Daily Grain / Hogs Marketing Outlook Written by: Jim Gerlach 7/26/2017

Transcription

1 Daily Grain / Hogs Marketing Outlook Written by: Jim Gerlach 7/26/2017 Early Call 8:45am EDT: Corn down $.02, soybeans down $.05, wheat up $.02. Commodities in general were showing a shade of green on the quote screen Wednesday morning, meaning most were trading higher. One exception was gold, where a shortterm downtrend has been established this week. As for grain and oilseed markets, after trading slightly higher much of the night, prices sank into the overnight close. Grains: Grain and soybean futures extended losses as traders soured on the near-term price outlook for the crops. Soybean futures initially rose overnight after the USDA said the share of the U.S. oilseed crop in good-or-excellent condition fell to 57%, down an unexpected 4% from a week earlier. The reversal came as weather forecasts, which had concerned traders for much of July, appeared to take a turn for the better. Dryness may continue in as much as 25% of corn-and-soybean growing regions, the Commodity Weather Group said, but less hot and dry weather should prevent serious yield loss. That had traders scaling back bets prices would rise, particularly after regulatory data Friday showed increasing net long positions held by money managers in corn-and-soybean markets. Bottom line is that while the market has plenty of supportive news, it does not have enough to instigate another leg up in futures. August-dated soybean futures at the Chicago Board of Trade fell 1.6% to $9.81 1/2. September corn contracts fell 2.3% to $3.68 3/4. Wheat futures led losses, with multiple varieties tracking fresh lows for the month. CBOT September wheat contracts fell 3% to $4.74, while September spring wheat contracts from the Minneapolis Grain Exchange dropped 4.4% to $7.17 1/2. Large swathes of the Northern Plains-grown spring wheat crop is under threat from drought. The Commodity Weather Group said that some rain should help the early harvest, though many analysts say portions of the crop are now beyond help. The USDA said Monday that 33% of spring wheat was in good-or-excellent condition, down 1% from a week earlier. 1

2 Midwest rain of favored eastern NE, far northwestern IA, southeast SD and southern MN the past day (see map left). Rains will shift to the central and southeastern Midwest through Thursday, narrowing the driest areas to central SD, northern ND and KS, although there s a slight drier forecast risk for central IA and central IL (see 7-day NOAA forecast map right). Showers then scatter into the northwestern ¼ of the Midwest late in the 6-10 and reach around ½ of the belt in the day period, with mild temperatures for much of the period. Dry areas will rebuild a bit in about 25% of the belt by the end of the 15-day period as moisture again slips in parts of central ND, eastern SD, IA and central IL. Northern Delta rains will trim dry soybean/cotton areas on Thursday, with AR/northern MS the least favored but also the most mature and therefore, less vulnerable. The southern and far western Plains will be quite wet in the 6-10 day period, with day models trending wetter in the Delta (see 10 day EU model right) day shower events will aid the northern Canadian Prairie, but still leave about 40% of the wheat/canola areas in the south unfavorably dry. Following the rain chances over the next 48 hours, an extended period of dry, central U.S. weather lies in the offing with mild temperatures initially, and then warming to above normal levels after August 4th. Overall, a dry weather pattern will continue to affect the Plains and the WCB, with rainfall totals and amounts important from the current storm system. 2

3 RJO s research branch published their updated U.S. corn/soybean/wheat production/yield forecasts, with notable cuts in corn/soybean production of about 700mb in corn and 140mb in soybean production. Their estimates were largely in line with Pro Farmer's crop consultant s Dr. Michael Cordonnier, who this week reduced his corn yield forecast to 163.5bpa and soybean yield forecast to 46.5bpa. These cuts are likely warranted as U.S. corn/soybean ratings are the 2 nd worst for this time of year in the last 11 years, with only 2012 being worse. Looking more closely at soybeans, poor/very poor ratings are concerning as crops in this condition this late in the season are unlikely to recover. IL is at 14%, IA 10%, IN 17%, ND 23%, SD 34%, NE 15% and OH 18%. These seven states represent 55% of U.S. production. With the key month of August ahead, it s important to remember than just a 5% drop in trend yield to 45.6bpa would put ending stocks at 255mb, something that would likely lead to $11.50 or higher Nov 17 soybeans. For corn, with no sign of an immediate return of hot temps, the question now becomes how much damage has already been done? We feel U.S. yield will likely be closer to 160bpa than 165bpa, but it will take yield checks in August to get confirmation. Iowa s silk stage went from 37% to 74% last week with triple digit heat and overnight lows in the 70 s. IL jumped to 83% silking and KS to 72%, MO to 92%, NE to 76% and SD to 46% under similar heat last week as well. There is already talk on social media of sweet corn in these areas that yielded poorly with pollination issues, which can be a precursor to poor field corn. However, due the lateness and extreme variability in this year s crops, I think it will be difficult to quantify losses until at least the August 10 th crop report if even then, as it may take combines rolling through fields, particuarly for the always dodging soybean crop, to show the fully extent of 3

4 problems. Look for both corn/soybean prices to chop in a lateral range for at least the next couple of weeks, but I suspect we re a lot closer to lows than highs. U.S. HRS wheat tour participants, instructed to take notes on abandonment, will issue their production forecast at 2:30pm EDT on Thursday. The much-watched tour of mainly North Dakota, the top spring wheat-growing state, is showing crops damaged but not devastated by drought. The first day of the tour came in with a yield estimate of 37.9bpa, well below the 43.1bpa seen last year on the day, and the five-year average of 45.7bpa, but ahead of many of the figures investors have been talking about. However, the region being surveyed today isn't going to be as good given where the tour is travelling through, while Thursday's route should also see good wheat fields. Additionally, abandonment is said to be much higher than normal, which will affect production but not yield since yield isn t counted in abandoned fields. As German farmers prepare to step up grains harvesting, crop yields and quality may end up as diverse as this year s weather. A prolonged period of dryness during winter in many areas was followed by cool weather in spring and a heat wave last month. The mix of growing conditions across the European Union s second-biggest grains producer means crop yields and quality are likely to be diverse, according to one of the country s top grains cooperatives. On the demand front, Asian crude palm oil futures recovered from early losses to end 0.3% higher, tracking price gains in rival soy oil. Export demand for palm oil has picked up, but investors are nervous about rising production. Soy oil stockpiles at major crushers in China have climbed on strong crush volumes, China National Grain and Oils Information Center said Wednesday. Total stockpiles were at 1.4mmt, up 6.4% from last month and up 14.8% from last year. The rise is due to low seasonal edible oil demand. China s palm oil imports are seen rising in Aug-Sept, according to the CNGOIC. According to a wire service survey, Indonesian palm oil production in June was estimated to have declined to 3.2mmt from 3.375mmt in May, but was still well above last year s June figure of 2.464mmt. Palm oil stocks were pegged at 1.3mmt from 1.094mmt in May, but were below last year s 1.712mmt. June palm oil exports were pegged at 2.2mmt vs mmt in May and 1.798mmt last year. Indonesia doesn t publish official monthly palm oil data. Egypt bought 420,000mt of wheat in its latest state tender. The purchase includes five shipments of Russian grain, one shipment of Romanian grain and one shipment of Ukrainian grain. Algeria bought as much as 500,000mt of milling wheat on Wednesday as part of a tender which closed Tuesday. The grain, which will likely be mostly sourced from France was bought at between $214 and $216 a ton excluding shipping fees and will be delivered between Oct. 1-31, traders 4

5 added. Brazil postponed a decision on whether to impose tariffs on ethanol imports, with the country s Chamber of Foreign Trade choosing instead to discuss the matter in 30 days, according to a spokeswoman at the Ministry of Development, Industry and Foreign Trade late yesterday. A surge in ethanol imports this year, nearly all from the U.S., prompted Brazilian Agriculture Minister Blairo Maggi to ask to impose a 17% import tariff on the biofuel. Ethanol imports to Brazil grew to a record 1.27 billion liters in the first six months of 2017, more than four times the 297 million liters imported in the first six months of 2016, according to the Brazilian Sugarcane Industry Association (UNICA), the country s main producers group. Argentina s June soybean crush was down 15% from last month and 5% from last year at 3.9mmt. Hogs: Cash hogs are called steady to $.50 lower. The national bid lost $.31 to close at $82.08 while the IA/MN bid lost $.13 to close at $ The CME Lean Hog Index for 7/21 was $.54 lower than the previous day at $ The USDA pork carcass cutout value was $.19 higher at $ on strong movement of 425 loads. That ham and the belly were the only cuts lower. Estimated packer margins were $36.01/head for nonintegrators and $89.37/head for integrators vs. $34.16 and $87.86 the previous day. Weekly kill is up 0.23% vs. a year ago. This week's hog kill should be about the same as last week at 2,214,000 head. Given attractive processing margins, packers have plenty of incentive to ramp up slaughter totals if the hogs are available. Apparently, extra hogs are not out there yet. Weekly IA/S. MN hog weights fell to lbs. vs lbs. a week ago and lbs. a year ago as last week s heat appears to have taken a toll. Hog futures rose Tuesday as analysts say the cold storage report was mixed for prices, with record-low frozen pork belly stocks coming alongside record highs in stocks of cuts such as loin and boneless ham. CME August lean hog futures rose 1.3% to cents a pound, while the most active October contract rose 0.6% to cents a pound, considerably lower than current cash-market rates. Analysts said that could help limit losses for the time being. The short-term and long-term market trends in lean hog futures remain bearish and the market structure is also bearish, with the August contract trading at a significant discount to the cash hog market. Lean futures are expected to begin with a firm undertone, supported by residual buying and midweek short-covering. October hogs should draw support as they are trading at a $24 discount to the cash index vs. the 5-year average for this time of year of $ Frozen pork supplies as of June 30 were down 5% from the previous month and down 4% from last year. Stocks of pork bellies were down 29% from last month and down 65% from last year. Given record production, these numbers imply strong foreign demand. However, pork will see increased competition from growing poultry supplies. Total frozen poultry supplies as of June 30 were up 4% from the previous month and up 4% from a year ago. Total 5

6 stocks of chicken were up 3% from the previous month but down 1% from last year. Total pounds of turkey in freezers were up 7% from last month and up 12% Cattle futures reversed course, falling as traders fretted over increasing supplies. Wholesale beef prices slid as of midday Tuesday, under pressure because of a seasonal tendency to eat less red meat in summer. A USDA report Monday afternoon also put frozen beef stocks in June at million pounds, up 1% from May but down 10% from a year earlier. That was larger than what some analysts expected. This is the time of year where the demand is soft, and supplies are large told as the USDA told us we had more beef in cold storage than we thought. The futures market was also under pressure from a government report on Friday that showed producers placing more cattle in the feedlots than previously expected, suggesting slaughter-ready cattle supply would likely increase in the months to come. That report sent cattle futures to their lower limit in Monday's trade. Futures initially bounced on Tuesday morning before heading south again. The most-active live cattle contract for October delivery fell 1.4% to $ a pound at the Chicago Mercantile Exchange, with traders weighing the prospect of more cattle later this year. The front-month August contract dropped 0.6% to $ a pound. Traders will be watching Wednesday morning's online Fed Cattle Exchange auction to see if prices in this week's cash trade will be steady with last week's, particularly given the slide in beef prices and supply pressures. Some 2,100 head are for sale at the auction, lower than last time. Last week's cash trade popped unexpectedly, with sales rising to as much as $1.20 a pound live in various regions across the country. Hog prices appear to be making an annual peak at the normal time of the year. Last week, prices fell almost $2. Futures market hog prices have anticipated the trend in cash prices as they should have, but underestimated the strength in cash market values that has persisted since mid-june. Hog prices in the futures market for August delivery reached their highs a week earlier than the cash market at $ Cash hog prices have been at a premium to the August hog futures contract since the second week in June. This year the cash hog premium to the August futures for the week ending June 16 was $1.52. The average cash hog basis to the August futures for that week, since 2010, was a $1.61 discount, instead of a premium, but the basis has spanned a wide range. In 2014, the discount was $ (down from $ the prior week) and in 2012 the cash-to- August basis was $8.17. Over the course of the following five weeks in 2012, the cashto-august hog basis averaged $0.87. This year, during the same five weeks of June and July, the cash-to-august basis averaged $4.11, by far the biggest average positive basis of any year since Such has been the lack of confidence, or abundance of risk aversion, limiting the futures market from paralleling the exuberance in the cash hog market. The precedent of cash market premiums to the futures is most likely a consequence of the pork belly component of the hog carcass and the lack of belly 6

7 product in cold storage. The lowest that pork bellies inventories have been in modern times was in September 2010, at 4.8 million pounds. In that year, both cash and futures prices rebounded in the last week of July and on into August, with cash moving up $5 from the third week in July, while the August futures were up $4 and October futures increased $3. Global pork trade is facing new dynamics, driven by price developments, new trade deals, and more challenging business environments, according to RaboResearch's latest Global Pork Quarterly. "While China's pork imports have begun to slow down, other traditional importing countries have reported significant growth," says Chenjun Pan, RaboResearch Senior Analyst -- Animal Protein. "Looking to the second half of 2017, global pork supply is expected to increase further, and competition for global consumers will intensify." This potential softening bias on prices contrasts with the stability of the Rabobank Five-Nation Hog Price Index thus far in In the first five months of 2017, China's pork imports were flat, which contrasts with the significant growth seen in 1H The recovery of local production and strong international prices is believed to be responsible for slower imports. In China, pork prices have declined by 30%, from the record levels of last year. As a result, Chinese traders are taking a more cautious approach to imports in Rabobank holds the view that China's pork production will increase by about 2% in Hog production recovery was faster than expected in 1H, as many producers shared a positive view of the market and made rapid herd replenishments. While the expansion of hog production should continue in 2H 2017, it has been slowed by the price plunge in Q2. Tight supply and firm demand have maintained upward pressure on prices and starting to challenge exporters. In this context, the recently announced trade pact with Japan, offering tariff reductions, is good news for European exporters. U.S. pork exports still face uncertainty due to potential trade policy changes and a strong currency, but have been better than expected thus far in With weaker demand from China offset by stronger demand from Mexico, total exports are expected to increase by about 10%, compared with Increasing U.S. exports are becoming even more important as production continues to expand. Brazil faces great challenges due to political turmoil, and exports in recent months have declined significantly. However, even with these challenges, Brazil's pork market is still expected to deliver a positive result, due to lower supply, favorable feed prices, and a favorable exchange rate. Weather: Today's U.S. and European models are in fair to good agreement during the outlook period, although the U.S. model appears to be somewhat weaker with the ridge centers and a little stronger with the northeast U.S. trough than the European model. The mean ridge position is expected to be over the southwest U.S., the Rockies and the western Plains region during the 6-10 day period. This ridge extends northward through 7

8 the northern Plains and into the southern Canadian Prairies at times, but is also flattened some at times due to short wave troughs moving by north of the mean ridge position. The mean trough position appears to be over the northeast and the middle Atlantic region of the U.S., but there is also a hint of a weak trough over the lower Miss river valley, especially on the European model. The western ridge and above normal heights will likely promote above normal temperatures and below normal rainfall from the Pacific Northwest and the northern Plains to the Canadian Prairies during the outlook period. The northeast trough promotes somewhat cooler conditions moving through the northern and eastern Midwest region at times, while areas to the west and south remain somewhat warmer. The ridge center is far enough away from the Midwest to keep the hottest conditions west of the key growing areas of the Midwest. The moisture appears to be tied up in the extreme southeast U.S. and also in the southwest Plains to the central Rockies region. This likely means a near to below normal rainfall pattern for the Midwest and northern Delta regions as well as the central Plains areas, but with weak cold fronts dropping in at times there could be a few thundershowers at times, especially in the Midwest but possibly in the central Plains as well. A cold front moved into the far NW Midwest overnight and triggered showers and thunderstorms that have brought totals of to the southern 1/3rd of MN so far. Dry weather dominated the rest of the region yesterday and temps ran in the upper 90 s in the far west, with 80 s elsewhere. The cold front will continue to work through and bring rains to most of IA, northern MO and the northern 2/3rds of IL, IN and OH, with lighter amounts elsewhere. Things will then be dry in most areas for Friday, the weekend and much of next week, with some light to moderate rains seen for MN and WI by the end of next week. Temps will heat up for a day or two and then readings will cool to below average for the weekend and first half of next week. Rains of.30-1 fell in the SE 1/3rd of SD in the past 24 hours, with dry weather dominating the rest of the northern Plains region. Temps were in the 80 s in most cases, with some 90 s in eastern SD. Below average precip will continue to occur across the majority of the region for the next week to ten days, with only spotty and light rains falling from time to time. The rains look to favor the east more than the west. Temps will spend most of the period above average, with highs in the 90 s in most cases and even some 100 s from time to time. Dry weather dominated the Delta region yesterday, with temps in the upper 90 s for highs. Rains look to be fairly limited in the next week to 10 days. Some hit and miss showers and thunderstorms will pop up from time to time, but amounts in the next 10 days look to be generally under.50, with coverage of around 50%. The day forecast sees the ridging to sit across the western 1/3rd to ½ of the US, with a NW flow into the Midwest. Precip is indicated to run below average in MN and IA, with average precip in the rest of the Midwest. Above average precip is seen for the Delta, with 8

9 mainly dry weather in the northern Plains. Temps would run average to below average in all of the Midwest/Delta and above in the northern Plains. North American Weather Highlights: Episodes of hot weather and limited rainfall is expected to continue to significantly stress crops in the northern Plains. Major losses to spring wheat have already occurred. Pollinating corn is now being impacted with significant losses likely. The hardest hit areas are from the central Dakotas westward. The driest area of the Canadian Prairie remains southern Saskatchewan, which has seen below normal rainfall since early May. Significant losses to spring wheat are expected. Drier, hotter weather appears also to include southern Alberta and Manitoba at times during this period. Northern areas of both Saskatchewan and Alberta are doing somewhat better. There remains a good chance in the Midwest for much needed rain to occur in the driest areas of Iowa and northern Missouri within the next 24 hours. However, if this fails to produce as expected, the next chance for significant rainfall is not immediately apparent. Cooler temperatures at the end of this week through early next week should favor reproductive crops in areas that have adequate or better soil moisture. Prior hot conditions over west and southwest growing areas and very wet conditions in eastern growing areas will likely impact yield potential for both corn and soybeans in some fields. A cooling trend and a few scattered thundershowers in the central/southern Plains will ease stress to reproductive and filling crops during this period, especially through north, central and southwest areas. Today's longer-range outlook continues to suggest that the ridge may remain far enough to the west to keep the hottest weather away for a while. Global Weather Highlights: Improved crop prospects continue in central and northern Ukraine, with good to excellent summer crop prospects in west Ukraine. Favorable conditions exist in east Ukraine, however current hot weather may be somewhat stressful for a brief period. Conditions remain favorable for summer crops in Russia. Mostly favorable conditions continue in China at this time for key corn growing areas in Jilin and Liaoning provinces and in eastern Heilongjiang with recent rain and less hot weather. Key soybean growing areas of Heilongjiang province could use more rain, especially through central and west locations. Heavy rains in Gujarat, India are generally beneficial despite some flooding. Mostly favorable moisture conditions exist in the major soybean areas of western Madhya Pradesh. Some rain in Maharashtra however, more would benefit. Southern growing areas of India look to be drier and somewhat hotter during the next 5 to 7 days or so. There s enough rain to sustain the wheat crop at this time of the year in West Australia. More rain is needed in southeast Australia to prevent a further decline in crop conditions. Despite below normal rainfall in the northeast, yield prospects are better than in the southeast. 9

10 Macros: The macro markets were modestly supportive as of 8:40am EDT, with Dow futures up 0.4%, the U.S. dollar index is unchanged, crude oil is up 1.0% and gold is down 0.4%. The S&P 500 on Tuesday closed 0.29% higher, the DJIA gained 0.47% and the Nasdaq gained 0.02%. Bullish factors included support from a 0.59% rally in the Euro Stoxx 50 index on the positive German IFO business climate report, the strongerthan-expected July U.S. consumer confidence report of 3.8 points to 121.1, Caterpillar's boost in its 2017 sales and earnings outlook due to strong demand in China and elsewhere, a 4.02% surge in Sep copper to a 2-year high on hopes for a rebound in China's construction sector after positive comments from Caterpillar about China, and strength in energy producers due to a sharp 3.34% rally in Sep crude oil. The FOMC today concludes its 2-day policy meeting with the release of a post-meeting statement as usual. There will be no post-meeting press conference today by Fed Chair Yellen. There is virtually no chance for a Fed rate hike announcement today with the odds at only 12%, according to the federal funds futures market. The odds for the Fed's next rate hike then rise slowly to 22% by the Sep FOMC meeting, 26% by the Oct 31/Nov 1 meeting, and 64% by the Dec meeting. Market expectations for Fed rate hikes through 2019 are far below the Fed's expectations. From the current level of %, the market is discounting an overall rate hike of only 60 basis points (about 2-1/2 rate hikes) to 1.73% through the end of 2019, which is less than a third of the 188 basis point rate hike to 3.00% anticipated by the Fed-dot forecast. The only real question for today's FOMC meeting is whether the FOMC will announce a start date for its balance sheet reduction program. An announcement at today's meeting would be somewhat of a surprise to the markets and would likely have a negative impact on T- note and stock prices since the market consensus is that the FOMC will make that announcement at its next meeting on Sep The market consensus is for today's June new home sales report to show a 0.8% gain to 615,000, adding to May's 2.9% increase to 610,000. New home sales remain in very strong shape at only 5.3% below the 9-1/2 year high of 644,000 posted in March. There is strong demand for new homes even though the median price of a new home in May surged to a new record high of $345,800. The supply of new homes also remains mildly tight at 5.3 months, below the long-term average of 6.1 months. The market consensus for today's weekly EIA report is for a 3.0 million barrel decline in U.S. crude oil inventories, a 1.8 million barrel decline in gasoline inventories, a 500,000 barrel decline in distillate inventories, and an unchanged refinery utilization rate of 94.0%. The markets will be watching today's report to see if U.S. oil production starts to plateau due to low oil prices and a stumble in new oil rigs, which have fallen in two of the last four weeks. U.S. oil production in last week's report rose by 0.3% to a new 2-year high of million barrels/day. 10

11 Overnight, Bloomberg News reported that gains in commodities from oil to copper lent momentum to European stocks as positive corporate results continued to feed into markets. Bonds bounced as investors waited for clues on the fate of the Federal Reserve balance sheet. Energy and resources shares joined a broad-based rally in benchmark equity indexes across Europe and Asia as oil rose above $48 a barrel for the first time since early June and companies including Peugeot manufacturer PSA Group and Lonza Group AG reported profit increases. Copper reached a two-year high on expectations of increasing demand from China, while gold fell. Treasuries and European government bonds rose following Tuesday s selloff. More than 80% of S&P 500 companies have delivered earnings that have beaten forecasts so far this reporting period, helping to support optimism in the global economy and pushing volatility to record lows. Investors are looking for guidance from the Fed on how it plans to unwind its bond portfolio, with policy makers seen keeping interest rates on hold as the U.S. central bank meeting concludes on Wednesday. Investors see no chance of a rate increase in July, according to pricing in federal funds futures contracts. Policy makers might update their language on inflation, because weakness in price data has persisted since they met in June. The Stoxx Europe 600 Index advanced 0.5 percent as of 7:01 a.m. in New York, the biggest gain in a week. The U.K. s FTSE 100 Index increased 0.4 percent. Germany s DAX Index climbed 0.3 percent. Futures on the S&P 500 Index gained 0.1 percent. The underlying gauge added 0.3 percent to close at a record on Tuesday. The Dow Jones Industrial Average rose points to finish just shy of its record from July 19. The Bloomberg Dollar Spot Index dipped less than 0.1 percent. The euro slipped less than 0.1 percent to $ The British pound gained 0.2 percent to $1.3055, the strongest in more than a week. The yen gained 0.1 percent to per dollar after declining 0.7 percent on Tuesday. Gold dipped 0.2 percent to $1, an ounce. West Texas Intermediate crude advanced 0.6 percent to $48.19 a barrel, the highest in seven weeks. Crude inventories declined by 10.2 million barrels last week in an American Petroleum Institute report released Tuesday, people familiar with the data said. Copper gained 0.2 percent. Read more about copper s rally here. The Bloomberg Commodity Index climbed 0.1 percent. Japan s Topix index rose 0.2 percent and Australia s S&P/ASX 200 Index added 0.9 percent. South Korea s Kospi index fell 0.2 percent, while the Hang Seng Index in Hong Kong gained 0.3 percent. The Shanghai Composite Index added 0.1 percent. The Aussie fell 0.2 percent to U.S. cents after Australia s second-quarter headline inflation rose less than expected from a year earlier. Summary: The overnights started out very strong in reaction to declining condition scores yesterday, but selling kicked in and not only erased the good gains, but pushed all commodities to big losses. Spring wheat dropped $.33, while KC and Chicago were both off $.14 ¾. Nov beans dropped below the $10 mark and closed down $.17 ¼. Corn 11

12 was hit hard too, with an $.08 ½ loss on the day closing at the lows. Monday afternoon s crop ratings got the market all stirred up. Soybean conditions dropped 4%, which was way more than the 1% drop the market was expecting. Bean conditions are new well below last year and have dipped below the 5-year average. Spring wheat conditions dropped by 1% and that was in line with expectations, with only 2006 having worse conditions than we have now. The weather forecasts for moderate temps and adequate rains extinguished the overnight rally very quickly. The 6-10 day forecast brings cooling, with below normal temps across much of the belt. However, it also shows drier than normal conditions. The Canadian dollar has been firming up for a couple of months and has strengthened to levels last seen in May of As the Canadian dollar firms up, it allows Canadian companies to purchase more U.S. products for the same amount of currency and could lead to better exports. September corn collapsed to a sharply lower close on Tuesday. The near-term trend points down for corn and the market is approaching the lower reaches of a multi-month consolidation range. On the downside, the next bearish chart support lies at $3.65 3/4, ahead of major support at the range bottom at $3.64 1/2, the June 23 daily low. That latter floor represents major multi-month support for corn and could act as a hook to stabilize the recent losses in corn. If however, corn bears were to succeed in a bearish breakout below $3.64 1/2 it would open the door to a new selling wave. The 20-day moving average is resistance and as long as that holds firm, corn bears have the shortterm technical edge. November soybeans posted massive daily losses on Tuesday, as the contract formed a bearish outside day on the daily chart. The action is negative and marks out strong resistance at $ /2. The short-term trend bias turned down within the recent consolidation range. Since July 11, November soybeans have consolidated between resistance at $10.47 and support at $9.84. Tuesday's sell-off tugged beans below the 10-day moving average, which is a weak short-term trend signal. Bean bears are targeting a test of support at $9.84. The intermediate-term trend remains bullish, but 12

13 a minor top has formed at $10.47, the July 11 daily high, and the short-term trend outlook is weakening. 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. 13