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Fund Selling Continues

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Good Morning! From Allendale, Inc. with the early morning commentary for July 10, 2018.

Grain markets were mixed overnight as traders prepare for this Thursday's USDA report. Weather continues to look great for crop development as yesterday's crop conditions reflect. The greatest wild card for markets remains the ongoing US trade negotiations.

Corn good to excellent ratings fell 1% from last week to 75%, right on the trade expectation. The five year average is 71%. A 75% rating for this particular week would imply a 5.8% boost over the 20 year trend yield. 37% of the crop was said to be silking, well ahead of the 18% average. Soybean GTE was unchanged from last week at 71%. The trade was expecting a 1% decline.

Spring wheat ratings grew by 3% to now stand at 80% GTE. Trade was expecting a 1% decline to 76%. This week's rating was the best since 2010's 83%. Winter wheat harvest was raised from 51% to 63% as of Sunday, near the 65% trade estimate.

Average estimates for Thursday's USDA Supply and Demand report have analysts looking for an increase to corn production over June at 14.269 billion bushels with a yield of 174.9. Soybean production is estimated at 4.314 BB with a yield of 48.6. All wheat production is estimated at 1.858 BB.

Yields are rarely changed on the July USDA report. A study by Rich Nelson found that USDA changed corn yields just five times in the last 20 years on this week's report. Soybean yields were changed just three times. The most recent change year was the 2012 drought.

CFTC's weekly Commitments of Traders report showed funds were sellers of that for the week ending July 3rd, funds were sellers of 10,490 contracts to increase their net short to almost 71,000. They were sellers in soybeans of 9,692 to increase their short position to 53,677. In wheat they were buyers of 10,551 to reduce their short position to now 1,925.

Managed money funds were sellers of 17,500 corn contracts in yesterday's trade in as they were sellers across the board. Traders estimate they sold 11,000 soybeans, 4,000 wheat 6,000 soymeal, and 1,000 soyoil as well.

China will reimburse buyers for the cost of the 25 percent tariff on soybean imports from the United States if the cargoes are for state reserves, Bloomberg reported on Monday, citing unidentified sources. State reserve buyers will pay the additional tariff before it is later reimbursed by the government, according to Bloomberg citing people familiar with the matter. (Reuters)

Managed money funds reduced net short positions in lean hogs by 2,197 contracts while adding to net long positions in live cattle by 3,797. Funds are net long 33,593 live cattle futures and net short 3,260 lean hog futures.

Lean hog futures were sharply lower on Monday as traders are expecting hog production to increase dramatically as we move into the 3rd and 4th quarters of 2018. However, cash index is 10.00 above the August futures contract.

August lean hogs tested the lows made on April 4, 2018 of 72.45 on Monday. One has to go to the long-term charts to find next support at 69.90.

Cash cattle are expected to trade steady to lower this week, however, packer margins remain near $200.00 in the black. Analyst having been calling for a wall of market ready cattle to arrive but signs still suggest it may be a few weeks off.

August cattle futures rallies are struggling with the bearish psychology, the Goldman roll and deceasing cutout values. Support comes in around 103.82 with resistance at 108.50.

Dressed beef values were lower with choice down 1.11 and select down .09. The CME Feeder Index is 146.48. Pork cutout value is down .13.

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About the author

Paul Georgy serves as president/CEO of Allendale, Inc., a worldwide agricultural advisory and research firm that provides agricultural commodity price research and risk management alternatives for producers, major food companies, international corporations, foreign governments, and major news vendors.

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