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Closing Comments

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Closing Comments

Corn

Corn rally stalls on soft demand and “big-crop” fears.

Exporters sold just 10.8 million bushels of corn in the week ending July 30 and that included net cancellations of 0.1 million old-crop bushels. The old-crop sales compare to 14.4 million bushels sold the previous week and the five-year average for the week of 10.7 million bushels. Taiwan reduced previous purchases by 5 million bushels, while “unknown destinations” reduced previous purchases by 9 million bushels; largely due to shifts to other buyers or outright reduction. China was largely absent from the market.

Marketing year sales to all destinations total 1.855 billion bushels, down 63 million or 3% from the previous year. Exporters typically sell 101% of final corn shipments by this point in the year, whereas they had reached 100% by this point last year. That 100% matches the percent of USDA’s target that has been reached this year. As such, sales to date fall short of the seasonal pace needed to reach USDA’s target by August 31 by 17 million bushels, whereas they matched the pace the previous week.

Exporters sold 11 million bushels of grain sorghum in the week ending July 30, including 2.2 million bushels of old-crop grain sorghum. The old-crop sales were down from 4.2 million bushels sold the previous week, but were above the five-year average for the week of 0.5 million bushels. China bought 4.4 million bushels of old-crop grain sorghum in the week, but that included 2.1 million bushels switched from “unknown destinations.” Chinese end users added another 6.7 million new-crop bushels, along with another cargo of 2.1 million bushels sold to “unknown destinations.”

Marketing year grain sorghum sales to all destinations total 337 million bushels, up 146 million or 77% from the previous year. Exporters typically sell 85% of final grain sorghum shipments by this point in the year, whereas they had sold 90% by this point last year. However, this year they have already sold 96% of USDA’s target. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 39 million bushels, up from 38 million the previous week.

Corn exports make up less roughly 13.5% of total demand, so their impact on the balance sheet is much smaller than it once was. Yet, it creates conversation and the past week’s sales totals were disappointing. However, traders are also concerned about reports that this year’s crop may be a bin-buster; especially in western areas.

Most conversations have centered around the size of the Illinois crop. Talk on the social media and various trade reports point toward other years when May/June rainfall was close to this year’s levels, but still yielded above-trend in the state. However, a look back at the data finds that it has been rare in the past 60 years to find excessive rainfall totals for both May and June, not only for Illinois, but for other eastern states as well. Most of them found a very wet May, but June moderated considerably.

Be sure to take a look at the pictures from our recent flyover of the core of the Midwest, taking photos at low altitudes. You can view the 28-photo overview, or all of the 400+ pictures taken.

The photos add to my confidence that we are probably looking at crop closer to 160 bushels, with 156 in play if widespread disease pressure manifests itself. Stands are a problem in many areas, especially from Missouri to portions of Ohio, but also much of the crop is running out of nitrogen, which becomes apparent in the pictures.

I’ve often said that I expected corn prices to fall in July, but to struggle to sustain a rally until either the last half of August or in September. In the meantime, look for choppy trade as participants try to figure out whether it is a big crop or a short crop. The average trade guess reflects expectations in the trade that USDA may reduce its yield by a couple bushels per acre, but don’t be surprised if USDA prints a bearish estimate on Wednesday, before cutting it substantially in September and October.

Soybeans

Soybeans fall on chart signals and disappointing export demand.

Exporters sold a net 21.2 million bushels of soybeans in the week ending July 30, but that doesn’t tell the whole story. Old-crop sales were actually a net negative 16.4 million bushels during the week, while new-crop sales totaled 37.6 million bushels. China switched 11 million bushels of old-crop bushels already on the books to the new marketing year, while cancelling another 7.3 million bushels in previous old-crop purchases.

Marketing year sales to all destinations total 1.861 billion bushels of soybeans, up 166 million or 10% from the previous year. Sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 4 million bushels, but that is down dramatically from 28 million bushels the previous week.

I’m also keeping an eye on the product market. Soymeal sales in the week ending July 30 slowed to just 41.6K metric tons, down from 71.5K the previous week and less than half the five-year average for the week of 90.8K tons. Actual shipments during the week slowed to a 10-month low of 106.8K tons, down from 195.5K tons the previous week, but just barely below the five-year average for the week of 109.2K tons. As such, shipments remain at a decent pace as processors fill orders already on the books.

USDA’s daily export reporting service today confirmed that China remains in the market for new-crop soybeans. The world’s largest importer of soybeans bought another 4.85 million bushels of U.S. new-crop soybeans in the past 24 hours.

Exports matter more to the soybean balance sheet, accounting for nearly half of all demand. As such, traders were disappointed in the latest weekly data, although new-crop sales are improving. However, much of today’s weakness was about a failure of November soybeans to take out the July 30 high on Wednesday, combined with a great deal of uncertainty about this year’s crop.

Look for this choppy trade to continue over the next few weeks. The trade expects USDA to slash about 800,000 from its harvested acreage estimate, but that would be a bit of a surprise considering it is merely resurveying a small corner of the belt. I look for small reductions near 200K in this report and larger reductions later. The data is there to support a larger reduction, but I question whether USDA will do so in this report. The trade is also looking for better than a bushel to come off USDA’s yield and that would also be a surprise for USDA in this August report, based on its track record.

Wheat

Strong exports spur speculative short-covering, but wheat struggles to sustain the gains.

Exporters sold a marketing year high 30.8 million bushels of wheat, up from 25.7 million the previous week and up from the five-year average for the week of 23.4 million bushels. It was the third consecutive week in which sales exceeded the five-year average for the week, after falling dramatically short of the seasonal pace for many weeks prior to that.

Hard and soft winter wheat sales have been extremely poor this year. Soft red winter wheat sales are modestly better, with purchases of 3.2 million bushels in the week ending July 30, including 1 million to “unknown destinations.” Hard red winter wheat sales were strong at 9.8 million bushels, including 3.4 million bushels to “unknown destinations” and 1.1 million to Brazil. Hard red spring sales remain strong at 9.8 million bushels, with “unknown destinations” taking 5.8 million.

“Unknown destinations” accounted for 14.5 million bushels of purchases in the weekly total, which was nearly half of the total. In this case, it probably represents sales to several countries, although China is likely in that mix. China needs quality milling wheat to blend with its supplies this year, which has led it to be more involved buying hard red wheat primarily.

Marketing year sales to all destinations total 313 million bushels, down 66 million or 17% from the previous year. Exporters typically sell 36% of final wheat shipments by the end of July, whereas last year they had sold 44%. However, this year they have only sold 33% of USDA’s target. As such, sales to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 24 million bushels, but that is an improvement from falling short by 32 million the previous week.

The past week’s export data was encouraging, but we still have a lot of surplus wheat. As such, wheat probably needs help from corn to sustain a rally longer-term and that isn’t present at this point. Today’s rally was led by Chicago, while a longer-term sustained rally probably needs to be led by Kansas City, which is trading at a 17-cent discount.

Beef

Cattle futures break to four-week highs on seasonal optimism.

The strong dollar continues to hurt U.S. beef exports, while encouraging imports. Export sales in the week ending July 30 were the second lowest of the year at just 5.9K metric tons, down from an anemic 6.2K the previous week and down from 11.9K in the same week last year. Actual shipments were a bit better at 10.5K metric tons, although that was down from 11.7K tons shipped the previous week and down from 14.9K tons shipped in the same week last year.

Recently released USDA data shows that June beef export shipments totaled 213.9 million pounds, up 21.4 million or 11% from the previous month. However, June shipments were down 21.3 million or 9% from the previous year. Meanwhile, beef imports in June totaled 339.6 million pounds, up 34.1 million or 11% from the previous month and up 87.8 million or 35% from the same month last year.

Strength in Choice cut prices Wednesday, spurred a strong start for live cattle futures today, with prices jumping over several layers of key moving indicators that had been an area of resistance. Prices pulled back late-morning when product prices showed signs of weakening, but then strengthened late in the session.

Boxed beef movement on the spot daily market rose to 180 loads Wednesday, up from 151 loads the previous day and up from 179 loads the previous week. Choice cuts rose $1.73 to $235.21 per cwt, while Select cuts rose just $0.68 to $228.85 per cwt. That pushed the Choice/Select spread to a seven-week high of $6.36 per cwt, up from $5.31 the previous day and up from $3.55 the previous week. Movement at mid-morning was good at 96 loads, with Choice cuts down $0.11 and Select cuts down $0.60 per cwt.

August live cattle are now eyeing $152, but first we need to see this week’s cash trade. Packers are said to be offering $145 to $147 per cwt on a live basis in the Plains, while feeders are asking $151 to $153 per cwt.

Today’s kill is pegged at 109,000 head of cattle, up 2,000 from the previous week, but down 6,000 head from the same period last year. Week-to-date kill is estimated to be 427,000 head of cattle, matching the previous week’s pace, but down 26,000 from the same period last year.

Feeder cattle futures followed the fats higher, but with a bit less enthusiasm, even with weaker corn prices. Feeders are worried about longer-term margins. August live cattle continue to consolidate below $216, with major moving averages just above that level. The latest 7-day cash index came in at $217.07 per cwt, down $0.63 on the day, but still up $1.29 on the week. Today’s lower index broke a string of 6 consecutive days of gains, in which the index rose to $2.87 per cwt.

Pork

Lean hog futures tumble on fears of over-supply.

Exporters sold 14.2K metric tons in the week ending July 30, down from 22.1K tons sold the previous week. Actual shipments during the week totaled 16.8K tons, down from 23.0K tons the previous week. Pork shipments in the month of June totaled 413 million pounds, down 24.5 million from the previous month, but nearly identical to the same month last year. Broiler exports ( a competing meat) totaled 563.8 million pounds, down 13.6 million or 2.4% from the previous month, but down 56.9 million or 9% from the previous year due to avian flu fears.

Whole hog imports in June totaled 639,748 head, all from Canada. The June total was up 220,450 head or 53% from the previous month and up 225,779 or 90% from the same month last year.

Today’s cash hog market was mostly steady in the western Midwest, while 50 cents higher in eastern areas. Today’s kill is pegged at 424,000 head of hogs, down 1,000 from the previous week, but up 17,000 head from the same period last year. Week-to-date kill is estimated to be 1.646 million head, down 41,000 head from the previous week, but up 88,000 head from the same period last year. An active kill is expected to boost weekly totals on Saturday.

Supply and demand in the cash hog market is in good balance right now, as heat and humidity have slowed gains, resulting in lighter hogs. Demand is good due to BLT season, with belly prices at their highest prices in more than a year. School lunch purchasing is also strong ahead of the new school year. However, demand is expected to ease after Labor Day as both numbers and carcass weights rise.

Product movement rose to 408 loads Wednesday, up from 348 loads the previous day, but down from 486 loads the previous week. The composite pork product price rose to its highest level since December at $89.12 per cwt, up $0.55 on the day and up $3.15 on the week. Movement at midday today was routine at best at 184 loads, with the composite price down $1.39 per cwt on a morning break in belly and loin prices. Belly prices recovered this afternoon.

October lean hogs fell sharply after finding little interest in testing Tuesday’s high of $67.70 per cwt. Next support supports near today’s low of $64, followed by trend line support 20 cents lower. Longer-term, traders are worried about an expansion of supply amid softer demand.

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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