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Closing Comments

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Closing Comments

Corn

Strong shipments and chart-buying lift corn ahead of USDA’s crop report.

Exporters shipped 46.5 million bushels of corn in the week ending March 5, down from 40.5 million the previous week, but up from the five-year average for the week of 34.9 million bushels. Marketing year shipments total 778 million bushels, up 32 million or 4% from the previous year.

Exporters typically ship 48% of final corn shipments by this point in the year, whereas they had shipped 39% by this point last year. This year’s shipments to date are at 44% 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 63 million bushels, but that is down from a deficit of 74 million bushels the previous week.

Exporters shipped 2.1 million bushels of grain sorghum in the week ending March 5, down from 8.1 million the previous week and down from the five-year average for the week of 2.5 million bushels. All of the past week’s shipments went to Chinese end users.

Marketing year shipments to all destinations total 190 million bushels, up 118 million or 163% from the previous year, largely due to aggressive buying buy Chinese end users. Exporters typically ship 51% of final grain sorghum shipments by this point in the year, whereas they had shipped 34% by this point last year. However, this year’s shipments to date equal 63% of USDA’s target. As such, shipments to date exceed the seasonal pace needed to hit USDA’s target by 37 million bushels, although that is down from 40 million the previous week.

Soybean shipments are waning as the South American harvest gains momentum, leaving more capacity to focus on shipping healthy sales of corn already on the books. Farmers still are not selling in large numbers, keeping support under the broader basis market as well, although some markets are starting to soften.

December corn remains in the converging wedge formation on the chart that has confined it in recent weeks. Chart watchers warn that the crossing of the 50- and 100-day moving averages is bearish for corn, while a fundamentalist like myself would argue that December corn needs to show more leadership to the upside in the weeks ahead to garner a few more acres this spring. Odds are good we’ll see which side wins coming out of tomorrow’s USDA crop report.

Soybeans

Soybeans firm ahead of USDA’s crop report.

Exporters shipped 23 million bushels of soybeans in the week ending March 5, down from 23.9 million the previous week and down from the five-year average for the week of 29.4 million. Shipments to China accounted for just 8.6 million bushels of the past week’s total.

Marketing year shipments to all destinations total 1.563 billion bushels, up 168 million or 12% from the previous year. Exporters typically ship 74% of final soybean shipments by this point in the year, whereas they had shipped 85% by this point last year. This year they have already shipped 87% of USDA’s target. As such, shipments to date exceed the seasonal pace needed to hit USDA’s target by August 31 by 239 million bushels, although that is down from 257 million bushels the previous week.

Shipping logs shows that 82 cargo ships are lined up to load soybeans at Brazilian ports, up from 51 a week earlier. The truck strike is all but over, but it’s impact continues to be felt, with rain delays adding to the shipping problems. A tropical storm is expected to add to those delays in the days ahead at Brazil’s top ports. However, we have little evidence yet to this point that the delays have significantly added to demand for U.S. soybeans.

Meanwhile, soymeal bids continue to show active demand on the export market. Many buyers are waiting to get a better handle on shipping times before booking their needs for the month of May. That means we could see more pop in the soymeal, and therefore soybean markets, or an increase in movement of South American supplies could quickly cause prices to collapse.

First significant support for May soybeans is at $9.71, with resistance at $10.40. The underlying bias to the charts is to the upside above $9.71. November soybeans should be moving lower to discourage expansion of acreage, but the charts still hold a sideways to higher bias. The new-crop soybean/corn price ratio finished the day at 2.36, which favors soybeans considering high input costs for corn this year.

Wheat

Traders cover short positions ahead of USDA’s crop report and amid a warm dry forecast for the Plains hard red winter wheat belt.

Exporters shipped 13.8 million bushels of wheat in the week ending March 5, down from 17.7 million the previous week and down from the five-year average for the week of 21 million bushels. Marketing year shipments total 639 million bushels, down 256 million or 29% from the previous year. Shipments to date fall short of the seasonal pace needed to hit USDA’s target by May 31 by 30 million bushels, unchanged on the week.

Temperatures are expected to remain in the 60s and 70s F in the Plains hard red winter wheat belt for much of the next 10 days to two weeks, encouraging wheat to grow. However, fresh moisture for much of the belt appears to be lacking in the forecast, raising concerns about declining crop ratings. Many of the Plains states will release weekly crop ratings later this afternoon to either support or dispel these fears.

Friday’s CFTC report showed that speculative hedge fund managers held large short (sold) positions in Chicago wheat as of March 3, while they held record large net short positions in Kansas City. As such, traders were covering some of those short positions today ahead of tomorrow morning’s USDA crop report, with some end users doing some bargain-buying as well. This afternoon’s crop ratings from key states may go a long ways toward determining whether this new-found strength can be sustained longer-term.

Beef

Market bears defend their positions despite strength in the cash market.

USDA recently released export data for the meat sector for the month of January. That data showed that all beef and veal exports totaled 162.678 million pounds in January, down 49 million or 23% from the previous month and down 39 million or 19% from the previous year. Meanwhile, beef and veal imports totaled 296.541 million pounds during the month, up 9 million or 3% over the previous month and up a whopping 115 million or 64% over the same month last year.

The large import numbers help explain how packers are able to hold cash prices below November records despite tighter supplies of cattle. This has allowed packers to finely balance supply and demand, even as that demand loses some ground to cheaper alternative meats.

That balance required packers to be more aggressive than expected on Friday of last week, pushing prices up to $3 above previous week levels at $162 per cwt on a live basis and $259 per cwt on a dressed basis. Futures pushed higher early today on the strength of the cash, which continues to trade at a big premium to the board. Yet, market bears defended their positions on expectations that supplies will increase next week despite some data showing that they may not increase until May.

Friday’s slaughter was estimated at 102,000 head, matching both the previous week and the previous year, with Saturday slaughter estimated at 3,000 head. That puts the past week’s kill at 537,000 head, up 14,000 from the previous week, but down 10,000 from the first week of March last year. The past week’s slaughter was down just 1.8% from the previous year, but year-to-date slaughter remains down 6.4% to this point. Today’s kill is estimated at 110,000 head, up 1,000 from the previous week and up 4,000 from the previous year.

Overall, boxed beef movement rose slightly to 615 loads over the past week, up from 590 the previous week and up from 584 loads the previous year, but still well below where we were for much of the past year. Choice cuts finished the week at $248.48 per cwt, up $0.90 on the week and up $10.80 over the past three weeks, but the rally is slowing. Select cuts finished the week at $244.39 per cwt, down $1.18 over the past week as prices begin to turn lower. The Choice/Select spread rose $2.08 to $4.09 per cwt. Product movement at mid-morning today was routine at best at 81 loads, with Choice cuts down $0.70 and Select cuts up $0.99 per cwt.

The Feeder cattle market followed fat cattle lower, with additional pressure from higher corn prices. The latest CME cash index came in at $210.25 per cwt, up $2.59 on the day and up $4.01 per cwt over the past week.

Pork

Cash market slips lower as weather improves and roads clear for moving hogs to town.

USDA reports that exporters shipped 347.742 million pounds of pork in January, down 46 million or 12% from the previous month. January shipments were also down 94 million or 21% from the same month last year.

Product movement over the past week totaled 1,831 loads, down from 1,999 loads the previous week, but up from 1,586 loads the previous week. Movement is good, but prices suggest that the supply is still bigger than demand, as they continue to slide. The composite pork product price finished the week at $68.82 per cwt, down $1.69 on the week and down $15.56 over the past six weeks and less than a dollar above multi-year lows. Movement at midday today was sluggish at 167 loads, with the composite pork product price up 7 cents to $68.89 per cwt.

Friday’s kill was estimated at 410,000 head, down 9,000 from the previous week and down 4,000 from the previous year. An estimated Saturday kill of 104,000 puts the week’s slaughter at 2.222 million head, down 33,000 from the previous week, but up 150,000 from the same week last year.

Therein lies much of the problem. We saw cash hogs push higher through much of the week due to adverse conditions slowing the movement in the eastern Midwest and East, although prices were steady to $1 lower in the western belt where conditions were better.

However, overall year-to-date slaughter remained 2.3% above year ago levels and at higher weights. As such, overall pork production year-to-date is running nearly 3% above year ago levels. Demand for pork has been pretty good, but the supply of pork has been even larger. Today’s kill is estimated at 432,000, matching week ago levels, but up 25,000 from the same day last year.

This week’s weather is warming up and roads are clearing, allowing hogs to flow to market once again. As such, prices have a weaker tone to them. The closely watched Iowa/Southern Minnesota market was weaker last week and steady to soft today. However, eastern markets are finally able to see a steady flow of hogs, with cash prices mostly steady to 50 cents weaker, while Illinois was 50 cents to $1 lower.

The latest CME 2-day lean hog index came in at $67.92 per cwt, down $0.17 on the day, breaking a streak of 9 straight days with a higher index. Overall, the index is still up $3.43 per cwt on the week, but it appears to be turning lower once again to follow the product market lower.

April lean hogs were little changed on the day, although weakness in the deferred contracts reflected doubts that the cash market can sustain significant strength as the weather improves.

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

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