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Closing Comments

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Closing Comments

Corn

Corn futures fall on bearish chart signals and talk of possible imports.

Long-range weather forecasts are much easier to make when either a strong El Nino or La Nina is driving storm tracks. However, that is not the case this year, with a lingering very weak El Nino being in place. Climatologists look to other factors in these year without strong drivers; primarily sea surface temperatures in key areas of the Pacific and Atlantic.

They look at a lot of different areas, but one of the more significant drivers appears to be sea surface temperatures off California and the Baja of California, which are currently at historically warm levels. A look back finds that the closest analog years for this set up are 1958, 1993 & 2014. We will continue to monitor this on a weekly basis, but the current bias is for growing conditions that would favor trend or better yields, although recognizing that input usage will likely be down this year, offsetting some of the weather advantage.

Slow farmer selling continues to support cash basis, resulting in U.S. rail corn being priced about 30 cents above Brazilian supplies. As such, traders continue to chatter about the possibility of Brazilian corn working its way north into Southeast feed areas, casting a bearish shadow over the corn market.

Money flowed out of the broader commodity and equity sectors today, accelerating losses in corn on follow-through selling from bearish chart signals. The May corn contract fell to its lowest level since late October after dropping below its January lows, while the December new-crop contract did the same.

December corn settled at the January low of $3.9675 today after probing down to $3.96 during the session. The drop below psychological support at $4.00 is bearish, but the contract can still redeem itself if it can re-establish itself above the January low. Nonetheless, the tone remains bearish amid chatter that Brazilian corn could work its way north, with no significant weather threats yet on the horizon for the Midwest.

Watch the Feds’ statement on monetary policy at 1 p.m. CDT Wednesday for signs of possible influence from the outside markets.

Soybeans

Soybeans probe below key chart support as South American supplies increase and crush margins decline.

Soybean demand has been aggressively shifting to South America, where last year’s bumper crop looks to be exceeded by another 8 to 12% this year, even with losses in dry and excessively wet areas. However, profitable crush margins were being maintained by lingering strong demand for soymeal as buyers waited for a dependable supply from South America.

That tightness appears to be easing now with weakness beginning to show in the soymeal basis market. Improved rail movement allows processors to meet the demand, even as supplies increase south of the equator. Widespread $10 breaks in rail basis for soymeal were seen today, suggesting that that aspect of the oilseed market is now seeing weakness as well.

As such, soybeans moved lower today, with selling spurred by weakness in soymeal, combined with sell signals on the charts. The lead May soybean contract broke below trend line support off the October and January lows on Monday, with the new-crop November contract doing so today.

The lead May soybean contract broke below trend line support off the October and January lows on Monday, while the new-crop November contract did so today. Losses accelerated in the May contract, while the November contract followed it lower today. The November contract probed ½-cent below the January low before settling at the low of $9.40.

As such, Wednesday’s action will be pivotal for determining whether bearish sentiment will continue to press prices or whether this will prove to be a near-term low. Once again, the Fed’s monetary statement due out at 1 p.m. CDT could play an influential role.

Wheat

Wheat prices give back much of Monday’s gains on broad-base selling of the commodity sector.

Wheat prices dropped across the board today amid profit taking following recent big gains. Little damage was done to the charts, which had seen big gains over the past week and a half on short covering by the funds, along with bargain buying. Monday’s gains were overdone, resulting in some back and fill action today, following the direction of much of the rest of the commodity sector, although it was concerning to see the poor close in today’s trade.

Fundamentally, traders point toward showers expected in dry areas of the Southern Plains, although amounts are not expected to be great. Some winterkill damage is showing up now in the central Plains adding to crop concerns. Kansas’ crop rates 41% Good to Excellent in data released late Monday, down 5 points on the week, while Oklahoma was 40% G/E, down 2 points on the week. Texas crop ratings rose 1 point to 51% G/E.

Significant winterkill in spotty areas can be seen in the northwestern third of Kansas, as well as southcentral Nebraska. Midday models also turned drier for the Plains over the next 10 days. However, these problems would matter a great deal more if exports were not being suppressed so much by a strong dollar. The dollar was modestly lower for much of the day today, but the action was seen as more consolidation rather than a change in direction.

The bottom line is that wheat export demand remains quite weak due to ample supplies of alternative wheat on the global market and a strong dollar that makes it difficult for U.S. wheat to compete. Believe it or not, one of the keys going forward may be tomorrow’s Fed statement; with Wall Street watching whether it removes the word “patient” from its statement on interest rates and what it replaces the word with in its six paragraph statement.

Beef

Live cattle consolidate, while Feeder cattle turn lower on more bearish long-term concerns about the meat sector.

April live cattle futures found support at $153 this morning, but struggled to sustain much of a bounce off that level. The lead three contracts posted modest gains as they try to close more of the gap with the cash market, but the deferred contracts worked lower on ideas that cheaper alternative meats will eventually undermine the market.

The strong dollar encourages the industry to import beef, while it hurts exports. As such, the trade will be watching the Fed’s revised policy statement release and following press conference closely for signs of a possible downward correction in the dollar going forward.

Today’s kill is estimated at 110,000 head, up 1,000 from the previous week, but down 8,000 from the previous year. That brings estimated week-to-date kill to 220,000 head, up 1,000 from the previous week, but down 14,000 from the same period last year. It looks like we will have another slow slaughter week, providing support for product in an attempt to reduce red ink in the packer margins.

Product movement Monday slipped to 106 loads Monday, down from 117 loads the previous day and down from 128 loads the previous week. Choice cuts firmed $1.14 to $245.26 per cwt, while Select cuts rose $0.99 to $245.06. that firmed the Choice/Select spread to $0.20 per cwt. Movement at mid-morning today was weak at 74 loads, but the Choice cuts were up $2.43 while Select cuts were up $1.24 per cwt.

The Choice/Select spread typically turns higher over the coming week as retailers begin stocking up for grilling season. Grilling demand typically rises in April and May, increasing demand for the higher cuts, which boosts demand for Choice, as well as beef in general.

Feeder cattle turned lower on weakness in the deferred fat cattle contracts. The industry remains fearful that avian flu will continue to spread in the poultry flock, resulting in heavy export restrictions that boost supplies of cheaper alternative meats. The latest CME cash index for feeder cattle came in at $213.80 per cwt, up $0.18 on the day and up $3.55 over the past week.

Pork

Lean hogs consolidate on hopes once again of a possible near-term low.

Today’s cash market was mostly steady east of the Mississippi, but Midwest markets west of the Mississippi River were largely 50 cents weaker. The CME 2-day lean hog index is $65.28 per cwt, down $0.70 on the day, down $2.24 over the past week and down $2.81 over the past seven consecutive trading days in which the index has been lower.

April lean hogs were modestly lower today as the cash market continues to drop toward the lead futures contract. However, the deferred contracts saw a bit more strength today on hopes that the market has factored in the bearish factors. The trade is optimistic that export demand will rise this summer as the backlog works through the system at West Coast ports.

Another factor that may boost export demand in the last half of this year originates in China. Expensive corn near $9 per bushel has squeezed margins so tight that hog producers are believed to have killed more than 7 million sows in recent months.

That’s expected to reduce this year’s supply of slaughter-ready hogs by more than 80 million head. Smithfield Foods is the only exporter that currently meets China’s standards of ractopamine-free pork, but we could see an increase in demand begin to slowly develop this summer if China’s economy doesn’t collapse.

Product movement totaled 308 loads Monday, up from 252 loads the previous day and up from 275 loads the previous week. The composite pork product price rose $0.88 to $68.36 per cwt, although that was still down $0.39 from the previous week. Movement at midday today was slow for a Wednesday at 218 loads, with the composite price down $0.68 to $67.68 per cwt.

Today’s kill is estimated at 434,000 head, up 6,000 from the previous week and up 18,000 from the previous year. That brings estimated week-to-date slaughter to 852,000 head, down 8,000 from the previous week, but up 48,000 head from the same period last year. That continues to put downward pressure on the product market.

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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