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Closing Comments

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Closing Comments

Corn

Corn firms on acreage concerns, despite weakness in broader commodity sector.

USDA projects that domestic ethanol consumption will fall to 45.6 billion liters by 2024, down from 50.3 billion currently. The decline is largely based on the 10% blending wall, with expectations that gasoline consumption will decline, even though it is rising this year. However, USDA also notes that the United States has already become the largest global exporter of ethanol, helping to support overall demand.

The dollar dropped hard early today before rallying back into positive territory, leaving most commodities in the red for much of the session. However, corn proved to be one of the exceptions, with traders beginning to worry about all the private estimates calling for at least a 2-million acre decline in area this year.

Gains were capped by uncertainty in the other markets, as well as modest farmer selling this week, but positive chart signals provided support. December spent much of the session battling with pivotal resistance at the 100-day moving average at $4.1712. The contract finally managed to probe above the indicator in the final minute of trade, suggesting that the level will likely be tested again overnight, and possibly into tomorrow’s session.

Individual state crop reports Monday afternoon revealed that corn planting in Texas is just 14% complete, up 3 points on the week, but down from the typical pace of 37%. Progress in Louisiana was even slower at just 1%, which is well-below the typical pace of 48% complete. The weather is a bit drier in the region this week, but delays are expected to return in the 6- to 10-day period.

December corn has its eyes on confirming the move above the 100-day moving average just above $4.17, with the top of this winter’s predominant range just above $4.20. I still think this market has the opportunity to move into the $4.50 to $4.70 area, but dollar risks and next week’s USDA report could change that. The new-crop soybean/corn price ration slipped to 2.31 to 1 today, which is its lowest level in six weeks.

Soybeans

Soybeans lose ground to corn on general commodity weakness as demand shifts south of the equator.

I’ve been warning for some time that the long-term downside risk for soybean prices is significant once traders become comfortable with this year’s growing season weather pattern. Thus far, prices have been held up by fund manager perceptions that prices have already come down a long ways, and probably have already priced the bearish fundamentals into the market.

However, that fails to acknowledge that acreage continues to expand on both sides of the equator, despite rising global surpluses. An article posted on the Wall Street Journal’s MarketWatch site highlighted those fundamentals, suggesting that speculators take their focus away from the stock market; turning instead toward shorting (selling) the soybean market once we get past spring.

The lead May soybean contract was under pressure for the bulk of today’s session, but it bounced to settle near its session high after holding above the old trend line support line off the October and January lows. The new-crop November contract settled modestly lower, but today was largely a day of consolidation within the previous day’s trading range, suggesting little chart damage with good support continuing for now while traders wait to see how the spring unfolds.

Wheat

Wheat prices tumble on rebounding dollar and improving Northern Hemisphere crop conditions.

Wheat prices posted double-digit losses at times today amid disappointment that the dollar’s recovery may have dashed hopes to see exports rebound. Additional pressure came from improving crop conditions in the Southern Plains, as well as improving moisture in previously dry areas of China and Russia.

Several key Plains’ states released weekly crop ratings Monday afternoon. Texas rated its crop 55% Good to Excellent, up 4 points on the week, while 10% rated Poor to Very Poor, down 1 point on the week. Wheat is entering the heading phase in South Texas.

Oklahoma’s crop is rated 44% G/E, unchanged on the week, while 15% is P/VP, down 1 point on the week. Kansas is 41% G/E, unchanged on the week, while 17% is P/VP, up 4 points on the week. Many Midwest states are expected to begin reporting conditions next week.

Chicago May wheat traded up to $5.3175 early in the session, which is quite fortunate. Otherwise it would have left a bearish island top on the charts. Even so, today’s close near the session low indicates that we need to pay attention to follow-up action. I still expect to see wheat well-supported over the next few weeks as traders assess possible risks ahead of the critical heading and grain fill phases amid dryness in the Plains, but prices will likely be choppy due to weak exports and a volatile dollar.

Beef

Live cattle futures shrug off cold storage data to focus on tight upfront supplies of slaughter cattle.

Monday afternoon’s USDA cold storage report showed very little increase in beef supplies in the freezer from the previous month, but those levels were still 20% higher than the previous year and at historically high levels. As such, is the glass half full or half empty?

Slaughter numbers remain quite low, but are expected to improve in the last half of April or in May. Yet, in the meantime we are seeing product demand rise as the dollar pulls back and as retailers stock up for the anticipated barbecue season kicked off by Easter weekend in about 10 days.

Live cattle futures dropped in early trade today on the bearish cold storage data, which is amplified by record pork supplies, with poultry supplies rising as well. However, prices rebounded off those lows by mid-morning as the focus began to shift back toward the immediate short-term tightness faced by the market, with April looking at the opportunity to test resistance near $165, which is where cash cattle traded in the western Plains late Friday.

Today’s kill is estimated at 108.000 head, down 2,000 from the previous week and down 10,000 from the previous year. Estimated slaughter for the first two days of the week totals 212,000 head, down 8,000 from the previous week and down 22,000 from the same period last year. This week’s slaughter could set a new low for the calendar year.

Feeder cattle futures followed a similar pattern, although with a bit more weakness in the deferred contracts due to that bearish cold storage data. The lead March contract was firm, but struggled to move above Monday’s high $217.55 amid concerns about whether the cash market can sustain gains with meat supplies building in the freezer. The latest CME cash index came in at $216.23 per cwt, up $0.63 on the day, up $3.62 over the past three days and up $3.21 over the past week.

Boxed beef movement Monday totaled 107 loads, down from 160 loads on Friday, but up slightly from 106 loads the previous week. Choice cuts rose to $245.79 per cwt, up $1.28 on the day, while Select cuts were down $0.05 to $243.23 per cwt. This firmed the Choice/Select spread to $2.56 per cwt, up from $1.23 the previous day and up from $0.20 the previous week. Movement at mid-morning today was slow at 77 loads, with Choice cuts up $1.12 and Select cuts up $1.64 per cwt.

Pork

Lean hogs face pressure from bearish USDA cold storage report, but support comes from traders reducing their risk exposure ahead of Friday’s USDA quarterly hogs and pigs report.

Lean hog futures came under pressure early today from Monday afternoon’s cold storage report, as I reported to you  yesterday. The February 28 total supplies of pork in the freezer were a record for the month, with essentially all cuts rising.

However bearish that is, especially with poultry supplies rising as well, traders remain nervous about carrying large short (sold) positions into Friday’s USDA quarterly hogs and pigs report, known for its surprises. As such, the nearby contracts were weaker on the above data and on a weaker cash market, but the lead April contract held above last week’s low of $57.775. Deferred contracts meanwhile firmed on short-covering ahead of Friday’s report.

Today’s Midwest cash market was mostly 50 cents lower, although the closely watched Iowa/Southern Minnesota market was mostly steady to 50 cents lower. The latest CME 2-day lean hog index came in at a new low of $62.29, down $0.61 on the day, down $2.99 over the past week and down $5.80 over the past consecutive 12 trading sessions of lower prices.

Today’s kill is estimated at 432,000 heads, down 2,000 from the previous week, but up 15,000 from the previous year. Week-to-date slaughter is estimated at 866,000 head, up 14,000 from the previous week and up 36,000 from the same period last year.

Product movement Monday totaled 291 loads, up from 234 loads on Friday, but down from 308 loads the previous week. The composite pork product price dropped $0.14 to $67.89 per cwt. Movement at midday today stood at a sluggish 188 loads, with the composite price a nickel higher at $67.94 per cwt.

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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