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Closing Comments

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Closing Comments

Corn

Exporters sold 26 million bushels of corn in the week ending September 11, up from 22.2 million the previous week and up from the five-year average for the week of 20.9 million. The data covers the period that is just 11 days into the new 2014-15 marketing year, but sales to date already total 513 million bushels. That’s down from 520 million bushels the previous year by this point. As such, sales to date fall short of the seasonal pace needed to reach USDA’s target by 3 million bushels, unchanged from the previous week.

More impressive were the grain sorghum sales. Exporters sold 13.1 million bushels of U.S. grain sorghum in the week ending September 11, all of it going to China, up from 8.2 million the previous week and just shy of a record weekly total. Marketing year sales 11 days into the new 2014-15 marketing year already total 88.8 million bushels or 44% of USDA’s target for the entire year.

Chinese end users are hungry for feed grain. They are buying U.S. grain sorghum because it is cheaper than the $9-$10 corn available in China and U.S. grain sorghum doesn’t have GMO or import quota problems at Chinese ports. Chinese officials are reportedly trying to find some way to justify blocking the grain sorghum imports, so end users are likely extending coverage before officials figure out a way to close the door.

December corn trended lower throughout the bulk of today’s trading session in generally quiet trade. Harvest reports continue to make their way to Chicago, covering a broader area of the Midwest. While there are exceptions, the bulk of those reports have been quite impressive. As such, December corn finished the day just above its contract low of $3.3575, suggesting that we may see a test of it ahead of the weekend.

Soybeans

Exporters sold 53.9 million bushels of soybeans in the week ending September 11, up from 36.2 million the previous week and above the five-year average for the week of 19.8 million. The weekly total included 20.1 million bushels sold to China, with another 17.2 million bushels of soybeans sold to “unknown destinations,” which will be presumed to be China.

Marketing year sales to date to all destinations total 936 million bushels, up 95 million or 7% from the previous year. Exporters have typically sold 36% of final soybean shipments by this early date, whereas last year’s pace was at 51% by this point. However, they have already sold 55% of USDA’s target for the current year, suggesting that the target needs to go up. Sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 327 million bushels, versus 303 million the previous week.

USDA’s daily export reporting system today included another sale of 4.0 million bushels of soybeans to China. We will likely continue to see China be an aggressive buyer of U.S. soybeans over the next several months.

Basis bids are tumbling across many areas of the soybean belt as new-crop supplies begin to make their way to market. The harvest pace is picking up and the yields are impressive. It doesn’t take many new-crop bushels to buy processors more time until the harvest gains significant momentum.

November soybeans followed a similar pattern to corn today, for similar reasons. Demand is strong, but supply appears to be much larger. The trade won’t likely focus on demand until it has a handle on the size of the crop. The lead contract finished the day just above the contract low of $9.695.

Wheat

Exporters sold 11.6 million bushels of wheat in the week ending September 11, down from 25.4 million the previous week and down from the five-year average for the week of 17.9 million bushels. Hard red spring wheat sales of 5.9 million bushels topped the various classes of wheat for demand.

Marketing year sales of all wheat to date total 457 million bushels, down 170 million or 27% from the previous year. Yet, USDA’s export target for the year is at five-year lows. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by May 31 by 30 million bushels, although that is down from 37 million the previous week.

Prices slipped to new contract lows at all three exchanges today as money continued to flow out of the broader commodity complex amid expectations that the dollar will be strong for quite some time. U.S. wheat is becoming more competitive, but competing supplies continue to increase, with good rains expected in the days ahead in the Southern Plains winter wheat belt. The National Weather Service’s fall outlook also came out, calling for the Southern Plains to remain wet beyond this weekend’s event, suggesting good yield potential for 2015.

Beef

Beef exports were strong in the week ending September 11, despite a strong dollar that was trading near 14-month highs at the time. Beef sales in the week totaled 15.7K metric tons, up from 14.0K the previous week and a seven-week high. Actual shipments were solid at 14.8K tons, which was a six-week high.

Futures traders remain fearful of beef’s ability to compete at the retail counter with pork next month, when retailers tend to feature pork. The packers are doing what they can to talk the market down, with offers dropping to $155 per cwt on a live basis in Kansas today, down $6 to $7 from prices paid last week. Packers don’t want to give up market share, so they still want the cattle, but they will do all they can to cut their costs at a time when the retail buyer is balking at prices. Packer margins are estimated at losses of $66.70 per head today, down from losses of $55.25 yesterday and profits of $1.70 per head a week ago.

Product movement was good Wednesday at 237 loads, but at lower prices. Choice cuts were down $1.73 to $245.91 per cwt, while Select cuts were down $0.64 to $232.32 per cwt. This dropped the Choice/Select spread to $13.59 per cwt, down from $14.68 the previous day, but just above $13.28 the previous week. Boxed beef movement at mid-morning today was good at 125 loads, but Choice cuts were down another $0.76, while Select cuts were up $0.49 per cwt as buyers drop down the quality ladder again.

Feeder cattle futures pulled back amid the bearishness of the meat complex today. The fundamentals are still strong, but traders worried that weaker fat cattle prices may be spell problems for the future. The latest CME cash index came in at a record $230.20 per cwt, up $0.15 on the day. It was the 7th straight trading day with a new record high and the 14th higher day in a row, with gains over that period totaling $12.85 per cwt.

October live cattle appear to be establishing a sideways trading range largely between $155 and $160 while waiting for greater clarity from the cash market, as well as ahead of Friday’s USDA cattle-on-feed report. The trade expects that report to show September 1 on-feed numbers at 98.8% of year ago levels, with August placements at 95.5% and August marketings at 91.5% of the previous year. October feeder cattle are consolidating between $225 and $230, which is just below record highs.

Pork

There’s been no shortage of pork on the market over the past several months, despite the PED virus. Heavy carcass weights have provided more than enough pork to make up for the lack of numbers to this point. However, carcass weights are trending lower, relative to the previous year and export demand is picking up, despite a strong dollar.

Net sales in the week ending September 11 totaled 22.9K metric tons, up from 15.8K the previous week and roughly twice the pace we’ve seen for much of the year. Actual shipments during the week totaled 17.8K tons, which was the third highest weekly total of the year.

Packer margins are good at better than $6 per head, but they see no reason to chase this market. Supplies are adequate, with today’s cash market mostly steady; up to 50 cents higher in a location or two. The latest CME 2-day lean hog index was up $0.93 to $104.15. It was the 9th straight trading day with a higher index, with gains over that period totaling $8.70 per cwt. However, the cash market is really under-performing expectations, giving the bulls cold feet in the futures market.

Product movement rose to 400 loads Wednesday, up from 371 loads the previous day, but down from 482 loads the previous week. It was not a very impressive total for a Wednesday. The composite product price was down $0.64 to $110.11 per cwt. It was just the 2nd day of the past 8 that the composite price was lower on the day. Movement at midday today as sluggish at 158 loads, although the composite price was up $1.52 to $111.63 per cwt.

That higher product price helped support a late-day rally in lean hog futures. Stronger product prices help boost packer margins, providing more incentive for packers to push hogs through the plant. Furthermore, demand is expected to improve as we move closer to National Pork Month in October.

Additional support came after selling dried up after exceeding the 50% retracement level of the late summer rally, suggesting an area of value ahead of USDA’s September 26 quarterly hogs and pigs report. First significant support now comes near $91 for the December contract, with resistance at $99.

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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