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Closing Comments

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Closing Comments

Corn

Corn could not hold early gains again as traders fear increased selling in the weeks ahead.

Exporters shipped 26 million bushels of corn in the week ending January 29, down from 34.9 million the previous week and down from the five-year average for the week of 28 million bushels. Marketing year shipments total 588 million bushels, up 13 million or 2% from the previous year.

However, many commitments are not being shipped near-term as exporters focus on soybean shipments. Exporters typically ship 39% of final corn shipments by this time in the year, whereas they had shipped just 30% by this point last year. This year exporters have shipped 34% of USDA’s target. As such, shipments to date fall short of the seasonal pace needed to hit USDA’s target by August 31 by 91 million bushels, versus being short by 87 million the previous week.

Exporters shipped 5.1 million bushels of grain sorghum in the week ending January 29, down from 11.9 million the previous week, but up from the five-year average for the week of 3.2 million bushels. Shipments to China accounted for 5.0 million bushels of the past week’s total.

Marketing year shipments to all destinations total 151 million bushels, up 97 million or 178% from the previous year. Exporters typically have shipped 42% of final grain sorghum shipments by this point in the season, whereas they had shipped 26% by this point last year. However, this year they have already shipped 56% of USDA’s target. As such, shipments to date exceed the seasonal pace needed to hit USDA’s target by August 31 by 38 million bushels, down slightly from 39 million the previous week.

Brazil formally approved final plans to raise ethanol blend in gasoline to 27%, up from 25% currently. The increase is expected to be implemented beginning on February 15 in an effort to support its biofuels industry. The increase came after the government reviewed extensive research deeming the higher blending level safe for automobiles. However, adverse weather has cut the sugar cane crop short this year, which means that Brazil will likely need to import significant quantities of U.S. ethanol to meet its needs.

Global demand for corn is relatively good, but the supply is bigger. Much of that supply is still in the hands of farmers, but that will eventually change, with supply coming in faster than needed. Weather is good for harvesting soybeans and planting safrinha corn in Brazil, suggesting that we could end up having stiff competition from that region once again this year.

March corn rallied to the 100-day moving average and turned south again, finishing fractionally below Friday’s close. That reinforces the significance of the 100-day moving average to the market, with a downside bias to the market. Corn’s vulnerability probably isn’t as great as that for soybeans, but this could be a tough month for the feed grain before traders start to focus on adding spring weather premium’s next month.

Soybeans

Large soybean shipments were not enough to hold soybean prices up ahead of the South American harvest.

Exporters shipped 62.4 million bushels of soybeans in the week ending January 29, up from 56.8 million the previous week and up from the five-year average for the week of 45.9 million. Shipments to China accounted for 45.7 million bushels of the past week’s total.

Marketing year shipments to all destinations total 1.377 billion bushels, up 218 million or 19% from the previous year. Exporters typically ship 60% of final soybean shipments by this point in the year, whereas they had shipped 70% by this point last year. However, this year they have already shipped 78% of USDA’s target for the year. As such, shipments to date exceed the seasonal pace needed to hit USDA’s target by August 31 by 308 million bushels, up from 296 million the previous week.

The export numbers were impressive, but traders also believed they will be short-lived once South American supplies really begin to flow. That’s expected to happen over the next several weeks, leading to liquidation in the futures market. Basis has been holding strong amid lingering strong demand for both whole soybeans and soymeal, but futures traders are looking ahead to larger supplies poised to hit the global market.

March soymeal saw follow-through selling after executing a bear flag on Friday, with March soybeans trading inside Friday’s trading range. Both markets are oversold, but traders are generally wary of being long (bought) in the soybean complex ahead of the South American harvest.

This leaves March soybeans vulnerable to testing their October low of $9.2075. November is vulnerable to testing support at $9.275, but ultimately it could go much lower if we continue to expand acreage in the absence of a weather problem.

Wheat

Wheat remains uncompetitive on the world market and received good moisture over the weekend.

Exporters shipped 14.5 million bushels of wheat in the week ending January 29, up from 11.7 million the previous week, but still below the five-year average for the week of 18.4 million bushels. Marketing year shipments total 556 million bushels, down 255 million or 32% from the previous year.

Exporters typically ship 65%of final wheat shipments by this point, whereas they had shipped 69% by this point last year. However, this year they have only shipped 60% of USDA’s target. As such, shipments to date fall short of the seasonal pace needed to hit USDA’s target by May 31 by 47 million bushels, unchanged on the week.

Saudi Arabia bought 24.2 million bushels of optional origin hard wheat over the weekend. It’s generally believed that European wheat will fill the bulk of the order.

Egypt released another snap tender to buy wheat after today’s double-digit losses in Chicago. The tender, is for wheat to be delivered in early March, should give the U.S. trade a better handle on how close it is to being competitive once again.

Prices posted double-digit losses in Chicago today, with Kansas City and Minneapolis following as buyers stepped aside to allow prices to come to them. Chicago accelerated losses as support at $5 gave way in the March contract. Widespread good rains fell across the southeastern 75% of the Plains hard red winter wheat, with a heavy coat of snow falling over the bulk of the Midwest crop.

Beef

Bearish cattle inventory report sinks feeder cattle market, which then weighed on fat cattle as well.

USDA’s cattle inventory report Friday surprised the trade, showing that the herd is recovering faster than anticipated. The agency reported that all cattle and calves totaled 89.8 million head on January 1, up 1.274 million or 1% from the previous year. Cows and heifers that have calved were up 2% from the previous year, while the trade was looking for that number to be up 0.5%. There are 608,000 more beef cows in the herd than a year ago and 99,000 more dairy cows. Beef replacement heifers over 500 pounds were up 4% from the previous year. There were 75,000 more cattle on feed January 1 than the previous year.

Live cattle futures tried to firm early today on adverse winter weather, but simply could not hold the strength. Feeder cattle futures weighed on the live cattle market, with traders focused on Friday’s bearish USDA cattle inventory report that showed faster herd expansion than was anticipated. Feeder cattle eventually hit the $4.50 daily limit lower over the noon hour, amid ongoing fund liquidation, opening the door for expanded limits on Tuesday.

Last week’s kill fell short of early-week expectations at 563K head, down 13K from the previous week and down 12K or 1.6% from the previous year. Carcass weights fell to 820 pounds, down 4 pounds from the previous week, but still up 12 pounds from the previous year. This year’s slaughter to date stands at an estimated 2.357 million head, down 10.6% from the previous year. Total beef production during the week was pegged at 460.5 million pounds, down 12.9 million from the previous year, but down just 0.7 million or 0.2% from the same week last year due to the heavier carcass weights.

Boxed beef prices dropped sharply over the past week, but the drop did its job of stimulating fresh demand. Movement reached an 11-week high of 876 loads, up from 736 loads the previous week. We’ll have to wait until Thursday to see if that included a pickup in export demand, which has been sluggish in recent weeks due to the strong dollar.

Choice cuts finished the week at $242.44 per cwt, down $11.30 on the week and down $21.37 from their January 14 record high. Select cuts finished the week at $235.74 per cwt, down $11.49 on the week and down $18.33 from their mid-January high. The Choice/Select spread on Friday was $6.70 per cwt, up $0.19 from the previous week. Movement at mid-morning today was routine at best at 78 loads, but Choice cuts bounced $1.00, while Select cuts were up $0.45 per cwt.

Demand at the sale barn for light-weight cattle remains soft. The latest CME feeder cattle index came in at $211.69 per cwt, down $2.21 on the day, down $8.76 on the week and down $23.53 per cwt over the past three weeks.

Pork

Weak cash market undermines lean hog futures.

Product prices firmed this morning following last week’s sharp losses, but the cash market accelerated its losses, leading to another day of selling lean hog futures lower. The latest CME cash index came in at $71.13 per cwt, down $0.60 on the day, down $2.44 on the week and down $17.38 over the past seven weeks. Today’s cash market was $1 to $2 lower in Illinois and steady to $1.50 weaker across much of the rest of the Midwest, despite snow covered roads.

Pork product prices had been relatively stable the previous three weeks, suggesting a time of finding a floor, but they resumed their downward trek in the past week. The composite pork product price on Friday was near a two-year low of $78.33 per cwt, down $6.05 on the week, although up 3 cents from Thursday. The good news though is that the lower prices were effective at stimulating demand. Product movement totaled 1,871 loads during the week, up from 1,721 loads the previous week and a three-week high. Movement at midday today was sluggish at 137 loads, but the composite price bounced $0.34 to $78.67 per cwt.

Hog slaughter last week was estimated at 2.260 million head, down 58K from the previous week, but up 131K or 6.2% from the same week last year. This brings this year’s total slaughter so far to 9.720 million head, down 157K or 1.6% from the previous year. However, weekly slaughter has been above the previous year’s total for the week in three of the past four weeks, so we are on pace to quickly surpass 2014 slaughter, and at heavier weights. Carcass weights are running 1 to 2 pounds above year ago levels.

April lean hogs have next significant support at the January 23 low of $70. Demand is improving at lower prices, but so far the supply is increasing faster.

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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