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Closing Comments

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Closing Comments

Corn

Corn futures break support as dollar rises and wheat prices collapse.

Exporters shipped 39.6 million bushels of corn in the week ending May 21, down from 43.7 million the previous week, but up from the five-year average for the week of 34.1 million. Corn shipments to China during the week totaled just 0.035 million bushels.

Marketing year shipments to all destinations total 1.217 billion bushels, down 70 million or 5% from the previous year’s pace. Exporters typically ship 70% of final corn shipments by this point in the year, whereas they had shipped 67% by this point last year. Thus far this year they have shipped 67% of USDA’s target for the year. As such, shipments to date fall short of the seasonal pace to hit USDA’s target by August 31 by 43 million bushels, versus being short by 46 million the previous week.

Exporters shipped 4.4 million bushels of grain sorghum in the week ending May 21, down from 5.5 million the previous week, but up from the five-year average for the week of 2.4 million bushels. Virtually all of the past week’s shipments went to Chinese end users.

Marketing year to all destinations total 284 million bushels, up 153 million or 118% from the previous year. Exporters typically ship 72% of final grain sorghum shipments by this point in the year, whereas they had shipped 61% by this point last year. However, this year they have already shipped 81% of USDA’s large target for the year. As such, grain sorghum shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 33 million bushels, versus 34 million the previous week.

USDA is scheduled to release its weekly crop progress report at 3 p.m. CDT today, delayed by one day due to the Memorial Day holiday. The trade expects USDA to report that 93% of the crop is planted, up from 85% the previous week and above the five-year average for the week of 88%. The trade expects USDA’s first corn condition ratings of the season to put the crop at 75% Good to Excellent. That expectation comes after traders in Chicago woke up to warm humid greenhouse conditions this morning.

Strength in the dollar and a corresponding collapse in the wheat market pulled December corn prices below support at the bottom of a bear flag formation on the charts. That emboldened market bears wanting to defend their short positions. Selling was limited somewhat by the earliness of the growing season, with many potential threats still ahead, but market sentiment is clearly bearish.

December corn has key support now at today’s low of $3.72. That matches closely to lows set on May 5, and again on May 12. Unfortunately, triple bottoms typically do not hold, suggesting more weakness is possible in the days ahead.

Soybeans

Soybean futures tried to rally on Argentine strike concerns, but could not hold the gains on expectations of burgeoning supplies.

Exporters shipped 10.7 million bushels of soybeans in the week ending May 21, down from 12.5 million the previous week, but up from the five-year average for the week of 6.7 million bushels. Shipments to China during the week totaled zero bushels, as the world’s largest importer continues to focus on new-crop supplies from south of the equator.

Marketing year shipments to all destinations total 1.722 billion bushels, up 180 million or 12% from the previous year. Exporters typically ship 88% of final soybean shipments by this point in the year, whereas they had shipped 94% by this point last year. However, this year they have already shipped 96% of USDA’s target for the year. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 137 million bushels, down from 140 million the previous week.

The trade expects this afternoon’s USDA crop progress report to show that 61% of the nation’s crop has been planted as of Sunday, up from 45% the previous week and up from the five-year average for the week of 55%. That would be impressive, considering the wet weather pattern that the Midwest is experiencing overall.

Upfront crush margins continued to spike today, suggesting that Argentine strikes are sending demand for soymeal and soyoil north to our shores. The crusher’s union remains in talks, but is expected to reach an agreement later this week. However, one of the nation’s largest unions that controls much of the key port area of San Lorenzo said that it will strike beginning June 1 if a labor agreement isn’t reached. Furthermore, a national strike has been scheduled for the second week of June, disrupting shipments.

Yet, production estimates continue to rise for South America, with the U.S. growing season off to a good start as well. That made it difficult to find traders willing to build long (bought) positions in soybeans, particularly on a day when money was flowing out of the commodity sector, including corn and wheat.

Wheat

Wheat futures collapse amid a surging dollar and soft demand.

Exporters shipped 15.4 million bushels of wheat in the week ending May 21, up from 12.0 million the previous week, but down from the five-year average for the week of 23.5 million bushels. Marketing year shipments total 815 million bushels, although this does not include all USDA donations.

Shipments to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 7 million bushels, suggesting that USDA has slightly over-estimated this year’s demand, even though its export target is a 12-year low.

Russia’s Ag Ministry proposes a 1 ruble export tax for wheat priced up to 11,000 rubles ($218.20 per metric ton) starting July 1. Exporters would pay a duty equivalent to half the price minus 5,500 rubles when the price exceeds 11,000 rubles. The move is not a surprise for the trade. The bottom line is that Russia is expected to have a lot of wheat with a limited infrastructure for storing it, meaning that it will need to make its way to ports for exports.

The trade expects this afternoon’s USDA crop progress report to show that virtually all of the spring wheat crop is planted as of Sunday at 98%, up from the five-year average for the week of 79%. In fact, the trade expects the spring wheat crop to be rated 67% Good to Excellent. On the other hand, the trade expects USDA to show the winter wheat crop at 44% Good to Excellent, down 1 point on the week due to excessive rains in the Southern Plains.

Wheat had been garnering support from those excessive rains that are beginning to impact quality while stimulating sprouting in the head in the Southern Plains. Weeds will be the next problem in the wheat that is short due to drought conditions earlier in the season. Additional support came from a warm dry pattern in South Russia.

However, all of that was quickly forgotten by the trade when the dollar surged to new one-month highs earlier today. Worries about Greek contagion pressured the euro, resulting in a stronger dollar. Additional strength came from comments made Friday by Fed Chair Janet Yellen, stating that she fully expects a rate hike this year with gradual tightening beyond that point.

Selling in the wheat pit eventually pulled prices below levels of chart support, tripping sell stops and accelerating losses. The market eventually began to feed on itself, hitting an air bubble beneath the market where buyers stepped aside.

Ironically, wheat futures still have support beneath them. Chicago July wheat has critical support at $4.87, while Kansas City July has support at $5.15. Holding these levels would still leave the door open for a return of short-covering, but that will likely be difficult if the dollar continues to surge.

Beef

Live cattle futures consolidate while waiting for cash to break.

Live cattle futures tried to bounce higher early in today’s trading session as traders monitored the aggressiveness, or lack thereof, of retailers restocking their shelves following the Memorial Day holiday. June futures bumped up against resistance at $153, although support currently sits just below the market amid stacked moving averages. Upside momentum is waning, but traders are reluctant to push the market sharply lower until they see when (not if in their opinion) the cash market breaks.

Last week’s cash trade saw good strength in Kansas, but weaker prices further north. Look for that trend to continue, as the feeding belt has been shifting to the north in recent years. Supplies tend to increase beyond this point, which tends to make unprotected feeders nervous and quicker to accept lower offers from packers.

This year’s supplies are still below year ago levels, but the consumer has more options. As such, the trade expects lower product, as well as cash prices, than the previous summer. Time will tell whether they are right, but so far they haven’t been given a sufficient reason to change their mind.

Packer margins slipped to an estimated $8.70 per head, down from a near-term high of $34.50 last week. Choice cuts hit a record high of $265.59 on Tuesday, before breaking sharply the rest of the week, dragging those packer margins lower. Prices are firming to start the week, but the expectation is that prices will trend lower into June as retailers focus on featuring pork. Choice cuts firmed $0.25 to $260.50 at mid-morning today, while Select cuts were up $1.13 to $248.75. Overall movement was routine for a Monday at 68 loads, even though today is Tuesday.

Monday’s slaughter was just 2,000 head, down from 114,000 the previous week and down from 4,000 the previous year. Today’s kill is pegged at 115,000 head, up 1,000 on the week, but down 6,000 from the previous year. Week-to-date kill is estimated at 117,000 head, down 111,000 from the previous week and down 8,000 from the previous year.

Feeder cattle futures held better than live cattle futures as demand remains steady at the sale barn for light-weight cattle. USDA’s cattle-on-feed report Friday confirmed this year’s trend of light-weight cattle being held on lush pasture longer before going to the feed yard, reducing their breakeven cost in the feed yard. As such, August feeder cattle pushed to their highest level since April 6. The latest 7-day cash index came in at $221.53 per cwt, up $1.23 on the day and up $1.98 over the past week.

Pork

Lean hog futures slip on declining demand on a holiday shortened slaughter schedule.

Lean hog futures slipped lower today on softening domestic and export demand for pork. This market had gotten ahead of itself, with prices rising too fast for the consumer to adjust. Demand should improve in June as the retailer features pork, allowing the market to build a base under the market once again. However, a larger correction lower may be needed in the near-term. For now, June lean hogs found support at the 20-day moving average at $83.

Today’s cash market was again steady to $1 lower. The latest CME 2-day cash index came in at $83.12 per cwt, down $0.08 on the day, but up $1.45 on the week. The drop in the cash index was the first in seven weeks, during which time it rallied $23.62 per cwt.

Near-term, product demand remains soft. Movement at midday today was sluggish at 160 loads. The composite pork product price however did firm to $86.65 per cwt, up $1.07 from Friday.

Monday’s kill was estimated at 2,000 head, down from 423,000 the previous week and down from 3,000 on Memorial Day last year. Today’s slaughter is pegged at 431,000 head, up 5,000 from the previous week and up 12,000 from the previous year. Week-to-date slaughter is pegged at 433,000 head, down 416,000 from the previous week, but up 11,000 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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