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Closing Comments

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Closing Comments

Corn

Fire sale in commodities amplifies loss in the grains.

Exporters shipped a 12-week high 45.7 million bushels of corn in the week ending July 16, up from 41.6 million the previous week and above the five-year average for the week of 28.8 million bushels. The past week’s total included another cargo of 2.5 million bushels of U.S. corn destined for Chinese shores.

Marketing year shipments to all destinations total 1.539 billion bushels, down 76 million or 5% from the previous year. Exporters typically ship 84% of final shipments by this point in the year, which matches the pace set last year as well. This year USDA reports that exporters have shipped 83% of the agency’s target.

However, official Census Bureau data suggests that USDA is under-reporting shipments. Accounting for the differences, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 52 million bushels, up from 39 million the previous week.

Exporters shipped 4.6 million bushels of grain sorghum in the week ending July 16, up from 3.9 million the previous week and above the five-year average for the week at 2.4 million bushels. The past week’s total included two cargoes totaling 4.6 million bushels destined for Chinese end users.

Marketing year shipments to all destinations total 305 million bushels, up 149 million or 96% from the previous year. Exporters typically ship 81% of final grain sorghum shipments by this point in the year, whereas they had shipped just 73% by this point last year. However, this year they have already shipped 87% of USDA’s target. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 20 million bushels, matching the previous week’s pace.

The export data helped lift corn prices off their lows for a while, but the lift was temporary. Corn prices came under pressure today on improving weather patterns for the Midwest, while also following seasonal patterns for other similar years that we’ve looked at. Fund managers tend to lose sight of the problems in July as the weather appears to improve and USDA maintains relatively good crop ratings.

Those losses were amplified by a fire sale in commodities at large. Gold prices dropped to five-year lows, while crude oil slipped to five-month lows. The major commodity indices of which the grains are a part posted sell signals on the charts as the dollar firmed modestly, but those sell signals were heeded by major fund managers.

USDA is scheduled to release its weekly crop progress report at 3 p.m. CDT today. A Reuters’ survey of trade participants revealed expectations that USDA will rate the corn crop 69% Good to Excellent, unchanged on the week. Our submission was for 68% with another modest decline. The data should also show that nearly half of the crop is in the process of silking or beyond as of Sunday.

December corn dropped to new lows for the month. Today’s slide took it down 39 cents from last week’s one-year high. Ironically, that’s only about a little better than a 40% retracement of the late June/early July rally. The contract settled below the first layer of support targeted at $4.20, with the next big objective stacked near $4. A move to $4.02 would be a 50% retracement of the rally, which would be a very reasonable retracement in a year like this.

Soybeans

Strong demand limits losses for soybeans despite improved weather for the Midwest.

Exporters shipped a 9-week high of 11.3 million bushels of soybeans in the week ending July 16, up from 5.4 million the previous week and up from the five-year average for the week of 7.4 million bushels. The past week’s total included just 55K bushels destined for China, our number one customer.

Marketing year shipments to all destinations total 1.784 billion bushels, up 208 million or 13% from the previous week. Exporters typically ship 94% of final soybean shipments by this point in the year, whereas they had shipped 96% by this point last year. However, this year they have already shipped 98% 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 83 million bushels, which matches the previous week’s pace.

The trade expects USDA to tab the soybean crop at 62% Good to Excellent later this afternoon, unchanged on the week. That also matches our expectations, with improving weather patterns helping the crop to canopy and to “look” better from the road. The data should also show that more than half of the crop is blooming now and that more than one in 10 fields are starting to set pods.

Soybean prices also came under pressure from broad-based selling of the commodity complex, which amplified losses from improved weather patterns. However, losses were limited by the strength of demand from both processors and exporters battling for limited old-crop supplies, with the new-crop balance sheet tightening as well.

Today’s sell-off took the November contract a dime below psychological support at $10, capping a 55-cent drop from last week’s eight-month high. However, that’s still less than a 40% retracement of the mid-summer rally, suggesting that the soybean chart remains healthy long-term. A 50%  retracement wouldn’t be out of the question, which would take the contract down to $9.70 per bushel.

Wheat

Expensive U.S. wheat gets a lot cheaper.

Exporters shipped a 12-week high of 18 million bushels of wheat in the week ending July 16, up from 10 million the previous week, but still below the five-year average for the week of 19.7 million bushels. The past week’s total included 4.4 million bushels destined for China, including a cargo from both the Pacific Northwest and the Gulf. Brazil took another million bushels from the Gulf.

Marketing year shipments to all destinations total 87.1 million bushels, down 32.4 million or 275 from the previous year’s pace. Exporters typically ship 12% of final wheat shipments by this point in the marketing year that began June 1, whereas they had shipped 14% by this point last year. However, this year they have shipped just 9% of USDA’s target to this point. As such, shipments to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 23 million bushels, compared to a deficit of 24 million the previous week.

The trade expects USDA to peg the winter wheat harvest as of Sunday at 76% later this afternoon, up from 65% the previous week and up from the typical pace of 74%. Our submitted estimate was 75%. The spring wheat crop is expected to be rated 70% Good to Excellent, down from 71% the previous week.

Prices quickly posted double-digit losses today and continued to extend losses. The export data provided brief support, but traders continue to focus on the broader problem of overall slow export demand due to our high prices, as well as quality problems with the soft red winter wheat crop. Weather problems in other major growing areas of the world are off the radar right now after conditions moderated in many of the problem areas over the past week, allowing the trade to focus on the “high” price of U.S. wheat on the global market.

We may see an improvement in market sentiment over the next few days. A lot of damage is believed to have been done to the Canadian wheat crop due to dry weather this season, however, showers last week took those concerns off the radar. Yet, an industry tour of the Canadian Prairies crop belt Tuesday to Thursday of this week is expected to put those concerns back on the front burner if in fact those concerns are legitimate. I also expect Egypt to release another snap tender to buy wheat on this break.

Beef

Bounce in beef complex lacks energy.

Some in the industry took Friday’s cash cattle trade of $148 per cwt on a live basis in the Southern Plains as a victor, since it held the summer low, at least for now. Those traders received additional support from a bounce in the product market this morning, but that still was not enough to accomplish more than a “dead cat bounce” in futures. August found modest strength on the above, but that strength was negligible considering that it is already trading at a discount to the cash. In other words, the market simply doesn’t have a conviction at this point that the cash market has bottomed.

Packers slowed the chains last week, slaughtering just 538K head of cattle. That should leave plenty of cattle for what is expected to be an equally slow chain speed this week. Heat in the Plains has already claimed quite a few cattle in the feedlots, so feeders may be eager to move cattle. Slower chain speeds are not tightening product supplies as much as hoped because a strong dollar encourages larger imports of beef. August live cattle failed to even test Friday’s high of $147.50, eroding developing confidence that this market would post a bounce this week.

Packer margins are moving deep in the red once again. Today’s kill is pegged at 110,000 head of cattle, up 4,000 from the previous week, but down 4,000 from the same day last year.

Product movement on the spot daily market over the past week totaled 819 loads, down from 910 loads the previous week, but still one of the higher totals of the year. Movement on the spot daily market in the same week last year totaled 833 loads.

Choice cuts finished the week at $233.30 per cwt, down $0.65 on the day, down $3.68 on the week and down $19.82 per cwt over the past three weeks. It was the 14th day out of the past 16 business days with lower prices for Choice cuts. Select cuts finished the week at $229.39 per cwt, down $1.43 on the day, down $4.60 on the week and down $18.76 over the past three weeks. Select cuts have been down on 14 of the past 18 trading days. The Choice/Select spread finished the week at a two-week high of $3.91 per cwt, up $0.92 on the week and up $1.84 over the past two weeks.

Movement at mid-morning today remained slow, even for a Monday, at 51 loads. Choice cuts were up $0.82 to $234.12, while Select cuts were up $0.59 to $229.98 per cwt. That firmed the Choice/Select spread to $4.14 per cwt.

Feeder cattle found strength in cheaper corn prices today, but even there the lack of bullish conviction in the fats limited gains in the feeders. August feeders failed to test Friday’s high of $216.80 and turned lower at the 20-day moving average. This market is really in trouble if corn prices turn higher this fall as I anticipate. The latest 7-day cash index came in at a two-month low of $218.86 per cwt, down $4.17 on the day and down $5.65 over the past week.

This market is vulnerable to massive losses in the weeks ahead if corn prices rally as I expect them to do. I thought weak corn prices would provide greater strength in demand for light-weight cattle in the near-term, but bulls take note that it did not; at least not to this point.

Pork

Market continues to worry about pork supplies.

Lean hog futures charts suggested that the nearby August contract may have posted a seasonal low a week ago. It spent much of the rest of the week consolidating in a pattern that suggested a move higher this week, although we still had concerns about the deferred months. However, the August contract broke modestly lower out of a pennant formations, suggesting vulnerability to additional selling in the days ahead. The deferred contracts from February and beyond posted modest gains on ideas that they may have priced bearish expectations into the market already.

Packer margins are positive, but the supply of hogs remains adequate to meet demand. Cash prices were mostly steady west of the Mississippi River today, while mostly $1 lower east of the river. The latest CME 2-day cash index slipped to $80.21 per cwt, down $0.34 on the day and down $0.38 over the past two trading days.

Downward momentum appears to be growing after an eight-session gain in the cash index. This allows packer margins to improve as product prices trend higher. Today’s kill is pegged at 384,000 head of hogs, down 31,000 from the previous week, but still up 12,000 from the same day last year.

Product movement over the past week totaled 1,533 loads, down from the previous week’s strong movement of 1,749 loads, but more of a typical total this year. Movement in the same week last year totaled 1,530 loads. The composite pork product price finished the week at $82.42 per cwt, down $0.23 on the day, but up $1.63 on the week. In fact, it was the first week of the past seven in which the composite price rose. Movement at midday today was slow at 125 loads, although the composite pork product price firmed $0.71 to $83.13 per cwt on good demand for rib and butt cuts.

August lean hogs find first significant support just above $74. This market will likely remain suspect until/unless it can establish itself above $77.30 per cwt.

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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