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Closing Comments

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Closing Comments

Corn

Corn trades to one-year high on expectations that USDA will tighten its balance sheet on Friday.

Exporters sold 26.9 million bushels of corn in the week ending July 2, including 21.1 million old-crop bushels. The old-crop sales were down from 23.4 million bushels sold the previous week, but were above the five-year average for the week of 16.1 million bushels. The past week’s total included another 2.5 million bushels sold to China, which has quietly been returning to the U.S. corn market. Meanwhile, “unknown destinations” reduced previous purchases by 5.5 million bushels, largely due to switches to other buyers, while the designation was credited with the purchase of 2 million bushels of new-crop corn.

Marketing year sales to all destinations total 1.819 billion bushels of corn, down 54 million or 3% from the previous year. Exporters typically sell 98% of final corn shipments by this point in the year, whereas they had sold 98% at this point last year as well. However, this year they have sold 99.7% of USDA’s target to this point. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 36 million bushels, but that is down from 39 million the previous week.

Exporters sold no grain sorghum in the week ending July 2; either old- or new-crop. That compares to sales of 1.1 million bushels the previous week and the five-year average for the week of 0.5 million bushels.

Marketing year sales still total 331 million bushels, up 156 million or 89% from the previous year. Exporters typically sell 82% of final grain sorghum shipments by this point in the year, whereas they had sold 82% by this point last year as well. However, this year they have already sold 94% of USDA’s target. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 45 million bushels, although that is down from 47 million bushels the previous week.

Buying emerged in the corn pit today amid strength in the outside markets that eased fears and allowed traders to focus on the fundamentals of supply and demand once again. The trade is banking on USDA lowering its corn yield to an average trade guess of 165.4 bushels per acre, down from 166.8 bushels previously, with additional cuts in later monthly reports. That’s a reasonable estimate based on recent drops in crop ratings and anecdotal reports from across the southern half of the Midwest. However, it would go against USDA’s historical tendency and so there is a chance it may not happen.

This week’s heavy rains create additional problems for corn across the I-70 corridor, but forecasts have moderated for the 6- to 15-day period. December corn rallied to its highest level in one year, before profit taking pulled prices back to post the highest settlement in six months. Now we wait to see if USDA provides support for continuing the rally or hits the reset button to send prices lower until more proof of a short-crop can be developed. History argues for the latter, but the trade is betting on the former.

Soybeans

Soybean prices surge on fresh demand prospects, poor weather and easing China fears.

Exporters sold 8.9 million bushels of soybeans in the week ending July 2, including just 1.5 million old-crop bushels. The old-crop sales were up from net cancellations of 0.4 million bushels the previous week, but were still down from the five-year average for the week of 6.5 million bushels. China actually reduced previous purchases by 18K bushels in the week reported.

Marketing year sales to all destinations total 1.857 billion bushels, up 183 million or 11% from the previous year. Exporters typically sell 100% of final soybean shipments by this point in the marketing year, whereas they had sold 102% by this point last year. However, this year they have already sold 103% of USDA’s target. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 51 million bushels, but that is down from 59 million the previous week.

However, one of the factors that I’ve been following with longer-term implications is soymeal demand due to Argentina’s ongoing political and economic problems. Exporters sold 101.7K metric tons in the week ending July 2, which was nearly twice the five-year average for the week of 51.8K tons and up from 87.1K tons sold the previous week. Actual shipments were even more impressive at 225.5K metric tons, up from 162.9K the previous week and up from the five-year average for the week of 117K metric tons. That keeps crush margins positive and further tightens supplies of old-crop soybeans, although we won’t run out of soybeans ahead of this year’s harvest.

Soybean trade was impressive today, but then again prices for the oilseed had shown the greater losses in recent days and had more ground to make up. November soybeans settled less than 25 cents below six-month highs set last week. That leaves them poised to test those highs if USDA provides the fodder to do so tomorrow, but they could easily break lower again if it doesn’t.

The trade is banking on a one-bushel decline in USDA’s yield estimate to 45 bushels per acre tomorrow. History goes against those odds of a reduction by USDA, although there are certainly plenty of reasons to justify such a move. Satellite data shows evidence of the slow progress of this year’s crop of filling the canopy, along with other issues related to sitting in saturated soils in the southern half of the Midwest. As such, traders know that soybeans could see explosive price action if crop ratings continue to decline, but they are also firm believers that August makes all the difference in the world for soybeans. As such, the bulls need USDA to throw them more fodder tomorrow.

Wheat

Wheat looks tired going into USDA crop report.

Exporters sold 12.8 million bushels of wheat in the week ending July 2, including 12.7 million old-crop bushels. The old-crop bushels were down from 13.4 million bushels sold the previous week and were down from the five-year average for the week of 23.3 million bushels. There were no sales to China during the week, while Brazil bought 73K bushels.

Marketing year sales to all destinations total 228 million bushels, down 73 million or 24% from the previous year. Exporters typically sell 27% of final wheat shipments by this point in the young marketing year, whereas they had sold 35% by this point last year. However, this year they have sold just 25% of USDA’s target for the year. As such, sales to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 20 million bushels, versus being short by 11 million bushels the previous week.

There’s no debate that U.S. wheat prices are too high to compete on the global market; significantly too high. However, that could change if weather problems in Europe, Canada Argentina and Australia significant curtail production in those areas.

USDA will likely raise stock estimates more than expected tomorrow, sending more bearish tremors through the market. That could prove to be too much for a market that’s looking tired, struggling to hold above chart support after surging higher in late June. Prices could come back if weather problems in the afore-mentioned areas continue to develop and create enough headlines to draw investors back, but that is the risk.

Beef

Slide in product prices drags futures lower despite expectations for steady cash trade.

Exporters sold a net six-week high of 18.1K metric tons of beef in the week ending July 2, which was nearly three times the 6.6K tons sold the previous week and was modestly above the 17.9K tons sold in the same week last year. Actual shipments during the week totaled 11.3K metric tons, up from 10.9K the previous week, but down from the 15.5K tons shipped in the same week last year.

The sell-off in the cattle market continued today, with August live cattle breaking below the 100-day moving average, currently at $148.29 per cwt. The contract rallied back above the indicator after holding above the late-June low of $147.85 per cwt, but it remains vulnerable to dropping another $2 to $4 lower.

Packers and feeders remain at a standstill, with trade expected to open up near unchanged from the previous week. That would put the cash market at a premium to the lead August contract, but futures traders are betting that the cash market will weaken in the weeks ahead. That’s largely because of the continued decline in product prices.

Product movement on the spot daily market rose to 180 loads Wednesday, up from 172 loads the previous day and up from 145 loads the previous week. Choice cuts settled at $242.03 per cwt, down $2.64 on the day and down $11.19 over the past six trading days. Select cuts were at $239.24 per cwt, down $1.85 on the day and down $10.11 per cwt over the past five trading days. That drops the Choice/Select spread to $2.79 per cwt, down from $3.58 the previous day and down from $3.03 the previous week.

Movement at mid-morning today was strong at 145 loads, suggesting that lower prices are stimulating demand. Choice cuts were down another $2.22 to $239.81 per cwt, while Select cuts were down $2.76 to $236.48. Choice cuts are rapidly approaching support near $238 per cwt that held the market through several other sharp breaks over the past year. Packers are slowing chain speed to tighten supplies, hoping to stop the bleeding in their profit margins.

Today’s kill is pegged at 111,000 head of cattle, down 2,000 from the previous week and down 4,000 from the previous year. Week-to-date kill is estimated at 434,000 head, down 17,000 from the previous week and down 22,000 from the same period last year.

Feeder cattle came under pressure from higher corn and weaker fat cattle prices. August feeders fell to their lowest level since April 23, confirming the previous session’s break below the 100-day moving average. The lead contract is currently trading near $212, while the cash index is at $220.39 per cwt, unchanged on the day, but down $4.43 over the past week.

Pork

Supply concerns weight on the hog market.

Exporters sold a net 16.9K metric tons of pork in the week ending July 2, down from a very large 39.0K tons the previous week, but still nearly twice the 8.9K metric tons sold in the same week last year. Actual shipments during the week total 24.1K metric tons during the week, down from a very strong 38.8K metric tons the previous week and more than twice the 10.4K tons shipped in the same week last year.

Today’s cash market was mostly steady in the closely watched Iowa/Southern Minnesota market, while up $1 in Illinois and up $1.50 per cwt in Indiana. Today’s cash index came in at $78.07 per cwt, up $0.64 on the day, up $1.03 over the past three trading days and up $0.92 over the past week.

Packer margins have evaporated and are starting to dip into the red. Today’s kill is estimated at 416,000 head of hogs, down 8,000 from the previous week, but up 20,000 from the previous year. Week-to-date kill is pegged at 1.649 million head of hogs, down 47,000 from the previous week, but up 69,000 from the same period last week.

Product movement rose to 450 loads Wednesday, up from 365 loads the previous day and up from 413 loads the previous week. The composite pork product price dropped to $81.27 per cwt, down $0.33 on the day, but up $0.28 on the week. Movement at midday today was slow at 186 loads, with the composite price down another $0.72 to $80.55 per cwt.

August lean hogs broke sharply today as traders worry about big supplies exceeding disappointing demand. Export demand is good, but domestic demand is lacking and hog numbers are big, with Illinois anticipating record slaughter this week.

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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