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Closing Comments

Corn

Corn erodes lower with the broader commodity sector following Wednesday’s Federal Reserve statement after breaking key chart support.

News reports indicate that Saudi Arabia’s Oil Minister is going to keep his position in the revamped cabinet under the new leader of the oil-rich nation. That suggests that Saudi Arabia will be continuing to aggressively pump crude oil, keeping prices under pressure a big longer. As a result, we saw crude oil prices drop to their lowest levels since April 2009, which in turn chews into margins for ethanol and biodiesel producers.

The broader commodity indices that Wall Street fund managers trade when they want to either own or short (sell) the broader sector dropped sharply following Wednesday’s release of the Federal Reserve’s latest monetary policy statement. We remain in a broader deflationary cycle for the commodity sector as the dollar trades near 11-year highs. Rallies are tough to sustain in this environment unless a compelling story emerges. In the meantime, the current sentiment makes the path of least resistance lower.

Exporters sold 42.7 million bushels of corn in the week ending January 22, including 42.1 million old-crop bushels. The old-crop sales were down from a robust 86 million bushels the previous week, but were up from the five-year average for the week of 33.5 million bushels. Big buyers during the week included Japan at 17.3 million, Mexico at 8.7 million and South Korea at 7.2 million bushels.

Marketing year sales to all destinations total 1.237 billion bushels, down 4 million from the previous year. Exporters typically sell 62% of final corn shipments by this point in the year, whereas they had sold 65% by this point last year. However, this year they have already sold 71% of USDA’s target for the year. As such, corn export sales to date exceed the seasonal pace needed to hit USDA’s target by 159 million bushels, up from 156 million the previous year.

Exporters sold 9.1 million bushels of grain sorghum in the week ending January 22, down from a robust 12.1 million the previous week, but still up from the five-year average for the week of 4.4 million bushels. The past week’s total included 8.3 million bushels sold to Chinese end users, with “unknown destinations” buying 0.8 million.

Marketing year sales to all destinations total 270 million bushels, up 145 million or 116% from the previous year. Sales to date already match USDA’s target for the year that was just revised upward on January 12. Exporters typically sell 54% of final grain sorghum shipments by this point in the year, whereas they had sold 59% by this point last year. However, this year they have already sold 100% of USDA’s target for the year ending August 31. As such, sales to date exceed the seasonal pace needed to hit USDA’s target by 125 million bushels, up from 123 million the previous week.

USDA’s daily export reporting system today included additional grain sorghum demand. “Unknown destinations,” which is likely Chinese end users, bought another 2.3 million old- and 2.3 million new-crop grain sorghum in the past 24 hours.

March corn broke through key support at $3.76 Wednesday, with follow-through selling today. Periodic bounces are likely, but consecutive settlements below that level suggest that sentiment is decidedly turning more bearish, leaving us vulnerable into the seasonal February weakness. December corn probed below psychological support at $4, but bounced back to settle modestly above it today.

Soybeans

Strength in soymeal demand slows soybean losses for now, but traders are bracing for the big South American harvest that is slowly building momentum.

Exporters sold a solid 33.4 million bushels of soybeans in the week ending January 22, including 32.6 million old-crop bushels. The old-crop sales were up from a dismal 0.5 million the previous week, but were up from a five-year average of 19.4 million bushels. Sales to China accounted for 20.1 million bushels, while “unknown destinations” reduced previous purchases by 8.6 million bushels.

Marketing year sales to all destinations total 1.656 billion bushels, up 97 million or 6% from the previous year. Exporters typically sell 79% of final soybean shipments by this point in the year, whereas they had sold 95% by this point last year. This year’s sales are equal to 94% of USDA’s target for the year ending August 31. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 253 million bushels, up from 252 million the previous week.

We continue to see a return of soymeal sales as well, due to delays in the availability of South American supplies in a world hungry for protein. Exporters sold 296.5K metric tons in the week ending January 22, up from 284.5K the previous week and up from the five-year average for the week of 155K tons. Actual shipments in the week totaled 276.4K metric tons, down from 302.9K the previous week, but up from the five-year average for the week of 201.1K tons.

Strength in soymeal demand continues to keep crush margins strong. High DDGS prices are driving livestock producers back to soymeal to battle with exporters for supplies. This provides near-term support for whole soybeans ahead of the bulk of the South American harvest, but market sentiment is clearly bearish as South American supplies begin to hit the market. November soybeans bounced just above psychological support at $9.50, but the new-crop contracts are clearly most at risk amid expectations that a big South American harvest will be followed by a 3 to 4 million increase in U.S. acreage this spring.

Wheat

Strength in wheat appears to be a technical bounce at best at this point, even as export demand impresses.

Exporters sold 20.8 million bushels of wheat in the week ending January 22, including 20.0 million old-crop sales. There were no noted sales to Brazil in the weekly total. The old-crop sales were up from 16.8 million bushels sold the previous week, but were down from the five-year average for the week of 25.9 million bushels. Marketing year sales total 733 million bushels, down 225 million or 24% from the previous year. Sales to date exceed the seasonal pace needed to hit USDA’s target by May 31 by 11 million bushels, up from 5 million the previous week.

Chicago March wheat bounced just above psychological support at $5, spurring more of a short-covering rally. The past week’s solid export sales were credited fundamentally for the strength. We may be able to add a bit more strength in the days ahead, but sustaining a rally will likely be difficult in the current deflationary environment until/unless a legitimate threat emerges to the crop this spring.

Southern Plains wheat is expected to see good moisture this weekend, with FSU wheat seeing 1” or more of moisture as well. In fact, Commodity Weather Group’s updated seasonal outlook calls for a wet spring for the Southern Plains, which should boost hard red winter wheat conditions. This leaves wheat vulnerable, even though prices are already at very low levels, due to the bearish attitudes of fund managers toward the commodity sector.

Beef

Cash cattle trade at $160 per cwt, but sentiment remains bearish.

Cash cattle trade emerged in Kansas today at $159 per cwt on a live basis, down $1 from last week’s trade. However, prices quickly firmed to $160, matching the previous week. That puts the cash market at a $6 premium to the lead February contract, which provided support for it today. However, the deferred contracts turned lower again after correcting oversold conditions in recent days, with traders continuing to be bearish longer-term.

Wednesday’s kill is estimated at 112K head, up 2K from the previous week, but down 4K from the previous year. Slaughter through the first three days of the week is estimated at 335K head, up 1,000 from the previous week, but down 4,000 from the same period last year. This week’s slaughter is expected to be near or better than last week’s 576K head, which suggests that there is value to the packers near current levels.

Boxed beef prices surged to 208 loads Wednesday, up from 172 loads the previous day and up from 193 loads the previous week. That puts us on pace to see this week’s total movement reach a three-week high. Choice cuts were down $0.41 to $247.29, after losing $16.52 per cwt over the past two weeks. Select cuts were up $0.08 to $240.34. That pushes the Choice/Select spread down to $6.95, down from $7.44 the previous day and down from $8.78 the previous week. Movement at mid-morning today was also solid at 112 loads, but Choice cuts were down another $1.88, while Select cuts lost another $1.00 per cwt.

Exporters sold 10K metric tons of beef in the week ending January 22, up from 9.6K the previous week and just below the 10.6K in the same week last year. While relatively stable, the sales total is lower than it could be if not for the strength of the U.S. dollar near 11-year highs. Sales for the year to date total 84.8K tons, down 35% from the previous year’s pace. Actual shipments during the week totaled 10.9K tons, down from 11.0K the previous week and down from 12.7K in the same week last year. Estimated shipments for the year to date are 12% below year ago levels.

Feeder cattle followed the fat cattle market today, with the March contract failing to even test Wednesday’s high. The contract did find support near $200, but weakness continues to be seen in the cash market, with occasional sales at the sale barn dropping below $200. The latest cash index came in today at $213.90 per cwt, down $1.35 from the previous day and down $21.32 over the past 14 trading days.

Pork

Weakness returns to the lean hog market as cash and product prices erode lower.

Today’s Midwest cash market as mostly steady, although prices in Illinois were reported to be steady to $1 lower. However, the cash index continues to erode lower. The latest CME cash index came in at $72.14 per cwt, down $0.37 on the day and down $16.37 over the past 33 consecutive trading days that have seen lower values. Packer margins remain good at an estimated $21.75 per head, but they have so far not had to use that revenue to chase the market.

Wednesday’s slaughter is estimated at 433K head, up 2,000 from the previous day, but up from 374 the previous year. Week to date slaughter is estimated at 1.285 million head, up 24,000 from the previous week and up 99,000 from the same period last year. Carcass weights remain 1 to 1.5% above year ago levels as well, providing enough pork to meet what is pretty good demand.

Product movement reached 528 loads Wednesday, up from 423 loads the previous day and up from 473 loads the previous week. We are on pace to possibly see this week’s total load movement reach a three-week high as prices fall. The composite pork product price dropped to nearly a two-year low of $80.33 per cwt Wednesday, down $1.28 on the day and down $4.14 over the past two days.

Exporters sold 16.9K metric tons of pork in the week ending January 22, down from a strong 23.9K the previous week, but up from 8.6K tons in the same week last year. Sales to date total 100K metric tons for 2015, up 7% from the previous year despite a strong dollar trading near 11-year highs. Actual shipments during the week totaled 17.8K metric tons, up from 16.3K the previous week and up from 11.7K tons in the same week last year. Shipments for the year to date are estimated at 54K metric tons, up 44% from the same period last year, despite the strong dollar.

April lean hogs appear to be forming a bear flag on the charts, with first significant support at $70 per cwt. The lead February contract is trading at a modest discount to the cash, but the cash market continues to drop toward it.

Closing Market Snapshot

 

All opinions expressed in this commentary are solely those of Water Street Advisory. This data and these comments are provided for information purposes only and are not intended to be used for specific trading strategies. Although all information is believed to be reliable, we cannot guarantee its accuracy or completeness. There is significant risk of loss involved in commodity futures and options trading and may not be suitable for all investors.

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Arlan Suderman | Senior Market Analyst
WATER STREET ADVISORY® | www.waterstreet.org
(316) 729-4599 | asuderman@waterstreet.org

Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK involved in trading futures and or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL. This information is provided freely and is NOT in the capacity of a trading advisor. NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. Information provided is not to be construed as an offer to sell or solicitation to buy any commodity or security named herein.

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