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Closing Comments

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Closing Comments

Corn

Corn prices are pressured by sinking soybean and wheat prices.

The Department of Energy reports that ethanol stocks slipped to 21.5 million barrels in the week ending February 27, versus 21.6 million the previous week and 16.6 million barrels in the same week last year. Ethanol production slipped to a four-month low of 931K barrels per day during the week, down from 947K the previous week, but still up from 894K the previous year.

The data suggests that ethanol producers utilized 98.8 million bushels of corn in the week ending February 27, down from 100.5 million the previous week, but still above the 96.3 million bushels consumed in the same week last year. Estimated corn usage to date totals 2.612 billion bushels, up 101 million or 4% from the previous year. Corn usage to date falls short of the seasonal pace needed to reach USDA’s target by August 31 by 13 million bushels, versus a shortfall of 11 million the previous week.

Ethanol prices pushed higher this morning on the ethanol data. Additional support came late after the Fed’s Beige Book confirmed declining crude oil production, sending crude oil prices higher.

In the end, corn posted losses today, but held the best of the grain and oilseed complex. Pressure came largely from big losses in the soybean and wheat markets.

December corn continues to trade within a converging wedge formation on the charts, suggesting that a major move in one direction or the other may be coming in the weeks ahead. First resistance is at $4.18, with first support at $4.08. My bias continues to be modestly to the upside, but a collapsing soybean market would add risk to the downside. The new-crop soybean/corn price ratio finally moved in the right direction today, falling from 2.40 early in the session down to 2.35:1 at the close.

Soybeans

Soybean prices continue slide as Brazilian sales increase and demand shifts south of the equator.

Soybean basis is trending lower at the Gulf as demand shifts south of the equator. It’s the seasonal change the market has anticipated, but is now occurring. Traders thought that rain delays and a truckers strike would send more business our way, but it never really materialized. There were rumors of China shopping Pacific Northwest offers, but thus far no confirmations of note. Traders holding long (bought) soybean positions are growing increasingly nervous holding those positions.

Another indicator is soymeal, with basis steady to weaker, but futures charts turning lower. Demand for protein remains strong, with DDGS exports doing well and expansion of the hog industry requiring more consumption of protein here at home. However, the active crush pace on strong margins should slowly increase the supply of meal relative to demand in the weeks ahead, but with periodic spikes along the way likely.

Unconfirmed trade chatter focused on reports that Brazilian farmers are increasing new-crop sales due to the break in the real versus the dollar on the global currency market. Other reports indicate that soybeans in southern Brazil are posting the best yields on record, although just 1% of the crop has been harvested thus far in southern areas.

November soybeans fell to two-week lows before finding support at the 35-day moving average. The contract settled near its session low, suggesting that it is vulnerable to additional weakness. The market needs to discourage expansion of soybean acres at the expense of corn, but it could do so by rallying corn prices just as easily as sinking soybean prices.

Wheat

U.S. wheat struggles to compete as the dollar surges to new 11-year highs.

Russia stated early today that it could see its 2015 grain crop top 100 million metric tons this year, largely due to a robust wheat crop. Information coming out of Russia is suspect, with reasons to question the amount of high-priced inputs that farmers will use this spring. Nonetheless, the condition of its wheat crop is pretty good as spring approaches, suggesting that it could produce a big wheat crop with plenty of exportable supplies over the coming marketing year.

The above news combined with a strong dollar to pressure wheat prices today. Additional pressure comes from cheap European supplies, with French wheat trading more than 30 cents below U.S. soft red winter wheat on the global market overnight.

My bias continues to be that wheat will chop sideways while waiting for greater evidence of improving conditions in the winter wheat belt, but the market remains vulnerable, particularly if corn were to break lower. Conditions across much of Europe and the Former Soviet Union appear to be good as the crop breaks dormancy and dry areas of China are expected to see good moisture the middle of this month, raising its crop outlook as well. Thus far, wheat bulls do not have a story.

Beef

Money surges into the beef complex, pushing some contracts the daily limit higher.

Live cattle futures have been on a roller coaster this week, seeking an area of value. They rallied Monday to close the gap with last week’s cash after the February contract went off the board, but turned lower Tuesday after running into stiff chart resistance.

However, follow-through buying early today found support at $150 on the April chart, stimulating a fresh round of buying as traders try to anticipate this week’s cash trade. Buying accelerated above the 40-day moving average, with the April contract moving the $3 daily limit higher. The contract now finds itself at an area of significant chart resistance. Market bulls will likely try to probe for buy stops above $154 tomorrow. Failure to find those stops would leave prices vulnerable, but the discount to cash leaves the door open for greater strength if they do.

Packer bids are said to be at $157 in Texas and Kansas, versus asking prices by feeders of $162 per cwt on a live basis. Most of last week’s trade took place at $158 to $160 per cwt, although some early trade took place at $156.

Tuesday’s estimated kill came in at 109,000 head, matching the previous week, but down 4,000 from the same day last year. Slaughter for the first two days of the week is estimated at 218,000 head, up 10,000 from the previous week, but down 8,000 from the same period last year.

Boxed beef movement rose to 110 loads Tuesday, up from an anemic 70 loads the previous day, but down from 123 loads the previous week. Choice cuts were at $249.61 per cwt, up $0.94 on the day, while Select cuts were down $0.17 to $245.28 per cwt. That pushed the Choice/Select spread to $4.33 per cwt, up from $3.22 the previous day and up from $1.59 the previous week. Movement at mid-morning today was routine at best at 86 loads. Choice cuts were down $0.45, while Select cuts were up $1.92 per cwt.

The latest feeder cattle cash index came in at $206.65 today, up $0.27 on the day, up $0.41 over the past two days, and near the level being traded by the lead futures contract. Sustaining this upward move is needed to confirm the break saw today in March feeder cattle above strong chart resistance at $205. Maintaining that demand at the sale barn likely necessitates cheap corn and strength in the fat cattle market in the weeks ahead.

Pork

Chart buying lifts lean hog futures, but the supply is still large.

Lean hog futures slipped to fresh two-week lows early today, before selling interest dried up as the market approached contract lows just above $63. Prices then reversed higher, trading more than a $4 range on the day. Resistance becomes more significant above $69, particularly if the product market can’t sustain gains into late-week.

Today’s cash market was mostly steady, with the exception of steady to 50 cents lower in the Illinois markets. The latest CME cash index was $66.67 per cwt, up $1.07 on the day and up $6.40 over the past seven trading days. Packer margins remain very tight at $1.35 per head.

Tuesday’s slaughter is estimated at 435,000 head, up 28,000 on the week and up 31,000 from the same day last year. Slaughter for the week to date is estimated at 867,000 head, up 30,000 from the previous week and up 68,000 from the same period last year.

Product movement rose to 447 loads Tuesday, up from 344 loads the previous day, but down from 455 loads the previous week. The composite pork product price dropped to $69.01 per cwt, down $0.66 on the day and down from $71.00 per cwt the previous week. Product movement at midday today was decent for a Wednesday at 285 loads, and at higher prices. The composite price rose $1.04 to $70.05 per cwt on the strength of belly, ham and rib prices.

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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