. Summary: July corn closed up at $4.08 1/2 Wednesday, the highest close in nine months, thanks to dry weather in Brazil. Wednesday's satellite map plus the seven-day forecast for Brazil shows no significant moisture in view, keeping the second corn crop under stress. This should eventually translate into more export business for the U.S., but this month's activity has been slow. The USDA made its first corn sale announcement in May, but possibly not for the U.S., with 140,000mt of optional-origin corn sold to Saudi Arabia, half for and half for Here in the U.S., there is plenty of oldcrop corn in storage and planting is going well overall, even though northern states are still catching up. With support continuing to come from Brazil's dry weather, the trends remain up for both July corn and new-crop corn. The National Corn Index closed at $3.71 Tuesday, still near its highest price in 23 months. July soybeans closed up, benefiting a third consecutive day while China's tariff threat remains on hold. As helpful as that news has been to the market, it doesn't yet solve the larger bearish problem for old-crop soybeans, which is that there isn't much demand for U.S. soybeans this summer after Brazil just pulled in a record harvest, but we have to note that Brazil's truckers are on strike, protesting higher fuel costs. That could help prices trade a little higher, but these strikes seldom last long or have significant impact on soybean prices. Technically, the trend is down in July soybeans but sideways in new-crop soybeans where futures spreads continue to show a bullish commercial outlook. July Chicago wheat closed up, climbing higher again while the forecast expects temperatures well into the 90s in the southwestern Plains this weekend. Wednesday's bullish influence also spread to spring wheat where September Minneapolis wheat closed up and near its six-month high. If we knew nothing about wheat fundamentals, we would say that these are bullish-looking charts, but it is difficult to ignore old-crop ending stocks-to-use ratios at their highest levels in three decades for both the U.S. and the world. It is also difficult to get too bullish when wheat regions outside of North America appear in good shape, except for a dry early start in Australia. Technically, the trends are currently higher for all three wheats. July corn poked to a new 2018 high on Wednesday, as corn bulls chip away at a key resistance ceiling at $4.08 1/4, the May 4 high. July corn climbed to $4.09 on Wednesday and that ceiling stands as new resistance. The near and intermediate-term corn trends are bullish. The market is approaching a test of minor daily chart resistance at $4.11, the Aug. 10, 2017, daily high. Beyond there, July corn bulls see a major chart objective at $4.25 3/4, the July 20 high and then $4.34 1/4, the July 11 peak. On the downside, the 10-day moving average is first support. Secondary support comes in at $3.95-$3.94 1/4. The trend favors corn bulls and daily momentum is picking up and 13

14 points higher. July soybeans scored another daily gain for the fourth session in a row Wednesday. The short-term bean trend turned bullish early this week, as the market climbs off a daily base and bottom at $9.92 1/2-$9.94 1/2. On the upside, bean bulls are targeting a run toward upper Bollinger Band line resistance at $ /4, which roughly corresponds to the April 30 peak at $ /2. Daily momentum is rising and supportive to bean bulls. The 14-day relative strength index points higher at 55% on Wednesday. On the downside, the 20-day moving average is first support. Below there, gap support remains open at $ /2-$ /4. A/C Trading Co. does not accept orders to buy or sell by , text or any other form of social media. This material has been prepared by a sales or trading employee or agent of A/C Trading Co. and is, or is in the nature of, a solicitation. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that A/C Trading Co. believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. 14