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Closing Comments

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Closing Comments

Corn

Corn garners a late boost from the Fed monetary statement.

The Department of Energy reported that crude oil stocks rose another 9.6 million to 458.5 million barrels in the week ending March 13. That puts crude oil stocks at their highest level for this time of year in at least 80 years of record keeping. As a result, crude oil prices continue to trend lower to new six-year lows approaching $40 per barrel.

The energy inventory report also noted that ethanol stocks dropped to 20.8 million barrels during the week, down from 21.2 million the previous week, but up from 15.3 million barrels in the same week last year. Ethanol production rose slightly to 947K barrels per day, up from 944K the previous week and up from 891K in the same week last year.

The data suggests that ethanol producers utilized 100.5 million bushels of corn in the week ending March 13, up from 100.2 million the previous week and up from 96 million in the same week last year. That brings estimated corn usage for the marketing year to date to 2.813 billion bushels, up 112 million or 4% from the previous year. Corn usage to date exceeds the seasonal pace needed to hit USDA’s target by 16 million bushels, versus 14 million the previous week.

Yet, one of the problems of the ethanol industry is the currency market. Data released this week confirmed that a cargo of Brazilian ethanol is expected to move north to Florida, made possible by the strength of the U.S. dollar relative to the weak Brazilian real. The move north is ironic, considering that Brazil is expected to need to import up to 600 million liters of U.S. ethanol to meet its higher 27% blending rate in gasoline this year.

Grain & oilseed prices consolidated in quiet trade until 1 p.m. CDT, when the Federal Reserve released its updated monetary policy statement. The Fed removed the word “patient” from its statement on interest rates as expected, but also indicated that rate hikes will likely be at a slower pace than previously believed due to moderating growth in the economy.

The dollar dropped sharply on the statement’s release, but is already well off those lows. However, money flow into the grains increased significantly on the statement’s release, with both the commodity and equity sectors seeing big gains. That allowed the corn market to post a reversal on the charts after falling to five-month lows early in the day.

The move doesn’t guarantee follow-through buying, but it opens the door for it, depending on how Wall Street digests the rest of the statement and Chair Janet Yellen’s comments in her press conference this afternoon. Gains will be limited by chatter that Brazilian corn is near to working its way into the U.S. Southeast due to cheap ocean freight rates and cheap prices there. Farm Future’s producer survey revealed expectations that farmers will plant 88.3 million acres of corn this year, down 2.3 million from the previous year.

Soybeans

Soybeans post technical bounce following recent sharp losses.

The lead May soybean contract opened near Tuesday’s low of $9.535, but turned higher after that low held. Bargain hunter buying supported the oilseed amid ongoing solid demand for soymeal and on ideas that prices had fallen too far too fast in recent days. The market got an additional boost late in the day from the Fed’s statement that triggered an increased flow of outside money into the broader commodity sector.

Today’s price action was positive, but it was not sufficient to confirm a bottom in the market. The fundamentals remain bearish, with demand shifting to new-crop South American supplies. Soybeans can firm seasonally in the weeks ahead, but we have no confirmation from the charts yet that such a rally is occurring.

The new-crop soybean/corn price ratio finished the day at 2.38, which continues to favor increased soybean acreage. That fits the results of Farm Futures’ survey of producers, revealing intentions to plant 87.3 million acres of soybeans, up 3.6 million from the previous year.

Wheat

Wheat gets boost from cheaper dollar following Fed statement release late in trading session.

Follow-through selling probed prices below Tuesday’s lows early in today’s trading session, but then prices began to firm late morning as the market consolidated ahead of the Fed’s statement on monetary policy. As such, wheat prices posted modest gains going through the noon hour.

A sharp drop in the dollar following the Fed’s statement release injected fresh buying into the wheat markets, allowing prices to post double-digit gains in Kansas City, with more modest gains in Chicago and Minneapolis.

The sharp drop in the dollar following the Fed’s statement release provided a psychological boost for wheat, encouraging additional short-covering and bargain hunter buying. Ultimately we need to see increased export sales to sustain the rally and/or fresh threats to the 2015 crop.

The dollar dropped roughly 1,400 points on the Fed statement release, before coming off that low. The question for wheat traders now is whether this is the beginning of a broader correction lower, or a temporary blip in an otherwise upward-trending market. The former would allow for a greater upward recovery in wheat prices.

Beef

Live cattle futures surge the daily limit higher on short-covering amid expectations of firmer cash trade.

The battle between the bulls and the bears heated up today in the live cattle futures market, with the bulls getting the edge. That’s a bit easier when the cash market is trading at an $8 discount to the cash, as it was on Tuesday. Packers were offering $159 per cwt on a live basis, down $2 from the bulk of last week’s trade in the Plains. Feeders though were asking up to $165 per cwt.

The balance between packer needs and available slaughter-ready cattle is a very fine line most weeks, with last week’s purchases on the light side. Of course, there’s always the question of importable supplies, considering the strong dollar that facilitates overseas meat flowing this way, as well as contracted cattle available to the market.

The good news is that open interest has been improving in recent weeks, providing a bit more volume to the market. Active short-covering on ideas that this week’s cash trade could come in above the previous week locked the lead contracts the $3 daily limit higher at times today, maintaining a positive chart outlook that suggests a possible move of the lead contract up to the $158 to $160 range.

Feeder cattle futures followed the fat cattle market higher, with the deferred contracts showing the greatest strength, locking the $4.50 daily limit higher at times. The latest cash index however is trending lower reflecting a bit more caution. The latest index came in at $212.62 per cwt, down $0.40 from the previous day and down $1.18 over the past two days, but still 4 cents higher than the previous week.

Product movement rose to 139 loads Tuesday, up from 106 loads the previous day, but down from 142 loads the previous week. Choice cuts were up $1.78 to $247.04 per cwt, while Select cuts were down $0.27 to $244.79. That firmed the Choice/Select spread to $2.25 per cwt, up from $0.20 the previous day, but down from $2.67 the previous week. Movement at mid-morning today was routine at 96 loads, with Choice cuts down $0.27, while Select cuts were up $0.96 per cwt.

Today’s kill is estimated at 107,000 head, up 4,000 from the previous week, but down 11,000 from the previous year. Week-to-date kill is estimated at 327,000 head, up 5,000 from the previous week, but down 25,000 from the same period last year.

Pork

Avian flu fears weigh again on the pork complex.

California joined the list of states confirming avian flu today. That poured cold water on any bullish embers in the hog market on ideas that it may be carving out a near-term low. Lean hog futures were one of the few commodities remaining in negative territory today, with the lead April contract posting a new low for the move of $60.425 per cwt.

Today’s cash market was mostly $0.50 weaker, although the closely watched Iowa/Southern Minnesota market was mostly steady and Indiana was $0.50 to $1.00 lower. The latest CME 2-day lean hog index came in at $64.66 per cwt, down $0.62 on the day, down $2.56 over the past week and down $3.43 per cwt over the past eight consecutive trading days.

Product movement rose to 440 loads Tuesday, up from 308 loads the previous day and up from 393 loads the previous week. The composite pork product price dropped to $68.16 per cwt, down $0.20 on the day and down $0.47 over the past week. That combined with weaker cash hog prices to push estimated packer margins to $12.20 per head. Product movement at midday today was slow for a Wednesday at 228 loads, although the composite price was up $1.15 to $69.31 per cwt.

Today’s slaughter is estimated at 436,000 head, up 3,000 from the previous week and up 23,000 from the previous year. That brings estimated week-to-date kill to 1.288 million head, down 5,000 from the previous week, but up 71,000 from the same period 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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