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Closing Comments

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Closing Comments

Corn

Feed grain prices push higher on soybean strength.

Exporters shipped 43.5 million bushels of corn in the week ending June 18, down slightly from 43.6 million the previous week, but up from the five-year average for the week of 29.6 million bushels. The past week’s shipments total included 2.4 million bushels of corn shipped to China.

Marketing year shipments to all destinations total 1.373 billion bushels, down 83 million or 6% from the previous year. Exporters typically ship 77% of final corn shipments by this point in the year, whereas they had shipped 76% by this point last year. USDA data suggests that exporters have shipped 75% of USDA’s target thus far this year. However, official Census Bureau data suggests that USDA is under-reporting shipments. Adjusting for this, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 39 million bushels, up from 28 million the previous week.

Exporters shipped 0.04 million bushels of grain sorghum in the week ending June 18; all of it going to Chinese end users. The past week’s small shipments were down from 0.4 million bushels shipped the previous week and were down from the five-year average for the week of 1.3 million bushels.

Marketing year shipments of grain sorghum total 292 million bushels, up 152 million or 108% from the previous year. Exporters typically ship 76% of final grain sorghum shipments by this point in the year, whereas they had shipped 66% by this point last year. Thus far this year they have already shipped 84% of USDA’s target. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 27 million bushels, but that is down from 30 million the previous week.

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 that it will show that 72% of the crop is rated Good to Excellent, down 1 point from the previous week. That is also consistent with my submission to the Reuters’ survey.

Storms pushed across the northern belt today from the Dakotas to Michigan. High winds topping 90 miles per hour flattened a number of corn fields across key production areas in Iowa and elsewhere. Yet, most of today’s strength was found in the soybean market.

Friday’s CFTC report showed that speculative hedge fund managers held historically large net short positions of 931 million bushels of corn. They get nervous holding those large positions when soybeans rally as sharply as they have in recent days. As such, today’s strength eventually became too much for the corn market, triggering short-covering and bargain-hunter buying. Strength in the wheat market added support as well. We could see follow-through strength in corn near-term, with traders crediting worries about the crop, but frankly corn likely needs continued help from the other markets near-term.

Long-term, denitrification and ponding have likely taken high yields off the table for this year’s U.S. corn crop. Some areas will see strong production, but some core areas, including parts of Illinois and Iowa, will not. As such, I’m now looking for a below-trend yield, although not a short-crop yet at this point. However, USDA crop ratings will likely keep crop models, including my own, above trend until we get to the end of the growing season.

Soybeans

Follow-through buying pushes soybeans sharply higher on positive charts as old-crop supplies tighten.

Exporters shipped 6.5 million bushels of soybeans in the week ending June 18, down from 8.3 million the previous week, but up slightly from the five-year average for the week of 6.4 million bushels. Once again, there were no notable supplies of U.S. soybeans shipped to China during the week.

Marketing year shipments to all destinations total 1.749 billion bushels, up 186 million or 12% from the previous year. Exporters typically ship 91% of final shipments by this point in the year, whereas they had shipped 95% by this point last year. Thus far this year they have shipped 97% of USDA’s target. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by 110 million bushels, but that is down from 117 million the previous week.

Argentina’s Rosario grain hub faces a possible strike by workers at midnight tonight. Talks are currently taking place that could avert a strike, but the situation could threaten soybean and soymeal shipments from that country.

The potential for a strike was credited for strength in today’s soybean market, but I believe it was more indirect than direct. Some support can also be credited from expectations of declining crop ratings and ongoing planting delays.

However, the larger factor may be that major grain trading firms are doing the math. Evidence is mounting ahead of USDA’s quarterly stocks report that last year’s crop was over-stated. Furthermore, strong crush margins, related in part to Argentina’s problems, have maintained strong demand for soymeal even though DDGS prices are breaking lower. Profitable crush margins keep demand for soybeans strong.

The combination could draw this year’s ending soybean stocks well below 300 million bushels. That doesn’t mean that we run out of soybeans this year, but it does provide good cover for fund managers wanting to put an early-summer run in the soybean market. I believe that’s what we’re seeing play out in the oilseed market.

The trade expects this afternoon’s USDA crop progress report to show that 92% of the crop was planted as of Sunday. Expectations are also that USDA will report 65% of the crop rates Good to Excellent, down 2 points on the week.

Wheat

Prices rally after key chart support holds on Friday.

Exporters shipped 10.7 million bushels of wheat in the week ending June 18, down from 14.2 million the previous week and down from the five-year average for the week of 18.7 million bushels. No notable shipments of U.S. wheat were made to Brazil or China during the week.

Marketing year shipments total 30.4 million bushels, down 24.8 million or 45% from the previous year. Exporters typically ship 4% of final wheat shipments by this early date in the marketing year, whereas they had shipped 6% by this point last year. Thus far this year they have shipped 3% of USDA’s target. As such, shipments to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 11 million bushels, versus being down by 6 million the previous week.

Key chart support held in Chicago Friday, encouraging profit taking on large speculative short positions. Money flowing into the broader commodity complex amplified those gains, accelerating gains. Chicago led because that’s where the larger portion of the speculative short positions are located. However, Kansas City needs to lead a sustained rally. We probably need to get a bit deeper into the harvest for that to happen.

Beef

Technical bounce lifts cattle futures, with added support from the product market.

Feeder cattle led the fat cattle market higher today, despite another $3 loss in the cash market on Friday. Futures are again leading the cash in the fat cattle market as supplies of cattle remain tight. Profitable margins are expected to lift this week’s slaughter to 560,000 head, up from 549,000 last week. Feeder cattle supplies are tight as heifers are held back to rebuild the cowherd.

We’re still waiting for the latest import data to come in, which will provide better clarity, but those imports have provided, and are expected to continue to provide, a cap to demand for domestic cattle. Packers continue to manage a very fine balancing act, which could tip one way or the other at any time if they misjudge demand and/or supply, but it’s worked pretty well for them thus far. As such, the relative strength of the dollar would suggest that downside risk is greater than upside risk near-term.

Packer margins are estimated at $42.10 per head, but there is evidence that the margins are even better than that. In light of that, today’s kill is estimated at 111,000 head, matching the previous week, but down 4,000 from the same day last year.

August live cattle broke through major levels of support Friday, but then bounced today after holding above $149. August feeder cattle rose to a 10-day high on a push in prices, putting them in thin air above $225.50. The latest 7-day cash index for feeder cattle came in today at $228.03 per cwt, up $2.39 on the day and up $217 over the past week.

Product movement on the spot daily market totaled 612 loads over the past week, down from 704 loads the previous week and an 11-week low. The total was also down from 725 loads on the spot market in the same week last year. Choice cuts finished the week at $251.32 per cwt, up $5.60 on the week and up $6.67 over the past two weeks. Select cuts finished the week at $246.23 per cwt, up $5.81 on the week and up $8.66 over the past two weeks. As a result, the Choice/Select spread dropped to a 2-1/2 month low of $5.09 per cwt, down $0.21 on the week and down $7.54 over the past four weeks.

Movement at mid-morning today was typical for a Monday at 70 loads, but at higher prices. Choice cuts were up $2.03 at $253.35 per cwt, while Select cuts were up $1.93 at $248.16 per cwt. Product prices are expected to remain firm in the early portions of this week.

USDA’s cold storage report this afternoon showed that beef supplies in the freezer on May 31 totaled 468.6 million pounds, down 3% on the month, but up 24% from the previous year. Supplies began to rebuild over the winter, but the past few months suggest that the build has come to an end and is now at a small draw each month, providing modest support for the market. Most of the excess in supplies over the previous year comes in the boneless cuts, with other beef cuts down 2% on the month and down 6% from the previous year.

Pork

Follow-through selling sinks lean hog futures, with cash prices adding pressure.

Lean hog futures executed a bear flag formation on the charts Friday, while gapping lower in follow-through selling today. Prices initially spiked lower, before chopping sideways with losses near $1.50 for much of the day ahead of this afternoon’s USDA cold storage report.

Today’s Midwest cash market was mostly steady to $1 lower, keeping the pressure on the bulls hoping for a rebound. The latest CME 2-day lean hog index came in today at $79.80 per cwt, down $0.31 on the day, down $1.87 on the week and down $2.67 over the past 11 consecutive trading days.

Packer margins are estimated at $6.15 per head, keeping packers in the black. Today’s kill is pegged at 417,000 head, down 7,000 from the previous week, but up 40,000 from the same day last year.

Product movement rose to 1,551 loads this past week, up from 1,477 loads the previous week, but down from 1,633 loads the week prior to that. The total compares to 1,500 loads moved in the same week last year. The product market got good support from demand for BLT sandwiches early in the week, with bellies leading the way higher early in the week, but that demand waned late. The composite pork product price finished the week at a five-week low of $82.65 per cwt, down $2.21 on the week and down $4.15 over the past three weeks.

Movement at midday today was slow at 113 loads, although at firmer prices. A surge in demand for butt and rib cuts more than offset losses in hams to push the composite prices to $83.21 per cwt, up $0.56 from Friday.

Today’s USDA cold storage report showed that pork supplies in the freezer slipped over the past month, while still coming in well above year ago levels. Pork in the freezer on May 31 totaled 653.6 million pounds, down 7% on the month, but still up 14% from the previous year.

Hams are up 16% on the month and up 44% from the previous year. On the other hand, belly supplies were down 8% on the month and down 25% from the previous year. Competing poultry stocks were down 4% from the previous month as the impact of avian flu begins to impact supplies, but they are still up 21% from the previous year.

The cold storage report could provide some near-term support for the market, which is oversold and due for a bounce. Some profit taking may be in order ahead of Friday’s USDA quarterly hogs and pigs report.

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

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