Daily Grain / Hogs Marketing Outlook Written by: Karli Quick 9/24/2018

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1 Daily Grain / Hogs Marketing Outlook Written by: Karli Quick 9/24/2018 Early Call 8:45am EDT: Corn down 1, beans down 6-7, wheat up 1-2. Beans lower on canceled trade talks with China being canceled and tariff implementation. Energy markets are higher which helped keep corn from following beans too far overnight. Wheat support comes as dry weather continues in Australia and Russian exports slow. Grains: Grain futures closed mixed Friday as analysts and traders watch for signs that the trade skirmish between the U.S. and China is causing world demand to be diverted rather than erased. December corn rose 1.4% to $3.57 1/4 a bushel, November soybeans fell 0.4% to $8.47 1/4, and December wheat fell 0.4% to $5.21 3/4. Traders will be watching for developments on trade relations between the U.S. and countries such as China and Canada, as well as reports that Argentina may raise export taxes. They are also keeping an eye on reports that Argentina bought U.S. soybeans, which could potentially be sold to China as soymeal or beans, after the country suffered drought conditions earlier this year. This week's corn export data contributed to a rally in corn prices that continued Friday. The USDA reported corn export sales of 1.38 million tons Thursday, exceeding trade expectations. The USDA announced a fresh export sale this morning of 162,000 tons of soybeans to an unknown destination. The US and China implemented import tariffs on each other overnight as China decided to call of trade talks with the US. China called the US disingenuous with their America first policy and claimed the US is preaching unilateralism, protectionism, and making false economic claims against various countries China included. They left open the possibility for fresh negotiations with Washington next month though. Managed money added heavily to their short corn position by 77,806 contracts in the latest CFTC report (-141,276 net contracts), while producers/merchants bought 72,694 corn contracts (-121,090 net contracts). Beans had a lesser change with managed money 1

2 shorting 1,544 contracts to their already net short position of 69,813 contract. Producers/merchants added 9,241 long contracts to give them a net of 4,736 contracts. Brazilian farmers have begun planting soybeans for the growing season and good rain in the state of Paraná has allowed growers there to advance rapidly. Farmers in the southern state had by Thursday already finished planting soybeans on 11.2% of the total area where they plan to sow the crop, well ahead of the 1.9% five-year average for the date. Farmers in all of Brazil have finished 1.9% of their planting, compared with the 0.3% average for the date. The harvest could reach million metric tons of soybeans, up from million in Hogs: Cash hogs are called $1 higher as the overall support continues despite late week pressure last week. IA/MN finished Friday up 1.04 at $60.24 and national daily direct hogs were up $1.00 at $ The pork cut-out was up.23 at $ Packers killed M head last week vs M last year. The lower kill is likely the result of Carolina hogs being backed up. Futures are called mixed this morning as outside market support and underlying uncertainty with global trade issues look to balance each other out. October hogs closed 95 cents lower on Friday but had a weekly gain of 7.2%. The Commitment of Traders report as of Sept 18 had non-commercial traders net long 21,117 contracts which is a 1,316 contract increase for the week. Another African Swine Fever case was reported in northern China over the weekend which could maintain some support. August pork imports by China of tonnes were up 5% from the previous month and 10.8% from last year. The USDA Cold Storage report comes out today at 3pm ET. Frozen pork stocks are expected to be million pounds. Frozen beef stocks are expected to be million pounds. The Cattle on Feed report near estimates for on-feed and marketed while placed was above expectations. On-feed as of Sept 1 cattle came in at 105.9% vs 105.4% expected and totaled 11.1M head. This is the highest Sept 1 inventory since the series began in Placed cattle in August were a whopping 107.4% vs 104.4% expected and totaled 2.07M head. Marketed cattle in August were 100.2%, marginally below the 100.4% expected with a total of 1.98M head. Cash cattle are called steady while futures are expected to open $1 lower. Weather: The US and European models are in good agreement early in the period, fair to good agreement later in the period. The mean maps at 8 to 10 day feature a strong ridge in the high latitudes stretching from Alaska or just north of Alaska towards the 2

3 north pole. There is a strong trough underneath this ridge over or just north of northern Hudson Bay Canada. The US model extends this trough southwestward into southwest Canada and the Pacific Northwest of the US with significantly below normal heights over the Canadian Prairies and the PNW. The Europe model confines the below normal heights to very near the center of the low and shows a weak trough moving east of the Rockies in the US region. The European model is also somewhat stronger with the center of the ridge north of Alaska. A blend between the models is favored but with a bias towards the US model. The high latitude blocking pattern likely means colder weather for the Canadian Prairies region and probably the north plains to the PNW as well. In the US we see a strong ridge over the eastern US on the mean maps at 8-10 days. The US model also extends this ridge back towards the west across the lower Miss River Valley and the southern Plains. The models both feature significantly above normal heights centered in the northeast US but also extending west to the central Midwest and south into the southeast US. This likely means above normal temperatures east of the Miss River and possibly through the southern Plains as well. The combination of colder weather moving southward through western Canada and the northwest US and warmer weather moving northward over the eastern US will likely set up a boundary zone where rain may become heavier again. The area of concern for potential heavier rain appears to me to be over the northeast Plains or the western Midwest to the Great Lakes region. However, this will change based on the relative strength between the east ridge and the northwest trough. In the Midwest, rains worked through areas generally south of a line from Kansas City to Green Bay Friday, bringing totals of generally less than.35. Dry weather then dominated the majority of the region for the weekend and temperatures cooled into the 60 s and 70 s for highs, with 30 s and 40 s for lows in the north and 50 s in the south. While no freezing temperatures were reported, many areas of southern MN, northern IA and western WI reported some frost. The forecast sees rains to challenge harvest across the region in the next 10 days, but enough dry weather will also occur to allow activity to occur as well. A front will work through the region the first half of this week and looks to bring light to moderate rains to most of the region. Some heavier totals are also likely in the OH River Valley. Another front looks to move through by Friday and then stall. Not much rain is seen as the front drops south, but showers and thunderstorms look to roll along it once it stalls and bring fairly soaking rains to the southern 3/4ths of the region late in the weekend and Monday. Yet another low is indicated to bring fairly soaking rains to the western Midwest by the first half of next week. Temperatures will be running average to below average for much of this week, with highs in the 60 s and 70 s and lows in the upper 30 s to 40 s. in the south. Above average temperatures then look to work into the SE ½ of the Midwest by the first half of next week. 3

4 In the Plains, showers and thunderstorms brought rains of 1-2 to the eastern 3/4ths of OK and TX, with some 2 + amounts also occurring in northeast TX and eastern OK. Things were mainly dry in most of KS and eastern CO and temperatures ran in the 70 s for highs, with lows in the 40 s and 50 s in KS and 50 s elsewhere. The forecast sees some hit and miss showers and thunderstorms to bring totals of to around 55% of the eastern 2/3rds of KS, OK and TX, the first half of this week, with mainly dry weather to hang on across the west and then take over all of the region for the end of the week and weekend. The first half of next week sees a return of some rains to bring totals of around.35-1 and coverage of around 85%, with the rains to favor the east. Temperatures will be running near average across the S. Plains through much of the next week to ten days, with highs in the 70 s and 80 s. The day forecast has some differences, with the GFS indicating below average precipitation for the Plains and Midwest, with average to above average temperatures. The European sees above average precipitation to occur in the Midwest and southern Plains, with temperatures to run average for most of the period and then below late. 4

5 Heavy rains affected northern Argentina and southern Brazil over the last 24 hours. Argentina looks to have mild and dry weather through at least Wednesday in most areas with a strong upper level system passing Thur-Sun with expected. Southern Brazil looks to experience a wet period as rain occurs every one to three days over the next two weeks with 3-8 of rain expected. Northern Brazil should see scattered storms over the next days as the monsoon starts a tad earlier than normal. Above normal rainfall is expected to leave 1-3 of rain. The east will see less rains with this pattern for now but that is not atypical as the rainy season does not normally begin for another two to four weeks. Macros: The macro markets are neutral to higher as of 9:00am ET with Dow futures down.12%, the US Dollar index down.05%, gold up.17%, and crude oil up 1.42%. The U.S. markets this week will focus on (1) US/Chinese trade tensions after China on Saturday canceled this week's tentative US/Chinese mid-level trade talks and as President Trump at any time could make good on his threat to officially announce tariffs on another $267 billion of Chinese goods, (2) whether the U.S. and Canada can reach a NAFTA agreement before Sunday's (Sep 30) deadline, (3) the Tue/Wed FOMC meeting which is unanimously expected to produce a rate hike and where the markets will mainly be watching for the extent to the Fed signals the likelihood of its fourth rate hike of the year in December, (4) oil prices as the OPEC Joint Monitoring Committee at its meeting this past weekend in Algiers took no new action to boost output to address high oil prices, (5) Washington politics with the supplemental Kavanaugh hearing on Thursday and with any fresh developments on the Russian investigation, (6) expectations that Congress this week will be able to wrap up spending bills to prevent a government shutdown this Sunday (Sep 30), (7) the Treasury's sale of T-notes on Monday, Tuesday and Thursday, and (8) another light earnings week with only eight of the S&P 500 companies scheduled to report. The oil markets will be watching to see whether President Trump meets with Iranian President Rouhani when they are both in New York this week to attend UN General Assembly meetings, which could raise some outside hopes for a US-Iranian rapprochement that could lead to the eventual end of U.S. sanctions. Secretary of State Pompeo over the weekend said that Mr. Trump was willing to meet but that the initiative would have to come from Mr. Rouhani. President Trump has multiple bilateral meetings scheduled this week in New York with various world leaders including Japanese Prime Minister Abe. In Europe, the markets will be watching Brexit developments after Prime Minister May's Brexit plan was shot down by the EU last week and as unconfirmed weekend reports emerged that Ms. May's aides are discussing 5

6 the possible need for a snap election in November. Ms. May has an uphill battle to build support for her Brexit plans at the Conservative Party's annual conference that begins this coming Sunday. In Asia, the markets will continue to closely watch trade tensions and whether the Asian stock markets can extend last week's upside recoveries. Japan's Nikkei index in the past two weeks has soared by +6.9% to a new 8- month high in part due to relief that Prime Minister Abe last Thursday won another term as LDP leader and that Abenomics will continue. China's Shanghai Composite last week recovered from Tuesday's 2-1/2 year low and closed the week up +2.50% on short-covering and hopes for various government stimulus measures to offset the new round of U.S. tariffs that go into effect today. The market is discounting a 100% chance that the FOMC at its Tue/Wed meeting will raise its funds rate target by another +25 bp to 2.00/2.25%, according to the federal funds futures market. The main question this week will be any change in the odds for the Fed's fourth rate hike at its December meeting based on the new set of Fed-dot projections and Fed Chair Powell's post-meeting press conference. The market is currently discounting the odds at over 90% for December's fourth rate hike of the year. Rising oil prices provided some support for European markets Monday. Brent crude oil climbed 2.3% to $80.08 a barrel after a Sunday meeting of oil-producing countries failed to produce a consensus on how to contain prices. Summary: With harvest going, trades are watching yield reports closely from actual producers to see if they confirm the record corn yield forecasted by the USDA. Using the data already coming in, many are speculating that the October USDA report will show a lower yield than the September figure. December corn has bottomed with harvest lows in September only twice since For those two years, prices rallied 17% and 36% in October from the fall low. A 17% rally (1998) would get Dec corn back to 4.03 while a 36% rally would push it all the way to $4.66 (2009). December corn extended higher Friday, posting follow-through gains. December corn etched a large bullish reversal week on the weekly chart, which marks out strong support and a short-term daily bottom at $3.42 1/2, the Sept. 18 low. December corn posted solid gains last week, but now faces 20-day moving average resistance at $3.58, which will be a critical test for corn bulls. If sustained gains through the 20-day moving average are achieved this week, that would give corn bulls the green light to probe for further gains. On the upside, a bullish target for December corn lies at $3.69-$3.69 3/4, the Sept. 11 and Sept. 5 daily highs. On the downside, Friday's low at $3.52 1/4 becomes nearby support. 6

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