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Closing Comments

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Closing Comments

Corn

Corn futures fall through chart support as fund managers short (sell) commodities.

Exporters shipped a four-week high 43.3 million bushels of corn in the week ending June 11, up from 29.5 million the previous week and above the five-year average for the week of 28.8 million bushels. Shipments to China during the week totaled just 0.1 million bushels.

Marketing year shipments to all destinations total 1.329 billion bushels, down 88 million or 6% from the previous year. Exporters typically ship 75% of final corn shipments by this point in the year, whereas they had shipped 74% the previous year. Thus far this year exporters have shipped 73% 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 32 million bushels, versus being short by 41 million the previous week.

Exporters shipped just 0.4 million bushels of grain sorghum in the week ending June 11, down from 2.1 million the previous week and down from the five-year average for the week of 1.1 million bushels shipped. No grain sorghum was inspected for shipment to China during the week, with the above-mentioned shipment going to Japan.

Marketing year shipments total 292 million bushels, up 154 million or 112% from the previous year. Exporters typically ship 75% of final grain sorghum shipments by this point, whereas they had shipped 65% by this point last year. However, this year they have already shipped 84% of USDA’s target for the year. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by 30 million bushels, although that is down from 32 million the previous week.

Last week I wrote about China slashing its corn support price by 10% in order to increase local end user use of its high-priced domestic reserves while trying to discourage farmers from planting as much corn after stockpiles rose to more than 4.7 billion bushels. China has now followed that up with another increase in subsidies for processors in its largest corn-producing region to $1.64 per bushel at current exchange rates. It had doubled the subsidy earlier this spring, but just doubled it again. The bottom line is that Chinese officials appear to be serious about encouraging the use of domestic corn versus using imported corn and grain sorghum.

July corn matched last fall’s contract low, while the new-crop December contract dropped through it, and in fact finished the day below it. I believe that corn would have held the low if not for the outside market influences, but they were there and it didn’t. Worries over Greece hurt the commodity and equity markets throughout the day after talks broke down over the weekend. That amplified losses in the corn pit amid trade expectations that this afternoon’s USDA weekly crop progress report will show crop ratings unchanged at 74% Good to Excellent.

Soybeans

Soybeans bounce back from early-day losses on strong upfront demand; planting delays.

Exporters shipped 8.3 million bushels of soybeans in the week ending June 11, up from 8.0 million the previous week and up from the five-year average for the week of 7.6 million bushels. No soybeans were inspected for shipment to China during the week.

Marketing year shipments total 1.742 billion bushels, up 182 million or 12% from the previous year. Exporters typically ship 90% of final soybean shipments by this point in the year, whereas they had shipped 95% by this point last year. This year, exporters have shipped 96% of USDA’s target thus far. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by 110 million bushels, down from 114 million the previous week.

The National Oilseed Processors Association reports that its members crushed 148.416 million bushels of soybeans in the month of May, beating the previous record for the month set in 2008 of 144.002 million bushels. The average trade estimate had been 147.299 million bushels, with my submitted estimated at 147.195 million bushels.

The May estimate brings total crush for the soybean marketing year to 1.356 billion bushels, up 50.6 million from the previous year. Crush to date exceeds the seasonal pace needed to reach USDA’s target by August 31 by 23 million bushels, up from 16 million the previous month.

Soyoil stocks came in at 1.578 billion pounds, up from 1.441 billion the previous month. Larger crush and larger soyoil stocks caused both soymeal and soyoil prices to drop following the report’s release. That added to the weakness for traders worried about burgeoning soybean supplies.

November soybeans dropped to a penny below the old contract low, but then began to firm on ideas that the market had gone too low too soon. The NOPA crush report pulled the rug out from under that rally, but prices held above the previous low and began to firm once again, virtually erasing its session losses ahead of the close.

That’s a positive sign in a market facing widespread fund selling amid Greece concerns and greenhouse weather conditions. The trade expects this afternoon’s USDA crop progress report to show that 69% of the crop is rated Good to Excellent, unchanged on the week. However, the bigger focus will likely be on the planting progress ahead of USDA’s June 30th acreage report. A Reuters’ survey of trade participants revealed expectations that USDA will peg progress as of June 14 at 86%, up from 79% the previous week.

Wheat

Wheat prices plummet on a stronger dollar amid weak export demand.

Exporters shipped 13.9 million bushels of wheat in the week ending June 11, up from 11.5 million the previous week, but down from the five-year average for the week of 20 million bushels. No wheat was shipped to China during the week, but there were 1.2 million bushels of U.S. wheat shipped out of the Gulf to Brazil.

Marketing year shipments total 19.4 million bushels, down 12.7 million or 40% from the previous year, but remember that the new marketing year just began on June 1. Exporters typically ship 3% of final wheat shipments by this point in the season, whereas they had shipped 4% by this point last year. Thus far this year they have shipped 2%. As such, shipments to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 6 million bushels, versus being short by 5 million the previous week.

The firmer dollar and larger sell-off in the commodity and equity sectors allowed traders to focus on sluggish export demand and better-than-feared wheat quality in the Southern Plains. Buyers stepped aside, leaving an air-bubble beneath the market and prices plummeted through it. Weather conditions are improving in Europe, but rains will likely remain quite limited in South Russia and the Canadian Prairies, but that doesn’t matter to traders right now when the focus is on 800+ million surplus bushels.

Beef

Live cattle futures bounce following last week’s big drop. Feeder cattle firm on cheaper corn prices.

Live cattle futures tumbled to close out last week as the cash trade came in at $152 to $155 per cwt on a live basis; mostly near $153. It was a poor finish for the week on the charts, but then again the August contract has several layers of support just below it at $149.50 to $150 per cwt. As such, the contract consolidated just above Friday’s lows for the bulk of today’s trade while waiting to see how this week’s cash trade plays out.

Last week’s slaughter came in at 542,000 head, with this trade week’s expectations that we will keep the chains slow at around 550,000 head. Thus far the slowdown has stabilized product price; likely enough to put the packer back in the black, but it has not been enough to push product prices significantly higher yet to this point.

Product movement over the past week on the spot daily market totaled 704 loads, down 199 or 22% from the previous week and down from 867 loads in the same week last year. Total load movement data won’t be available until late Monday, but movement in the week ending June 8 rose to 6,894 loads, up from 5,771 loads the previous week. That covers the period when export demand rose, but spot daily movement would suggest that the past week’s volume may have dropped once again.

Choice cuts finished the week at $245.72 per cwt, up $1.07 on the week, but down roughly $20 from last month’s record high. Select cuts finished the week at $240.42 per cwt, up $2.85 on the week. That put the Choice/Select spread at a two-month low of $5.30 per cwt, down $1.78 on the week and down $7.33 over the past three weeks.

Boxed beef movement on the spot daily market at mid-morning today remained sluggish at 58 loads. Choice cuts were up $0.38 to $246.10 per cwt, while Select cuts were down a penny to $240.41 per cwt. That dropped the Choice/Select spread to $5.69 per cwt.

Today’s kill is pegged at 111,000 head of cattle, down 1,000 from the previous week and down 2,000 from the previous year.

August feeder cattle bounced off Friday’s low once it became apparent that fat cattle were able to hold key support. Cheap corn prices though added a bit more support, allowing a bit larger rebound in feeder cattle futures. The August contract is battling to hold support at $222 per cwt. Today’s 7-day feeder cattle cash index came in at $225.86 per cwt, down $0.54 on the day and down $0.07 on the week.

Pork

Losses continue in the hog complex, but prices come well off their lows ahead of the close.

Selling continued in the lean hog futures market as the cash market continues to leak lower. The lead July contract traded down to $76.025 this morning before finding buying interest, but the deferred contracts saw even greater weakness, even though they were already trading at a substantial discount. Even so, prices came well off their lows, firming into the close, suggesting that we may see some profit taking following recent losses in the days ahead.

The market is oversold and due for a bounce, with USDA’s quarterly hogs and pigs report coming up a week from Friday. The market is pricing in bearish expectations that USDA will report that farrowings did not slow as expected in the March report data, but some profit taking could give us a lift ahead of the report since we’ve come down so far so fast.

Today’s cash market was again steady to 50 cents weaker, which has been a common theme this month, although they were up to $1 lower in Illinois. The latest 2-day cash index came in today at $81.67 per cwt, down $0.24 on the day and down $0.80 over the past six consecutive trading days. Today’s kill is pegged at 424,000 head of hogs, up 2,000 from the previous week and up 46,000 from the previous year.

Product movement over the past week dropped to 1,477 loads, down from 1,633 loads the previous week and down from 1,584 loads the previous year. The composite pork product price slipped to $84.86 per cwt, down $1.64 on the day, down $0.70 on the week and down $1.94 on the past two weeks. The composite price is still very close to the 2015 high of $87.37 set early this month, but down significantly from $121.68 seen at this point a year ago. The composite pork product price firmed to $85.28 at midday today, up $0.42 from Friday, largely due to strong demand for ribs.

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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