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Closing Comments

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Closing Comments

Corn

Corn moves lower despite good demand on fears of rising supplies coming to two.

Exporters shipped 35.5 million bushels of corn in the week ending February 19, up from 28.5 million the previous week and up from the five-year average for the week of 30.9 million bushels. The past week’s total was the strongest weekly total since harvest began gaining movement early last fall.

Marketing year shipments total 681 million bushels, up 13 million or 2% from the previous year. Exporters typically ship 44% of final corn shipments by this point in the marketing year, whereas they had shipped 35% by this point last year. However, this year they have shipped 39% of USDA’s target for the year that ends August 31. As such, shipments to date fall short of the seasonal pace needed to hit USDA’s target by 90 million bushels, but that is down from a deficit of 93 million bushels the previous week.

Exporters shipped 10.6 million bushels of grain sorghum in the week ending February 19, down slightly from 10.7 million the previous week, but up from the five-year average for the week of 2.0 million. Shipments to Chinese end users accounted for 10.1 million bushels of the past week’s total.

Marketing year shipments to all destinations total 179 million bushels, up 118 million or 191% from the previous year. Exporters typically ship 47% of final grain sorghum shipments by this point in the year, whereas they had shipped 29% by this point last year. However, this year they have already shipped 60% of USDA’s target for the year ending August 31. As such, shipments to date exceed the seasonal pace needed to hit USDA’s target by 38 million bushels, up from 33 million the previous year.

Safrinha corn planting in Mato Grosso, Brazil is estimated at 40%, down from the five-year average of 57%, or about a one-week delay. Farmers have a brief window for planting this week that closes again late Thursday or on Friday. Corn planted later than that is vulnerable to not finishing before the dry season, although Commodity Weather Group’s updated outlook sees fairly good rain chances in late April, which would limit yield loss risk for late-planted corn.

Corn futures broke out of their predominant trading range that had held the market for much of the past month. I’m most concerned about December hitting sell-stops below the 100-day moving average just below $4.13. Next support sits just below $4.05 and again at $4.00. Traders are worried about the “second harvest” when last year’s big crop finally comes to town, even though we would expect December to lead us higher going into March. Near-term, we have to respect weakness in the charts.

Soybeans

Soybeans don’t want to break amid strength in the soymeal market.

Exporters shipped 35.3 million bushels of soybeans in the week ending February 19, the smallest total since early fall when harvest was just starting to gain momentum. The total was down from 49.1 million bushels shipped the previous week and it was below the five-year average for the week of 40.1 million bushels. Shipments to China made up 16.3 million bushels of the total.

Marketing year shipments to all destinations total 1.516 billion bushels, up 197 million or 15% from the previous year. Exporters typically ship 69% of final soybean shipments by this point in the year, whereas they had shipped 80% by this point last year. This year they have already shipped 85% 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 280 million bushels, but that is down from 292 million the previous week.

Soybeans found support from harvest delays and a truckers strike in Brazil, but it could not hold up against the tide of selling in the broader commodity sector. Additional pressure came from weekly export shipments breaking to their lowest level since early fall and the first time they broke below the five-year average for the week since then as business shifts south of the equator.

Even so, this is a market that still struggles to break lower, with the lead March contract firming late to settle unchanged on the day. Strength in the soymeal market supports good crush margins, with soymeal export demand still strong amid tight South American supplies. The soymeal charts still look constructive, suggesting that soybeans may be able to add a bit more premium in the days ahead. The long-term fundamentals are bearish short of a weather problem this summer, but near-term the market still doesn’t want to acknowledge that and is vulnerable to additional strength.

Wheat

Export demand picks up on price break, with Egypt reissuing its tender for U.S. wheat.

Exporters shipped 18.4 million bushels of wheat in the week ending February 19, up from 14.9 million the previous week, but down from the five-year average for the week of 22.6 million bushels. Yet, the past week’s total was the largest since the week ending October 2.

Marketing year shipments total 606 million bushels, down 251 million or 29% from the previous year. Exporters typically ship 70% of final wheat shipments by this point in the year, whereas they had shipped 73% by this point last year. However, this year they have only shipped 67% of USDA’s target for the year ending May 31. As such, shipments to date fall short of the seasonal pace needed to reach USDA’s target by 31 million bushels, although that is down from a deficit of 34 million the previous week.

Chicago wheat charts are bearish, with key support just beneath the market at $5. I still expect that level to hold, but the market would be vulnerable to another 30 cents lower if it does not. Weak corn prices don’t help.

However, Egypt may help. It reopened its tender for U.S. wheat late today, adding hard red winter wheat to the tender as well. Egypt plans to use its $100 million grant to purchase the wheat. Look for it to make a purchase this time as prices drop close to key support levels. That could provide the needed spark to put a seasonal low in this market.

Beef

Live cattle futures sink on bearish chart signals, but hold key support, amid a soft cash market.

A poor technical finish on the charts Friday combined with a modestly bearish USDA cattle-on-feed and more bearish cold storage report to pressure prices to start the week. Additional weakness came from the way that cash prices slipped through the day on Friday, finishing at $157 to $158 in the northern belt. However, that weakness was partially offset by renewed export optimism as the ports open again on the West Coast following a weekend settlement, combined with stronger lean hog markets.

This past week’s kill was estimated at 524,000 head, down 13,000 from both the previous week and from the same week last year. This brings calendar year slaughter to 3.983 million head, down 6.8% from the previous year. Cash trade emerged late in the week at mostly $160 per cwt on a live basis, although some moved in Iowa late at $157. Movement in the north was also seen at mostly $254 to $258 per cwt on a dressed basis.

Product movement over the past week totaled 793 loads, down from 815 loads the previous week and a four-week low. Choice cuts finished the week at $240.31 per cwt, up $2.63 on the week. That ended a streak of four weeks with losses totaling $22.77 per cwt. Select cuts finished the week at $237.79 per cwt, up $3.84 on the week. The Choice/Select spread came in at $2.52 per cwt, down another $1.21 on the week. Estimated packer margins put losses at $103.15 per head, versus losses of $79.25 per head the previous week.

Boxed beef prices firmed at mid-morning today, with Choice cuts up $0.45 and Select cuts up $1.70 per cwt. However, actual movement was just 58 loads, which was slow even for a Monday.

Friday afternoon’s USDA cold storage report showed that beef supplies in the freezer were up 10.4% from the previous month and up 14.4% from the previous year. In other words, supplies are starting to back up. Market bulls would say that product was backing up due to the West Coast port slowdown and that now we should start to see surplus supplies move. However, it will take weeks for the backlog to move, with no significant change in weekly shipments expected until April or later.

Domestically, we typically see demand start to step up over the next few weeks as retailers stock up for barbecue season. Unfortunately, forecasters call for a cool March and a cool wet April for the heart of the country, which would be expected to slow barbecue demand as well. That leaves us vulnerable near-term.

This is a critical week for the cattle market. April live cattle tested a double-bottom on the charts just below $147 early today, bouncing off of it initially and holding as of this writing. Holding that level of support is critical for building premium back into the market in the weeks to come.

Today’s kill is estimated at 104,000 head, up 5,000 from the same day last week and up 6,000 from the same day last year.

Pork

Cold weather lifts cash hogs, with added support for futures from turning chart signals and settlement of West Coast port labor dispute.

Lean hog futures turned higher last week on hopes that settlement of the West Coast port labor dispute would start pork moving once again. Follow-through buying was seen today on confirmation of a settlement, despite Friday’s USDA cold storage report showing pork back up in the freezer. It’s a futures market and traders are anticipating stronger shipments, even though we probably won’t see significant increases in movement for a number of weeks as the backlog moves through.

Product movement slowed to just 1,652 loads in the past week, down from 1,914 loads the previous week and a seven-week low. Prices show signs of stabilizing, but still have a weaker bias to them due to exports being held due to the West Coast port slowdown. The composite pork product price finished the week at a new multi-year low of $71.50 per cwt, down $0.63 on the week and down $12.88 over the past four weeks.

Movement at midday today was slow at 170 loads. However, the composite pork product price rose $0.98 to $72.48 per cwt.

Today’s cash hog market was mostly $0.50 to $1.00 higher, although southeastern Ohio was mostly steady. Cold temperatures are slowing hog movement this week, helping support higher prices. Even so, the latest CME 2-day lean hog index still dropped another $0.13 to $60.27 per cwt, down more than $8 from the lead April futures contract. The index is down $2.74 over the past week and down $28.24 per cwt over the past 10 weeks with losses on each day over that period.

Today’s slaughter is estimated at 430,000 head of hogs, up 13,000 from the previous week and up 4,000 from the same day last year.

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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