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Closing Comments

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Closing Comments

Corn

Soybeans drag corn prices lower amid broad-based selling of the commodity sector.

The Department of Energy reports that crude oil stocks were at 482.2 million barrels in the week ending May 15, down 2.7 million from the previous week, but still record high for the week reported. Ethanol stocks rose to 20.4 million barrels during the week, up from 20.3 million the previous week and up from 17.0 million in the same week last year. Ethanol production rose to 958K barrels per day during the week, versus 912K the previous week and 925K barrels per day in the same week last year.

The data suggests that ethanol processors used 101.7 million bushels of corn in the week ending May 15, up from 96.8 million the previous week and up from 99.6 million used in the same week last year. Estimated corn usage to date stands at 3.702 billion bushels, up 118 million or 3% from the previous year. Corn use to date falls short of the seasonal pace needed to reach USDA’s target by 3 million bushels, versus falling short by 2 million the previous week.

Corn prices held above Tuesday’s low through the night, despite pressure from the outside markets. However, soybeans pulled them lower early in today’s session, weakening the charts and encouraging fresh selling once again aided by a stronger dollar and trade perceptions of a favorable start to the growing season.

Old-crop basis is starting to soften, despite holding relatively well at many ethanol plants. Grain buyers fear an avalanche of cash sales once it becomes apparent that the crop is in the ground lacking any significant weather threats. Both old- and new-crop contracts continue to consolidate just above support at recent lows. Near-term, corn is still vulnerable to a more significant short-covering rally, but we’ll likely need to see a more substantial rally in wheat for that to happen, with relatively stable soybean prices.

Soybeans

Follow-through selling pressures soybean prices to new lows for the move amid favorable weather.

July soybeans posted a low of $9.3525 on October 1 of last year, before rallying to $10.97 on November 12. The contract slipped to $9.365 today before pulling off its lows, suggesting that traders would like to see prices consolidate at this level before making new contract lows. However, the November contract has already taken out its fall low by more than 12 cents as traders fret about rising global supplies following last week’s USDA crop report.

Talk in the trade today focused on a possible/likely test of psychological support at $9. Fundamentally, it’s not difficult to justify such a move. Supplies continue to exceed demand, with ideas that demand from China will soften in the year ahead. Yet, farmers on both sides of the equator continue to expand acreage. Furthermore, this year’s growing season appears to be off to a good start, with few threats on the horizon.

Even so, traders are reluctant to take prices too far too soon; at least until we get more of the crop planted. That has limited selling interest somewhat to this point, while broad-based selling of the commodity sector as a whole has pressured prices to this point. This market will likely see bounces from time to time, but traders still see those as selling opportunities.

Wheat

Wheat futures bounce modestly on short-covering amid talk of a warmer/drier Russia and talk of wheat sprouting in the head in Texas.

Wheat prices came under pressure early today along with much of the rest of the commodity sector as the dollar pushed higher in follow-through buying. However, prices reversed higher in short-covering on hotter, drier forecasts for southern Russia combined with worries about excessive rains in the Southern Plains. Wheat in southern Texas is ready to harvest, but persistent rains keep combines out of the fields. As a result, we’re starting to see some wheat sprout in the head, hurting both production and quality for the Southern Plains crop.

The sheer size of speculative short (sold) positions makes wheat traders quite nervous when they hear of potential production threats. There are just enough similarities to the 2010 weather pattern impacting Russia to make traders nervous, and pictures of sprouting wheat in the head in Texas add to those concerns. However, the gains seen today are relatively modest considering the size of short positions present in wheat, suggesting that the trade is hardly panicked.

Buying was limited by overall weakness across much of the commodity sector as the dollar pushed to two-week highs. Additional pressure comes from continued weakness in corn and soybeans. Chicago July wheat survived a test of support at the 50-day moving average, finishing near the high end of the session’s range, suggesting that we could see follow-through buying tomorrow, with more upside potential ahead if we can stabilize money flow into the broader commodity sector.

Beef

Live cattle futures ease lower in pre-holiday trade while waiting for direction from the cash market.

Live cattle futures were under pressure once again today, but traded largely within a relatively narrow $1 trading range for the lead June contract just above a number of moving indicators that have converged just below $151. Pressure comes from the lingering skepticism that has plagued the cattle market over the past year, aided by talk of lighter slaughter schedules next week due to the Memorial Day holiday on Monday when many plants will be closed. There also continues to be chatter about increasing supplies and seasonal tendencies for weaker cash and product prices in June.

However, support comes from the large discount of the futures to the cash already priced into the market. Added support comes from the resiliency of the cash market, with this week’s dynamics setting up similar to last week’s. Packers are said to be offering $157 per cwt on a live basis in the Plains, while feeders ask for $163, which is very similar to this time last week. Last week’s traded ended up at $160 to mostly $161 per cwt on a live basis.

Additional support came from fresh record highs for Choice cuts in the product market. Boxed beef movement on the spot daily market Tuesday totaled 115 loads, up from 99 loads on Monday, but down from 161 loads the previous week. Choice cuts moved for a record high $265.59 per cwt, up $2.67 on the day, while Select cuts were priced at $251.03, up $0.61 on the day. That put the Choice/Select spread at a five-month high of $14.56 per cwt, up from $12.50 the previous day and up from $13.21 the previous week. Movement at mid-morning today was solid at 104 loads, with Choice cuts at a new record of $265.80 per cwt, up $.21 on the day, while Select cuts were $252.32 per cwt, up $1.29 on the day.

Today’s kill is estimated at 112,000 head, matching the previous week, but down 6,000 head from the previous year. Week-to-date kill is pegged at 340,000 head of cattle, up 1,000 from the previous week, but down 15,000 from the same period last year.

Feeder cattle futures came under greater pressure after failing to take out overhead resistance on the charts amid weakness in the fat cattle market. August feeder failed to take out resistance at $220 late last week, resulting in weaker prices this week. However, chart support just above $215 continues to hold. The latest CME 7-day cash index came in at $219.83 per cwt, up $0.28 on the day and up $0.57 on the week.

Traders will be watching the aggressiveness of retailers to restock their shelves next week. Temperatures will be warming through the holiday weekend to encourage active grilling across much of the eastern half of the country. Fed supplies are expected to rise seasonally as we turn the calendar to June, but declining cow slaughter should tighten supplies of ground beef, which have been a leader for demand over much of the past year. The fine art of keeping supply and demand in balance will continue to create tensions in the cattle market for some time.

Pork

Lean hog futures firm on encouraging chart signals and overall good fundamental support, even though near-term cash prices are soft ahead of the holiday.

Lean hog futures traded both sides of unchanged with an upward bias today, despite a softer cash market. The lead June contract bounced off support at the 100-day moving average Tuesday, spurring some follow-through buying today. However, buying was limited by near-term weakness in the cash market as packers talked down the market on a lighter slaughter schedule for next week due to the Memorial Day holiday on Monday.

Today’s cash market was mostly steady to 50 cents weaker, although Illinois markets were steady to $1 lower. The latest CME 2-day cash lean hog index came in at $82.57 per cwt, up $0.51 on the day, up $3.48 on the week and up $22.48 over the past 31 consecutive trading days.

Product prices continue to firm, keeping us on pace for the eighth consecutive week of gains. However, volume continues to pull back in reaction to the higher prices. Movement on Tuesday was 330 loads, up from 220 loads the previous day, but down from 335 loads the previous week. The composite pork product price was a calendar-year high of $86.55 per cwt, up $2.16 on the day and up $2.88 over the past week. Movement at midday today was routine for a Wednesday at 240 loads, with the composite price slipping $0.48 to $86.07 per cwt.

Today’s kill is estimated at 423,000 head of hogs, up 5,000 from the previous week and up 18,000 from the previous year. Week-to-date slaughter is pegged at 1.272 million head, up 22,000 from the previous week and up 75,000 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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