Free Commentary

By: Dan Hueber –

Gauging from the action this morning, the fund rebalancing/pre-report short covering in the grain and soy markets have run into the proverbial brick wall.  By no means is this a surprise but it is always a bit of a letdown when a move exhausts.  Almost like you are losing a friend that you have just grown fond of and held out hope for a stronger (pun intended) relationship ahead.  While I do remain in the camp that believes this budding positive relationship will be rekindled in the not-too-distant future but we are going to need to spend additional time wandering as we wait to find a reason to get together again.

Both Conab and Celeres have released updated estimates for the Brazilian crops in the past 24 hours or so and both are projecting quite optimistic output.  Conab boosted the Brazilian bean estimate 1.35 MMT to a total of 103.8 MMT.  If realized this would be an 8.8% increase over last year.  They also bumped up their estimate for the corn crop, this time by 700,000 MT to 84.5 MMT.  Turns out Celeres is even a bit more optimistic on the Brazilian bean estimate as they have published an estimate of 105 MMT.  Back in December the USDA placed the soy crop at 102 MMT and corn at 86.5 MMT.

We only have one more day to find out what the USDA thinks now, which of course will include the “final” production number for U.S. crops.  The latest survey comes from Dow Jones and breaks down as follows; Total corn production at 15.198 billion, derived from a yield of 175.3 leaving a carryout estimate of 2.396 billion.  Bean production is expected to come in at 4.380 billion using a yield of 52.7 and a carryout estimate of 468 million.  The average estimate for wheat ending stocks came in at 1.148 billion.  In case you have never noticed I hate the release of monthly estimates.  By no means is this due to the estimate themselves but rather the 30 seconds or so of nonsense that follows the reports as the HFT and other short-sighted traders try and react to news that on its best day is still a big approximation.  Part of this stems I suspect from the fact that for most of my career, USDA reports were released after market close and the trade then had around 20 hours then to mull over the figures instead of just shooting from the hip.  This is not to say there were not a few surprises now and then and lock limit higher or lower moves (how many of you remember overnight protection in the cash markets?)  but at least they came after there had been a little more careful study and consideration. Such is the price of progress…I think?

I am afraid there is some bad news for sushi lovers and anyone who enjoys eating Salmon on a regular basis as it would appear that we will be paying more for this seafood in the months ahead.  The combination of an outbreak of sea lice (that sounds disgusting) in Norway and Scotland and a massive algae bloom in Chile wreaked havoc on global salmon farms.  Overall output is down nearly 9%, which is the first cut in six years and the largest drop in twenty-five years. While I was reading about this, one of the first things that came to mind was the fact that during the last year, Cargill had sold its domestic hog operations to JBS and in-turn had invested money into feed manufacturing specifically for salmon farming.  As it turns out though, the production cut must not have created too large of an impact on the bottom line as Cargill has just released second quarter financial numbers which were up 80% from the prior year and the highest they have recorded in six years at 1.03 billion for the quarter.  And as they say, “that ain’t chicken feed.”