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Closing Comments

Corn

Corn futures post friendly reversal as selling interest dries up on today’s move to new low.

USDA’s weekly crop progress report revealed that 78% of the nation’s corn crop was silking as of July 26, up 23 points on the week, but very close to the five-year average for the week of 77%. Corn in Indiana and Ohio was two to three days behind the normal pace, while corn in South Dakota, Iowa and Minnesota was several days ahead of normal. Fourteen percent of the crop was in the dough stage. Delays of several days were again seen in the east, but the trends were otherwise difficult to pull out of the data at this early date for grain fill.

The crop rated a condition index score of 376 (500=perfect crop), versus 375 the previous week, 390 the previous year, 382 in 2010 and the 10-year average for the week of 354. Conditions slipped modestly in North Carolina, Pennsylvania, South Dakota, Texas and Wisconsin, but were stable to better everywhere else. The best corn is in Iowa, Minnesota, Kentucky, Tennessee and Pennsylvania, while the poorest corn is North Carolina, Indiana and Ohio.

My seasonally adjusted yield model puts the crop at 169.0 bushels per acre, up 1.0 bushel on the week. Again, the yield models tend to overstate corn yields in wet years until we get into harvest late in the season. We should see a different private crop tour each week over the next several weeks. Look for very different findings due to sampling variability in this very uneven crop, especially across Missouri, Illinois, Indiana and Ohio, but elsewhere as well.

Corn futures bounced modestly overnight, but could not hold those gains in today’s session. December corn slipped to a new low for the move of $3.8025, but selling interest dried up at that point. As such, speculative traders took that as a signal that a near-term low may be in place, taking profits on short positions amid some end user buying late in the day that lifted prices back toward the top end of the session’s trading range at the close.

This is a positive sign of a possible bottom, although not the confirmation of such. I remain friendly corn prices longer-term, but believe that trade will likely remain volatile and choppy in the near-term. Keeping the outside markets neutral would be expected to see follow-through buying in Wednesday’s session.

Soybeans

Bottom-picking by end users and speculators pushes soybeans to double-digit gains.

USDA reports that 71% of the soybean crop was blooming on July 26, up 15 points on the week and just 1 point behind the five-year average for the week. Soybeans in Minnesota, North Dakota and Wisconsin were blooming a week or so early, while delays of a week to 10 days were seen in Kansas and Missouri.

Soybean pod set on July 26 rose to 34% of the U.S. crop, which was twice the 17% rate seen the previous week and 3 points above the five-year average for the week. Similar maturity patterns were seen in the pod set process as were seen in blooming progress.

The crop rated a condition index score of 361, versus 360 the previous week, 380 the previous year, 370 in 2010 and the 10-year average for the week of 353. The crop posted gains on the week in Illinois, Indiana, Kentucky, Michigan, Minnesota and Wisconsin, were unchanged in Mississippi and slipped lower in the remainder of the states. The best soybeans are generally in the northwestern Midwest, while the poorest soybeans tend to be across the southern half of the Midwest where persistent rains were a problem.

My seasonally adjusted yield model rose to 44.5 bushels per acre for the week, up from 44.3 bushels the previous week. That’s probably as reasonable of a yield estimate as one can have at this point in the season. I still believe that the nature of this growing season argues for the final yield to come in closer to 44 bushels than to 46 bushels, but in the end will likely hinge on the scope of disease problems seen in the crop. A modest loss of acres (200K acres) is likely in the August crop report, highlighting the need for decent yields as old-crop stocks tighten further.

Easing fears in the outside markets triggered a return of buying in the broader commodity complex today, with major commodity indices rising to close gaps left on the charts earlier in the week. End users saw an opportunity to extend coverage on the recent price break, while speculators saw an opportunity to take profits on short (sold) positons.

Today’s rally in soybeans was encouraging, but it’s still rather small considering recent losses. Speculative fund managers may be covering some short positions to take profits, but they still lack confidence needed to actually build ownership of the oilseed. Meanwhile, good processor crush margins continue to support the cash market amid solid demand.

On the charts, November soybeans remained several cents above Monday’s lows and finished the day near session highs. The next objective will be to see if the market can close the gap to $9.6325 posted on Monday. I remain friendly soybeans longer-term, but believe that the trade will lack the data needed to support a sustained rally for several weeks yet. Reports of disease are starting to increase, but not yet to the scope needed to create optimism amid traders. Even so, today’s finish suggests more follow-through buying in the Wednesday session.

Wheat

Wheat tries to confirm a seasonal low.

Winter wheat harvest reached 85% complete as of July 26, up 10 points on the week and up 5 points from the five-year average for the week. Winter wheat harvest is essentially complete in Arkansas, California, Illinois, Kansas, Missouri, North Carolina, Oklahoma and Texas. Delays continue in Indiana and Ohio, where 91% and 81% of the crop was harvested respectively.

Spring wheat harvest was pegged at 2% on July 26, down from the five-year average for the week of 5%. Six percent of Idaho was harvested, up from the 1% average, while 26% of Washington was harvested, up from the 4% typical pace for the date. However, South Dakota saw just 2% of its crop harvested, down from the typical pace for the date of 18%. Other states were waiting to start harvesting.

The spring wheat crop rated a condition index score of 378, versus 377 the previous week, 378 the previous year and the 10-year average for the week of 364. Condition scores were down modestly in Idaho, Minnesota, South Dakota and Washington due to dryness during grain fill, while North Dakota was slightly better. Condition scores for individual states were 392 in Idaho, 395 in Minnesota, 347 in Montana, 400 in North Dakota, 353 in South Dakota and 277 in Washington.

Industry representatives began a tour of North Dakota and surrounding areas today to see the wheat crop first hand. The tour thus far has found some very good wheat, although it might not be to last year’s record level. Protein levels may be a bit disappointing, but yields should be good in the highest producing areas of Minnesota and North Dakota.

Chicago September wheat probed below trend line support late Monday, but quickly moved back above it today, finishing near session highs after taking out the previous day’s high. Kansas City held above contract lows, reversing higher today. This doesn’t confirm a bottom, with U.S. wheat still over-priced into many markets relative to alternative supplies. However, the wheat market is showing signs of a bottom and may now look to the corn market for help in trending higher in the weeks ahead.

Beef

Cattle futures surge on short-covering as product prices find a possible low.

Cattle traders have been watching for that elusive seasonal bottom following this summer’s slide to sharply lower prices. Monday afternoon’s firmer product prices provided the first good clues that a bottom may be occurring. The turn happened as both the fats and feeders were approaching oversold conditions. Prices moved cautiously higher early today on Monday’s late product strength, but buying accelerated after mid-morning data showed a continuation of that strength.

Speculative short-covering propelled futures higher, with prices pushing through preset buy stops that accelerated gains. Those gains topped $3 in the feeder contracts, while falling just short of $3 in the fats. Regardless the buying spree created some excitement in the beef complex, but has not yet confirmed a low. The next test will be to see if we can take out today’s highs in Wednesday’s trade?

Today’s kill is estimated at 110,000 head of cattle, down 3,000 from the previous week and down 4,000 head from the same period last year. Week-to-date kill is pegged at 215,000 head of cattle, down 8,000 from the previous week and down 7,000 from the same period last year.

The big discount in feeder futures to the cash market gives the market some room to roam even if the cash market remains soft. However, the resurgence in live cattle futures combined with new seasonal lows in corn could give us a pop in the cash market in the near-term as well. The latest 7-day cash index today came in at $214.83 per cwt, down $0.87 on the day, down $2.79 on the week and down $8.20 over the past seven consecutive trading days with losses. This doesn’t bode well for sustaining today’s rally.

Boxed beef movement in the spot daily market rose to 119 loads Monday, up from 84 loads on Friday and up from 102 loads the previous week. Choice cuts were up $1.57 to $232.27 per cwt, while Select cuts were up $0.65 to $228.88. that pushed the Choice/Select spread up to $3.39 per cwt, up from $2.47 the previous day, but still down from $3.61 the previous week. Movement at mid-morning today was routine at 70 loads, but Choice cuts rose another $0.93 and Select cuts were up another $0.56 per cwt.

Pork

Chart-driven trade pushes lean hog futures higher.

Today’s cash market was again mostly steady across the Midwest to up to $1 lower. That combines with firmer product prices to push estimated packer margins above $15 per head. Profitable margins suggest that packers will do all they can to push more hogs through the plants, but they have an ample supply available to them. Feeders are taking note of the big discounts in the deferred contracts and are pulling hogs forward to avoid those lower prices.

Today’s kill is pegged at 424,000 head of hogs, up 2,000 from the previous week and up 18,000 head from the same period last year. Week-to-date slaughter is estimated to be 840,000 head, up 34,000 head from the previous week and up 41,000 head from the same period last year.

Product movement rose to 235 loads Monday, up from 208 loads on Friday, but down from 256 loads the previous week. The composite pork product price firmed to $84.86 per cwt, up $0.20 on the day and up $1.89 over the previous week. Movement at midday today was routine at 189 loads, with the composite price up $0.07 to $84.93 per cwt.

October lean hogs have largely traded between $62 and $66 per cwt over the past month. Selling interest dried up Monday as the contract approached the bottom of that range and bounced back ahead of the close. Follow-through buying today lifted prices toward the top of that trading range in largely technical trading. However, the tone of this market doesn’t really change unless the contract can show the ability to sustain gains above $66.

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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