Daily Grain / Hogs Marketing Outlook Written by: Jim Gerlach 4/3/2018

Transcription

1 Daily Grain / Hogs Marketing Outlook Written by: Jim Gerlach 4/3/2018 Early Call 8:45am EDT: Corn steady, soybeans up $.08, wheat up $.06. Once again, markets were unable to follow-through on Monday activity overnight into Tuesday mornings, setting up the tired cliché of "Turnaround Tuesday". Most notable of these markets were soybeans, energies, and DJIA futures. Corn did what it usually does and trade fractionally lower while Kansas City wheat did continue its move higher. Grains: Grain and soybean futures turned lower Monday as escalating trade tensions with China hung over markets. Prices initially rose overnight, buoyed by a government report last week that showed U.S. farmers were on track to plant less corn and soybeans this season than expected. But China's move to start levying duties on various American agricultural goods sparked concerns among traders that U.S. crops like soybeans could be next. Most commercials expect that China will retaliate with new tariffs of their own that would include U.S. grain and soybeans and the market understands that U.S. ag trade issues are starting to 'boil. Soybean futures for May delivery fell 0.9% to $ /2 a bushel at the Chicago Board of Trade. May corn futures fell 0.1% to $3.87 1/4 a bushel while May wheat slid 1.1% to $4.46 1/4 a bushel. Chinese officials said over the weekend that a basket of U.S. agricultural imports would be subject to tariffs, ranging from 25% for pork to 15% on various fruits. Grain-and-oilseed traders have long fretted that U.S. exports of soybeans, the largest share of which go to China, could also be a target. The USDA said separately on Thursday that farmers intended to plant 89 million acres of soybeans and 88 million acres of corn, both figures well below what analysts expected to see. That prompted a price bounce late last week as traders bet that oversupply wouldn't be as severe as previously thought. But the USDA also said that domestic stockpiles of both crops rose to records in early months of the year. Those enormous supplies could weigh down prices in the months to come. The effect could be particularly acute for soybeans, especially if exports to China suffer because of tariff concerns. The mere threat that they could still be added tends to change buyer behavior. In a separate report on Monday, the USDA said that U.S. soybean processors crushed 165mb of oilseed in February, down from 171mb in January but above the same time a 1

2 year earlier. Strong domestic crushing demand has helped to ease some supply pressure in recent months. Plains dryness is dominant the next 10 days, with weekend rains to favor eastern OK, southeast KS and NE wheat growth. Sub-freezing temps expand in the central/southern Plains next weekend but are not quite cold enough for permanent damage. Minimums reach the 10s-20s-30s ( F) over much of the next week across a wide swath of the central U.S, with 2.00 to 4.00 of rain affecting the Delta and southeast half of the Corn Belt over the next two weeks. Delta rains today and next weekend keep corn seeding very slow, with limited rains next week allowing for some recovery. ECB rains today limit early fieldwork, but more limited rains next week keep excess wetness minimal. Locally heavy and widespread rain in Argentina early next week slows harvest and only slightly aids late filling. The EU model is even wetter. The outlook for Parana/MGDS is dry over the next two weeks, allowing moisture to slip in the southern 1/3 rd of the safrinah corn belt. About 25% of second-crop corn in Brazil has been drier than normal in recent weeks and the transition to the dry season that begins in May is underway in much of Brazil s second-crop corn belt. Showers remain adequate for Center-West areas, with only brief soybean harvest delays in the south. The USDA s first, national wheat condition report was issued late yesterday. The USDA's first U.S. corn and spring wheat planting progress data of the year will be released in next week's update. U.S. winter wheat crop conditions are the lowest for early April since 2002 overall. Just 32% of the winter wheat crop is considered to be in good/excellent condition vs. 50% at the end of the fall growing season heading into dormancy and last year's crop at this time of 51% good/excellent. Overall winter wheat conditions were thought to be in the 33-37% good/excellent range. A by-class condition analysis shows HRW and SRW conditions starting the spring season at historically low levels, while white winter wheat conditions are considered historically average. Extremely dry weather stressed the growing wheat crop in states like Kansas and Texas, though recent rains have eased some of that pressure. Freezing temperatures hit the 2

3 region this weekend and are expected to return in the coming days. A look at the attached graphic courtesy of Commodity Weather Group ( suggests little chance to break the drought despite earlier forecasts for relief, although the same pattern makes a drought in the Midwest this summer less likely. Brazilian consultancy Ag Rural pegs the Brazil soy harvest at 71% (69% average) while 1 st crop corn was 51% cut (59% average). Trade publication Oil World says the 2018 South American soy crop is at 168.6mmt, down 16mmt vs. last year. Brazil is at 116mmt and Argentina is at 38.5mmt (USDA 113mmt and 47mmt). Noted crop scout Dr. Michael Cordonnier cut his Argentine soybean/corn output estimates to 40mmt and 32mmt, respectively, both down 1mmt from last week. Last Thursday s U.S. Stocks/Acreage report places a solid floor under the under the corn market and to a lesser degree, the soybean market until/unless traders feel more confident about 2018 U.S. row crop yield prospects. The trade knows that March to June changes in acreage are driven largely by spring planting conditions, but over most years March to June U.S. acreage of corn/soybeans typically increase before backing off into the final January crop report. Private sector estimates of 2018/19 U.S. carryover are mostly around 1.5 billion bushels or less for corn ( billion bushels are thought to be pipeline levels) 900mb or higher for wheat and 350mb or lower for beans. Row crop markets need good weather in the U.S. and safrinah corn in Brazil as well. However, if U.S. corn yields do pull back for whatever reason, it will get people s attention because world supplies are dropping off as well. There s no indication yet that China will retaliate against U.S. soybeans. Media reports suggest preliminary contacts have occurred between senior Chinese and U.S. trade officials, but there isn t yet evidence of intensive negotiations yet. While the announcement of such a move would certainly be negative to prices, many question just how long China could maintain tariffs on U.S. soybeans, especially with Argentine soybean production falling sharply. On the demand front, Malaysian palm oil futures ended Tuesday's trading session 0.9% lower on technical correction following the previous day's climb. The fall is seen as temporary as demand is expected to pick up on stockpiling ahead of the Ramadan festival in May. Malaysian palm oil exports in March were 1.395mmt vs mmt in Feb and well above last year s 1.089mmt in March. The Trade Ministry in Brazil showed 8.814mmt in soybean exports during March, 1.85% lower than a year ago. Exporters returned from the Easter holiday with offers for Brazilian corn at $189/mt for late July/August, around $3.50-$4.00/mt above the U.S. Gulf in the same period. Argentine corn offers have started to rise amid tightening supplies and limited farmer selling. Offers for June are at $193/mt, some $7/mt above the U.S. Global corn prices from next year out will likely rise due large and consistent global market deficits, said BMI Research. "Our global market outlook is largely based on our forecasts for China, 3

4 where we anticipate large deficits over the coming years." It notes that global corn production will fall by almost 4% in 2017/18 due to a combination of the reduction in planted area with many farmers in American having switched to soybeans and a slight fall in yields. Front-month corn prices are trading at $3.88 a bushel, while BMI forecasts them averaging $4.00 a bushel. In response to the Trump administration's recently implemented tariffs on steel and aluminum, China has retaliated with tariffs on imports of 128 American-made products. The tariffs, which are hitting such products as wine and frozen pork, are as high as 25% and went into effect Monday. They added another 15% tariff on the already 30% tariff on U.S. ethanol. The 45% tariff essentially prices U.S. ethanol out of the market and will at least temporarily halt additional purchases. U.S. ethanol exports to China surged in Dec to 22 million gallons after being non-existent in 2017, but the latest official data showed no exports in January. However, while official data is not yet available, it is believed that ethanol exports to China have been strong in Feb/Mar ahead of new import tariffs being issued. Distillers dried grain (DDG) domestic prices continue the climb we witnessed through most of the winter. Much of that strength has come from the sharp rise in soymeal prices; while those prices have come off their recent highs, they are still giving DDG the edge as a better value per unit of protein. U.S. biodiesel production was 124 million gallons in Feb vs. 148 million in Jan but was up from 93 million a year ago. President Donald Trump is seriously considering abandoning efforts to remake the nation's biofuel laws after wading deep into an issue that divides some of his core constituencies, according to three sources familiar with the administration's thinking. Advisors have urged Trump to instead let Congress tackle the biofuel reforms but use the threat of administrative action to help rival lawmakers come together and solve the intractable issue. Renewable fuel credit prices are down 35.7% in 2018 as uncertainty over the Renewable Fuel Standard adds pressure. This represents the largest quarterly drop in a year. On a positive note, the Trump administration is said to be pushing for a preliminary NAFTA deal to announce at a summit in Peru next week and will host cabinet ministers in Washington to try to achieve a breakthrough, according to three people familiar with the talks. The White House wants leaders from Canada and Mexico to join in unveiling the broad outlines of an updated pact at the Summit of the Americas that begins April 13, while technical talks to hammer out the finer details and legal text could continue, according to the people. USDA reported February U.S. soybean crush was 165.0mb, above average market expectations of 163.5mb and easily an all-time record for the month. Crush was up a very strong 8.9% from last year's February crush of 151.4mb and was 7.3% above NOPA member-reported crush for the month of 153.7mb. Through the first half of the 2017/18 marketing year, cumulative soybean crush of billion bushels is up 3.5% 4

5 from last year's 977mb, leaving 949mb needing to be crushed during March-August in order for the USDA's billion bushel annual estimate to be met - reflecting a 2.7% increase from last year's 924 million. U.S. soybean oil stocks at the end of February ended up being larger than expected, as well, being reported at billion pounds vs. the average trade estimate of billion and were 30.7% larger than NOPA-member stocks for the month. February stocks were up from billion in January and were a solid 9.6% above year ago Feb stocks of billion pounds. The average soybean oil yield in February was pounds/bushel vs in January and in February last year. Total soybean meal production in February was 3.900mmt vs mmt in January and 3.559mmt last year, while estimated soybean meal domestic usage in Feb was unchanged from last year, with Oct-Feb domestic usage running 3.0% above year ago levels. U.S. corn used for ethanol in February was reported at 433.6mb, in line with what we expected based on the EIA's weekly ethanol production data at around 431mb and compared to 476.1mb in January and 423.6mb last year. With very little sorghum being used for ethanol production this year (just 3.2mb in Feb vs. 11.5mb last year), corn accounted for 99.3% of feedstocks used in the month, with Sept-Feb marketing year to date at 99.2% vs 98.0% last year. Marketing year to date corn used for ethanol production reached billion bushels, up 2.7% from last year's billion, leaving billion bushels needing to be used during March-August in order for the USDA's billion bushel marketing year total estimate to be reached. Just as was the case during the 1st half of 2017/18, the needed March-August demand level would reflect a 2.5% increase from last year's billion bushels. Ethanol production since early January has been running 0.3% below year ago levels, on average, implying a needed pick up in production relative to last year, but that may very well be accomplished by ethanol production running at fairly consistent levels over the next 6-8 weeks vs. production declining in April-May in each of the last two years. U.S. corn exports for the week ended 3/29/18 were strong at 53.1mb and were at the top end of market expectations. Despite this, though, last week's shipments just met the average needed export pace of roughly 52mb, which must be seen over the coming 22 weeks if the USDA's billion bushel export program is to be met. Despite the impressive sales pace in recent months, the actual shipment pace, while solid, continues to run weaker than last year as exports over the last four weeks have averaged 54.1mb/week, 8% below last year's same-period average exports of 58.9mb/week. Moreover, the task at hand is no small one as shipments will need to run nearly 23% stronger than last year's April-August exports and even 6.6% stronger than all-time record average record weekly exports during April-August of 48.5mb in 2015/16, just to meet the USDA's 2017/18 export projection. However, making the potential for a record 5

6 shipment pace from this point forward plausible, though, is the fact that outstanding export sales on the books (corn sold which has yet to be shipped) currently sits at a record 925mb vs. 665mb at this time last year and 504mb in 2015/16. U.S. soybean exports last week 19.9mb were down from the previous week's 26.1mb and were below last year's same-week exports of 23.1mb. Additionally, they fell short of the average weekly needed pace of roughly 21.9mb, the 2nd time that has occurred in the last three weeks. Similar to corn, soybean exports will need to run 20% stronger, on average, than last year's April-August exports of 18.2mb/week, which also happens to be the all-time record from this point forward, as well. Farm banks lent more to the troubled agricultural sector in 2017, according to the American Bankers Association, increasing lending by almost 6% to $106 billion. Low commodity prices have pushed U.S. agriculture into a multi-year slump, with farm incomes due to fall to the lowest point since Some farmers have turned to creditors for relief while others have gone out of business altogether. "We're starting to see the effects of a weaker ag sector," says ABA's Brittany Kleinpaste. Farm bank profitability slowed in 2017 from the previous year, with around 96% profitable and around 55% increasing earnings. Banks held a total of $180 billion in agricultural loans at the end of the year. Hogs: Cash hogs are called steady to $1 higher. Slaughter is expected to get back in the groove Tuesday, totaling close to 465,000 head. We expect that level to be maintained through Thursday, fall back some on Friday, and then close to 150,000 on Saturday. The national bid lost $1.02 yesterday to close at $47.34, while the IA/MN bid lost $1.37 to close at $ The CME Lean Hog Index was down $1.02 from the previous day on March 29 th to $ The USDA pork carcass cutout value was $.54 higher at $71.16 on slow movement of 206 loads. Estimated packer margins were $45.26/head for nonintegrators and $21.90/head for integrators vs. $41.65 and $21.24 the previous day. Weekly hog kill is down 28.4% vs. last year due to holiday week differences. Isowean (i.e., piglets under 10 pounds) turned red hot toward the end of the December-February quarter (i.e., trading as high as $80 for several weeks, possibly suggesting that the winter old-crop was not as large as suggested by the March 1 inventory (e.g., perhaps tied to disease and death loss). However, prices have recently cooled back to more normal levels, suggesting the marketing hole may be over. It will no doubt take some time to sort out the exact price impact of the new Chinese tariffs on U.S. pork. Accordingly, lean futures will probably remain under pressure on the opening Tuesday. Hog futures fell to the lowest point in over a year as Chinese tariffs on U.S. pork took effect. China said over the weekend that it would start levying previously announced duties of 25% on American pork imports Monday amid a trade 6

7 dispute between Washington and Beijing, sparking concerns exports to that important market would suffer significantly. In addition, a government report released Thursday after the market had closed for the week showed that the national hog and pig herd had grown to a record for the time of year. Traders are betting that the U.S. would need robust export demand to stave off oversupply. If you have a little bit less exports, which it looks like you're going to have, then we just have too much pork to process. Lean hog futures for April delivery fell 5.2% to cents a pound at the Chicago Mercantile Exchange on Monday, hitting a 15-month low. In the quarterly report, the USDA said that the national hog and pig herd rose 3% from a year earlier to 72.9 million head as of March 1, the highest for the quarter since records began. The report also indicated that supplies were on course to continue growing in the months to come. The cash market for physical hogs was on set for another losing streak this week. Meatpackers bid $1.02 less on Monday for slaughter-ready pigs. That trend was likely to continue until demand ticked higher, analysts said, with domestic consumption alone not enough offset a mounting glut of pork. China and Hong Kong are the second largest market for U.S. pork by volume and third by value, according to the U.S. Meat Export Federation. On a positive note, as noted in the grains section, a NAFTA deal may be announced as soon as next week. Cattle futures also fell. A bounce in corn prices late last week weighed on the market for feeder cattle in particular, younger livestock that need to be fattened with grain before slaughter. CME April feeder cattle futures fell 1.1% to $ a pound. April live cattle futures slid 1.2% to $1.124 a pound. Spot April live futures closed at the lowest level since the end of August last year. June live had the largest loss of $1.62, falling to levels not seen since early April of Evidence that nearby live futures still has energy to dig for better discounts does not bode well for cash stability. However, new show lists distributed in cattle-feeding country look generally smaller than last week. We may be entering the bubble where yearling supplies tighten and the first wave of calf-feds are not yet ready for market. China s hog prices may stay low for the next two quarters and may not rebound until peak season at end-3q, CICC says in report. Large and mid-sized farms remain motivated to expand capacity in the short term to seize more market share as tight environmental regulations see the industry become more concentrated. Prices dropped due to declining demand after peak season and rising supply due to massive de-stocking at farms. Prices have fallen below full-cost levels in the pig farming industry. All pig farmers are likely operating in the red currently. Current losses are unlikely to trigger insolvencies or capacity cuts. With more concentration in the pig farming industry, large farms may add capacity faster than the industry average. The move will benefit sales of 7

8 large manufacturers of animal feed and animal health products as these companies will deliver much faster earnings growth than pig farmers. The escalating trade tensions between Beijing and Washington have pulled America's farmers and agricultural exporters into the melee. To the dismay of pork producers and fruit growers across the U.S., China on Sunday announced tariffs of as much as 25% on American pork and eight other kinds of goods, as well as 15% tariffs on fruit and 120 types of commodities, which China has said would apply to about $3 billion in products. China's tariffs were retaliation for the 25% steel and 10% aluminum tariffs imposed by the Trump administration last month. The skirmish is poised to escalate further this week, as President Donald Trump has ordered a series of actions, including a new round of tariffs on as much as $60 billion in Chinese imports, to penalize Beijing over allegations that China is violating U.S. intellectual property rights. But it is far from clear whether the trade actions will get out of hand. The U.S. and China have also started preliminary talks at reaching a resolution. On the new round of tariffs, the U.S. will first take comment from industry for 30 days and then have 180 days to decide whether to actually levy tariffs. That gives plenty of time for talks -- although the negotiations will they will be conducted under the threat of U.S. retaliation. U.S. officials expect the Chinese to match their threats tit-for-tat, further ramping up the pressure. China's penalties on U.S. meat, fruit and other types of commodities raise uncertainty for U.S. pork sales abroad -- particularly in the $1.17 billion world-wide market for byproducts like pigs' feet and tails, where China is the biggest buyer, according to data from the U.S. Meat Export Federation. "These retaliatory tariffs will disproportionately affect hardworking American pork packers and producers," said Barry Carpenter, chief executive of the North American Meat Institute. The actions so far are relatively small. The U.S. exported $140.5 billion of agricultural goods last fiscal year, according to data from the USDA. The size of Beijing's retaliation -- tariffs on about $3 billion of goods -- indicates the direct impact of Washington's steel tariff is also not enormous. Only about 2% of U.S. steel imports come directly from China. Investors have cited trade tensions as one reason for the stock market's weak performance this year, with the S&P 500 down more than 10% since its peak in late January, but the effects on the overall economy appear modest so far. Washington's trade leaders have said they are playing a longer-term game to stop Beijing's unfair trade practices and aren't focused on shortterm impacts. During a Senate Finance Committee hearing on March 22, U.S. Trade Representative Robert Lighthizer said: "it's not possible to take the position that because of soybean farmers we're not going to stick up for our rights in a whole variety of ways and have hundreds of billions of dollars with the other exporters and domestic producers be punished because of unfair trade." Soybeans weren't targeted for tariffs by China, the 8

9 world's biggest buyer of the oilseeds, but the U.S. agriculture sector worries soybeans could draw future retaliation if the trade dispute escalates. Weather: The U.S. and European models are in fair to good agreement during the outlook period today. A weak to moderate trough is expected to be over the Midwest region early in the outlook period. A secondary weak trough is expected to move across the Pacific Northwest and the northern Rockies late in the period. Temperatures in the Midwest region will vary somewhat during this period, cool to cold behind the first trough and somewhat warmer ahead of the second trough. Rainfall, or snow, continues to average near to above normal in the Midwest region due to a fast west to east flow with periodic short-wave troughs moving through the area. This fast west to east flow also is evident in the central and south Plains wheat belt but in this case, it likely means below normal rainfall. As troughs moving across do not have enough time to establish an inflow of moisture off the Gulf of Mexico before they are already east of the main producing areas. The strong high latitude blocking ridge that is currently between Alaska and Siberia is shown well west of there on today's mean mays at 8 to 10 days. The somewhat weaker high latitude ridge that is currently over north-central Canada is shown over the northern Atlantic on the forecast maps. The lack of high latitude blocking over North America at 8 to 10 days should allow the strong polar vortex in Canada to retreat northward, reducing the risk of further extreme cold events for southern Canada and the U.S. However, this might take some time to develop. We also note a strong trough over the eastern Pacific moving towards the west coast of North America on these mean maps. Impulses moving out of the base of this trough should maintain a near to above normal precipitation pattern for the Pacific Northwest and then the northeast Plains and Midwest regions as they come eastward. Dry weather dominated the majority of the central/southern Plains region, with some rains bringing generally less than.10 to the eastern 1/3rd of OK. Temps ran below average. Highs were in the 50 s and 60 s and lows were in the 20 s and 30 s. Little in the way of hope for soil moisture recharging is seen in the next 10 days. Only light and scattered precip looks to fall in the western ½ of KS, OK and TX, with light to moderate rains to fall in the eastern 1/3rd of KS, OK and TX. One system will work through in the next 2 days, with the other by the first half of next week. Temps will be running average to below average across the southern Plains, with highs bouncing around between the 60 s and 70 s and 40 s and 50 s. Lows will be running in the 20 s, 30 s and 40 s. Snows of an inch or less fell across MN and WI, with rains of moving into the OH River Valley overnight. Things were mainly dry in the rest of the region yesterday. Temps were below average, with highs in the 30 s and 40 s and lows in the teens and 20 s. An active pattern will bring above average precip to the region in the next ten days. Combined with below average temps, this will lead to little in the way of 9

10 field prep for spring planting. Much of the precip looks to fall as snow across MN, WI and MI, where some fairly heavy totals will fall. Rains will fall in the rest of the region, with significant totals there as well. Timing of the precip events for the Midwest also sees one for the next 2 days and the other for the first half of next week. Temps will be running well below average for all of the next 10 days, with highs in the 30 s and 40 s in most cases and a few 50 s in the south from time to time. Lows will be in the teens and 20 s north, with 20 s and 30 s south. Rains of 1-2 fell across northern sections of Santa Fe yesterday, with dry weather dominating the rest of the Argentine growing regions. Rains in the Brazilian growing regions were also fairly limited, with totals of.35-1 falling with coverage of around 35%. Temps were in the 70 s in the Argentine growing regions, with 70 s and 80 s in Brazil. Limited rains look to fall across most of the Argentine growing regions through Thursday. A front then looks to bring rains of to most areas by Friday and Saturday and rainfall in the 6-10 day period looks to be in the range, with widespread coverage. Time has run out in most cases for the rains to make much of a difference in Argentina. Rainfall of looks to fall in most of the Brazilian states of Mato Grosso, Goias and Minas Gerais in the next 5 days, as well as in the 6-10 day period. Totals in the rest of the Brazilian growing regions look to be under.35 in both the next 5 days, as well as into the 6-10 day period. This weather scenario will be OK for harvest. Temps look to run near average in most of the South American growing regions in the next 10 days. North American Weather Highlights: Cold or very cold temperatures and wet fields in the Midwest will keep spring field work very slow or not as all this week. It s not as cold after that, but with additional rain chances leading to further delays in spring field work and early corn planting. Saturated soils in the Delta, especially after heavy rains later last week, will disrupt corn planting. Additional near to above normal rainfall during the next week to ten days will further delay seasonal fieldwork. No significant precipitation is expected in the central/southern Plains during the next 10 days in most major wheat areas. Crop ratings remain poor in many areas. Global Weather Highlights: Heavier than expected weekend rainfall fell in Argentina, especially over northern Buenos Aires but also in southern Santa Fe to some extent. This may help to stabilize crop conditions in the northern Buenos Aires areas. However, it is not enough to change prospects for crops in Santa Fe or Cordoba after well below normal summer rains. Losses to late filling corn and soybeans continue. Favorable soil moisture continues for developing second crop corn in central Brazil with no end to the rainy season in sight. Some disruptions occur to the soybean harvest in Rio Grande do Sul. Scattered moderate to locally heavy showers and thundershowers redeveloped in 10

11 South Africa during the weekend period, heaviest in south and east areas. Rainfall will favor late filling crops but may be somewhat unfavorable for early maturing varieties. China has seen above and sometimes well above normal temperatures during March, likely pushing development of wheat ahead of normal. Rainfall earlier in the month supported favorable development, especially through southern areas. A recent drier trend in northern areas will bear watching as we move through April. Reports suggest that wheat is in good condition at this time. Rainfall chances in northern areas looks to be limited during the next 10 days, somewhat better in southern areas. Very warm to somewhat hot temperatures early this week will give way to much cooler weather later in the period. Macros: The macro markets were modestly supportive as of 8:40am EDT, with Dow futures up 0.7%, the U.S. dollar index is unchanged, crude oil is up 0.4% and gold is down 0.2%. The U.S. stock market fell sharply on Monday with the S&P 500 index closing down -2.23%. Tech stocks had another rough day with the Nymex FANG+ index closing the day down 3.37%. Meanwhile, the Nasdaq 100 index fell to a new 7- week low and closed the day down 2.89%. Technical selling snowballed as the S&P 500 index closed below its 200-day moving average for the first time since June In addition, semiconductor stocks plunged more than 5% on a report that Apple will ditch Intel chips in favor of its own chips starting in Stocks fell sharply as the market continues to fret about trade tensions after China on Sunday announced the implementation on Monday of its previously-announced retaliatory tariffs for U.S. steelaluminum tariffs. In addition, the markets are waiting to see if the Trump administration goes through with its threat of tariffs on $50 billion of Chinese products for IP violations, and for China's likely retaliation. Meanwhile, there were new concerns about NAFTA after President Trump over the weekend in a tweet threatened to cancel NAFTA if Mexico doesn't do more to secure its border. The consensus is for today's March total vehicle sales report to dip slightly to million from Feb's million. Vehicle sales spiked higher last September to a 12-year high of million units due to the need to replace vehicles damaged by hurricanes. However, vehicle sales then tailed off through the rest of 2017 and stabilized near 17 million units in Jan-Feb, which is close to the 12-month average of million. The markets will watch today's vehicle sales report closely to see if consumer spending picked up in March. Despite strong consumer confidence, personal spending in Jan and Feb was weak at 0.2%, suggesting that consumers in early 2018 were in a conservative spending mood. Overnight, Bloomberg News reported that the technology-led turmoil that sent U.S. stocks into a tailspin showed signs of easing on Tuesday, with futures contracts for the main American gauges rising after Asia s benchmark pared most of its decline. European shares fell, but losses were relatively contained. The Nasdaq 100, S&P

12 and Dow were all poised to open in the green following Monday s selloff, while Treasuries fell and the dollar was little changed. The Stoxx Europe 600 Index headed for its first decline in four days as markets reopened after the long weekend, though the drop was less than a quarter of the S&P 500 s retreat a day earlier. The weakest euroarea manufacturing figures for eight months added to the sense of caution and the euro reversed its advance. After the worst three months for global stocks in more than two years, the second quarter started on the back foot as trade tensions festered and technology shares got slammed. The risk-off mood comes as investors prepare for earnings season. They still anticipate a strong showing but will be watchful for any more signs of a slowdown in the synchronized global expansion. Elsewhere, the Reserve Bank of Australia left interest rates unchanged at its monthly meeting. West Texas crude edged higher after its biggest loss in almost two months. The Stoxx Europe 600 Index fell 0.5 percent as of 7:20 a.m. New York time with the first retreat in more than a week. Futures on the S&P 500 Index jumped 0.5 percent. The MSCI All-Country World Index declined 0.2 percent to the lowest in 19 weeks. The U.K. s FTSE 100 Index fell 0.2 percent. Germany s DAX Index fell 0.8 percent, the largest fall in more than a week. The MSCI Emerging Market Index climbed 0.1 percent. The MSCI Asia Pacific Index dipped 0.1 percent. The Bloomberg Dollar Spot Index climbed less than 0.05 percent. The euro declined 0.1 percent to $1.2287, the weakest in two weeks. The British pound dipped 0.1 percent to $ The Japanese yen fell 0.3 percent to per dollar. The yield on 10-year Treasuries rose two basis points to 2.75 percent. Germany s 10-year yield decreased less than one basis point to 0.50 percent, hitting the lowest in 12 weeks with its ninth straight decline. Britain s 10- year yield dipped one basis point to 1.35 percent, reaching the lowest in more than 10 weeks on its seventh straight decline. West Texas Intermediate crude climbed 0.1 percent to $63.09 a barrel. Copper increased 0.3 percent to $3.06 a pound, reaching the highest in more than two weeks on its fifth consecutive advance. Gold declined 0.3 percent to $1, an ounce. Summary: Prices last week saw May corn up $.02 ¼, May soybeans up $.16 ¼, May wheat was down $.08 ½, May meal was up $6.10 and bean oil was up 54 points. Carryover bullishness from the acreage report was seen early in the day yesterday before some significant profit taking occurred and pushed things into negative territory. Reports that the Trump administration was taking harder line on NAFTA as the stalemate over border funding stalls and a wave of mostly Nicaragua immigrants head to the U.S. border through Mexico. Export inspection data was within expectations across the board. The energy markets were sharply lower, gold was higher, and the DJIA was much lower. The corn market was higher on friendly USDA acreage data early but set back on profit taking. Wet weather is providing a little bit of underlying support for the 12

13 corn market. China has hit ethanol with a tariff of 15%. Friday s CFTC Commitment of Traders report showed managed money trimming 96,320 contracts from their net long position for corn futures and options. That net position was down to 116,911 contracts as of 3/27. Managed funds through last Thursday reportedly have re-purchased only half of the corn liquidated since last CFTC report, providing ample room for further long accumulation. The soy market continues to fear a trade war with China will target soybeans. Nov beans hit a new contract high before the big selloff. Brazil soybean production estimates continue to rise with the crop now over 70% harvested. Weekly inspection data for wheat was with expectations, but the gap versus the USDA pace is widening every week. Inspections are behind by 76mb currently. Intermarket spreads continue to be the feature, this time driven by the latest acreage estimates. The 100-day moving average has been providing resistance for May wheat around the $4.55 area. Spec funds added 21,645 contracts to their net short position in Chicago wheat futures and options for the week that ended last Tuesday. That net position was at -77,752 contracts on that date. May corn erased intraday gains Monday to close marginally lower. The action formed a bearish shooting star formation on the daily candlestick chart, which warns of a potential short-term top. New chart resistance formed at $3.92 1/2, which represents Monday's high. The corn contract surged sharply from last week's low at $3.72 and is vulnerable to some backing and filling as the market digests the recent volatility. The 20-day moving average is support at $3.83 and as long as that holds firm, May corn bulls will retain the near-term technical edge. May corn bulls see major chart resistance at $3.95 1/4, the March 13 daily peak. Monday's rally revealed that bullish momentum abruptly stalled on the beginning of an approach to that key ceiling. Soybean bears used Monday's intraday gains to $ /2 as a selling opportunity and the market erased intraday gains to close lower. The action forms a large bearish shooting star on the daily candlestick chart, which warns of a potential near-term top and new resistance at Monday's high. May beans retraced over 50% of the large rally move from the March 29 low at $ /2 into Monday's high at $ /2. The May soybean contract now sees 61.8% Fibonacci retracement support at $ /4. If the 61.8% Fibonacci retracement support cracks, it would leave soybeans vulnerable to slippage back toward chart support at $ /2. Trading action has been volatile in recent weeks. Soybean bulls and bears are battling for short-term trend control. For now, the larger multi-month trend off the Jan. 12 low at $9.55 3/4 remains bullish for May beans. But, in the shortterm, trading action between resistance at $ /2 and support at $ /4 is consolidative. The burden lies on soybean bulls to support and sustain a rally and close above $ /2 to confirm a positive trend bias in the short-term. Conversely, a selloff and close below support at $ /4 would suggest May soybeans control the 13

14 short-term trend reins. Action in between those two key zones could unfold in a choppy manner as the market awaits fresh signals for near-term trend direction. 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