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Closing Comments

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Closing Comments

Corn

Corn futures consolidate, gaining support from surging wheat prices.

Exporters shipped 38.4 million bushels of corn in the week ending May 28, down from 39.7 million the previous week, but up from the five-year average for the week of 32.8 million bushels. The total included 2.3 million bushels of corn shipped to China, primarily through the Pacific Northwest.

Marketing year shipments to all destinations total 1.255 billion bushels, down 70 million or 5% from the previous year. Exporters typically ship72% of final corn shipments by this point in the year, whereas they had shipped 69% by this point last year. This year exporters have also shipped 69% of USDA’s target for the year. As such, shipments to date fall short of the seasonal pace needed to reach USDA’s target by August 31 by 40 million bushels, versus falling short by 43 million the previous week.

Exporters shipped 6.3 million bushels of grain sorghum in the week ending May 28, up from 4.4 million bushels the previous week and up from the five-year average for the week of 2 million bushels. Virtually all of the past week’s shipments went to Chinese end users.

Marketing year shipments to all destinations total 290 million bushels, up 155 million or 115% from the previous year’s pace. Exporters typically ship 73% of final grain sorghum shipments by this point in the year, whereas they had shipped 64% by this point last year. However, this year they have already shipped 83% of USDA’s massive target for the current year. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 34 million bushels, up from 33 million the previous week.

USDA’s monthly crush report showed that processors ground 409 million bushels of corn for fuel alcohol in April, down from 439.4 million the previous month. The decline reflects tightening margins during the period and a time when many plants took seasonal down time for maintenance. Distillers dried grains with solubles production during April slipped to 1.691K metric tons, down from 1.811K the previous month.

USDA is scheduled to release its weekly crop progress report at 3 p.m. CDT this afternoon. A Reuters’ survey of trade participants reveals expectations for it to show corn planting progress at 96% as of Sunday, up 4 points on the week and up 2 points from the five-year average pace for the week. The trade also expects USDA to show that 75% of the crop rates Good to Excellent, up 1 point on the week. The trade expectations for both planting progress and crop ratings matched Water Street’s submissions to the survey.

Corn garnered support from surging wheat prices today, allowing them to consolidate above recent lows. Some additional support appeared to come from spread trading with soybeans. The new-crop soybean/corn price ratio continues to trade around 2.44 to 1. The ratio traded down to 2.05 to 1 or lower for eight consecutive years prior to last year when the market was dealing with record tight old-crop stocks.

Soybeans

Soybeans give way to selling pressure following resolution of Argentine crusher’s union strike.

Exporters shipped just 2.7 million bushels of soybeans in the week ending May 28, down from 11.1 million the previous week and down from the five-year average for the week of 8.8 million bushels. There were no shipments to China during the week.

Marketing year soybean shipments to all destinations total 1.725 billion bushels, up 178 million or 12% from the previous year. Exporters typically ship 89% of final soybean shipments by this point in the year, whereas they had shipped 94% by this point last year. Exporters have already shipped 96% of USDA’s target in the current year. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by 126 million bushels, down from 137 million the previous week.

The trade expects this afternoon’s USDA crop progress report to show that 75% of the crop was planted as of Sunday, up from 61% the previous week, but matching the five-year average for the week. Water Street’s submission was 76% planted as of Sunday.

Soybean prices were under pressure for the bulk of the day’s session, after the crusher’s union settled for a 27.8% pay hike in Argentina. That doesn’t settle the strike problems in Argentina, but it does provide brief relief for shippers out of Argentine ports.

Soyoil prices surged to seven-month highs, continuing to garner support from Friday’s EPA release of its proposed RFS mandate levels. However, additional support came from reports of a significant freeze that did “severe” damage to canola in Manitoba and parts of Saskatchewan over the weekend. Local reports suggest that considerable replanting will be necessary, but seed supplies are tight and the canola balance sheet is already tight.

Yet, strength in the soyoil market was not enough to keep soybean prices above water amid sharply lower soymeal prices. Those prices dropped to three-year lows amid rising supplies after the crusher’s union strike was resolved, with additional weakness coming from product spreads with soyoil.

November soybeans fell to new contract lows, but found limited selling interest at that point. As such, the contract hovered around $9 for the bulk of today’s session. The lead July contract held just above last week’s low of $9.205, consolidating after May losses.

Wheat

Short-covering rally ignites wheat prices as we turn the calendar to June, still waiting for the Southern Plains harvest to begin.

Exporters shipped 13.2 million bushels of wheat in the week ending May 28, down from 16.6 million the previous week and down from the five-year average for the week of 19.2 million bushels. The total included just 53K bushels destined for China.

Marketing year shipments total 830 million bushels, down 319 million or 28% from the previous year, with just three days left in the marketing year. It will be a couple months before we have confirmation of official Census Bureau data, that will include USDA donated wheat not counted in the federal inspections data. However, comparing this year’s pace with previous year’s data would suggest that USDA’s old-crop export total fell about 6 million bushels shy of USDA’s target.

Today’s crop progress report is expected to show the winter wheat crop at 44% Good to Excellent, down 1 point on the week. The spring wheat crop is expected to rate 70% Good to Excellent, up 1 point on the week. Both trade estimates match Water Street’s submitted estimates.

The charts were bearish, but Friday’s wheat market “felt” tired after a big collapse as the dollar rallied. The dollar was higher again overnight, but selling interest had largely dried up. The fundamental excuses of quality and yield problems in the Plains were there last week as well, but the market was running out of sellers. As such, speculative hedge fund managers took profits on a portion of their massive short (sold) positions, with bargain hunters joining in as sellers stepped aside.

As such, the market has attempted yet another short-covering rally. Sustaining it will likely necessitate supportive headlines. Wheat in the Southern Plains likely has significant problems, but we won’t know until we get harvest reports. The wheat is ready for harvest, but fields are saturated and likely will not support combines until the end of the week.

Beef

Live cattle futures firm on steady cash trade.

Cash trade in the Plains finally emerged very late on Friday, mostly at $160 per cwt on a live basis. That’s relatively steady with the previous week, although in some cases it was firmer. Movement in the northern belt was at largely $252 to $253 per cwt on a dressed basis. That supported a modest bounce in the futures pit, especially considering the large discount of the board to the cash market.

June live cattle continue to face significant selling interest between $153 and $155, making rallies difficult to sustain. Traders are wary of expectations of rising supplies this month amid softening demand as retailers feature pork more in the weeks ahead.

Yet, fat cattle also garner strength from the feeder cattle market. August feeders consolidated modestly higher today amid good strength in the cash market. Demand at the sale barn is strong due to an abundance of lush pasture and cheap corn. The latest CME 7-day cash index came in today at $222.71 per cwt, up $0.05 on the day and up $1.18 on the week.

Total product movement last week slowed to just 5,771 loads, with 5,005 of those loads contracted for delivery within the next 21 days. That paralleled the drop in spot daily movement as well.

Product movement over the past week on the spot daily market totaled just 619 loads, down from 647 loads the previous week, down from 699 loads in the same week last year and an eight week low. Choice cuts finished the week at $254.99 per cwt, down $4.26 on the day, down $5.26 on the week and down $6.94 over the past two weeks. Select cuts finished the week at $243.83 per cwt, down $2.91 on the day, down $3.79 on the week and down $7.27 over the past two weeks. The Choice/Select spread finished the week at $11.16 per cwt, down $1.47 on the week.

Movement in the spot daily market was slow even for a Monday at mid-morning today at 57 loads. Choice cuts were down $0.55 to $254.44 per cwt, while Select cuts were up $0.99 to $244.82 per cwt. That dropped the Choice/Select spread to $9.62 per cwt.

Today’s kill is estimated at 114,000 head, up from just 2,000 head on the same day last week due to the Memorial Day holiday, but down 1,000 from the same period last year.

Pork

Lean hog futures firm with the cash market to start the month of June.

Today’s cash market was mostly steady to up to $1 higher as we begin the month of June. Retailers are expected to focus more on featuring pork this month, raising expectations of stronger movement in the weeks ahead. The latest CME 2-day lean hog index came in today at $82.18 per cwt, down $0.02 on the day and down $1.02 over the past five trading days.

Product movement slowed to just 1,396 loads over the past week, down from 1,466 loads the previous week and a five-month low on the week that the composite price hit a five-month high. However, the total still comes in above the 1,255 loads moved in the same week last year. The composite pork product price finished the week at $86.80 per cwt, up $2.17 on the day and up $1.22 on the week. It was the 9th consecutive week with a higher composite price, with gains over the period totaling $21.45 per cwt. However, the composite price is well below the $116.01 per cwt seen at this point last year.

Movement at midday today was slow at 165 loads. However, the composite pork product price firmed to a new 2015 high of $87.33 per cwt, up $0.53 on the day.

Today’s kill is estimated at 420,000 head of hogs, up from 2,000 on Memorial Day last week and up from 378,000 head slaughtered on the same day last year. Packer margins are estimated at $8.75 per head, but product movement needs to increase to sustain the market at these levels.

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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