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Closing Comments

Corn

Soybeans ignite short-covering in the corn pit on ideas that the crop is shrinking.

Exporters shipped a nine-week low 31.7 million bushels of corn in the week ending August 6, down from 36.2 million the previous week, but up from the five-year average for the week of 31.1 million bushels. No corn was shipped to China during the week.

Marketing year shipments to all destinations total 1.650 billion bushels, down 77 million or 4% from the previous year. The USDA data would suggests that USDA falls short of the seasonal pace needed to reach USDA’s target by 13 million bushels, but official Census Bureau data suggests a faster shipping pace. Accounting for the differences, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 56 million bushels, although that is down from 64 million the previous week.

Exporters shipped 8.2 million bushels of grain sorghum in the week ending August 6, down from 9.3 million the previous week, but up from the five-year average for the week of 5.2 million bushels. The weekly total included 7.1 million bushels destined for Chinese end users.

Marketing year shipments to all destinations total 331 million bushels, up 151 million or 84% from the previous year. Exporters typically ship 88% of final grain sorghum shipments by this point in the year, whereas they had shipped 85% by this point last year. However, they have already shipped 94% of USDA’s target this year. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 23 million bushels, although that is down from 25 million the previous week.

Corn prices were reluctant followers of soybeans this morning, but buying accelerated as soybean prices surged and fund managers began buying the major commodity indices, of which corn is a part. That buying was sufficient to pull prices higher into buy stops, accelerating gains. Speculative short-covering/bottom-picking and end users extending coverage added to the strength.

Private estimates from various sources have been coming in at 164 to 168 bushels per acre, but a Reuters’ survey of trade participants reveals expectations that USDA will drop its corn yield estimate to 164.5 bushels, down from 166.8 bushels per acre in July. Yield models and crop tours tend to overstate crop size in these wet years, with estimates dropping as the combines beginning to roll.

Soybeans

Bullish fires are ignited on friendly chart signals amid expectations that USDA will slash new-crop stocks.

Exporters shipped 5.6 million bushels of soybeans in the week ending August 6, down from 6.3 million bushels the previous week and down from the five-year average for the week of 7.3 million bushels. The past week’s total failed to contain any shipments to China once again.

Marketing year shipments to all destinations total 1.801 billion bushels, up 215 million or 14% from the previous year. Exporters typically ship 96% of final soybean shipments by the first week of August, which matches last year’s pace as well. However, this year they have already shipped 99% of USDA’s target. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 62 million bushels, although that is down from 69 million the previous week.

Cash basis is on fire, especially at some eastern Midwest processors. Private production estimates have been coming in primarily between 45 and 47 bushels per acre, with USDA at 46 in July. Reuters’ survey reveals trade expectations that USDA will peg the crop at 44.7 bushels per acre, with harvested acres dropping by 1.2 million acres, dropping ending stocks to 301 million bushels, down from 425 million in July. We concur that the drop is justified, but recognize that USDA tends to be slower to make these adjustments; sometimes even raising their yield in August reports in wet years.

We believe the crop is smaller than projected by USDA and smaller than is being projected by the crop tours when one considers how late millions of acres went into the ground and when considering the impact of soybeans sitting in saturated soils for so long. Furthermore, harvested acres are expected to drop through the fall as well. The primary question though is when will USDA make that adjustment? History suggests that it will be later rather than sooner, but we’ll see on Wednesday.

Wheat

Wheat reluctantly moves higher with the other commodities.

Exporters shipped 13.4 million bushels of wheat in the week ending August 6, up from 11.7 million the previous week, but down from the five-year average for the week of 21.8 million bushels. The week’s shipments included a small shipment of nearly 11K bushels to China, but was otherwise disappointing and uneventful. The featured destination during the week was Mexico at 3.4 million bushels.

Marketing year shipments to all destinations total 129 million bushels, down 40 million or 24% from the previous year. Exporters typically ship 18% of final wheat shipments by the first week of August, whereas they had shipped 20% by this point last year. However, shipments this year total just 14% 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 39 million bushels, versus being short by 32 million the previous week.

Wheat prices held steady while corn and soybeans pushed higher this morning, but upward momentum grew as fund managers bought the major commodity indices, leading to speculative short-covering. Global demand is rising, with Saudi Arabia buying 18.6 million bushels of optional origin milling wheat over the weekend. However, U.S. wheat continues to fight for market share amid large domestic supplies. Even so, wheat prices can move higher in the weeks ahead if USDA continues to ratchet down production estimates in Canada, as well as Argentina and Australia, and if corn prices continue to move higher.

Beef

Fat cattle futures find support from cash market, but gains are limited by weakness in the feeders.

Friday’s cash cattle trade was again impressive, moving at mostly $150 to $152 per cwt on a live basis in the Plains feedlot region. That triggered fresh buying on the board early today, taking the lead August contract to $150.85 before rising corn prices and sinking feeder prices began to drag on futures. That pulled the contract low enough to close the session’s gap on the charts, but prices still held above $150. On the other hand, October remained below several layers of resistance stacked between $150 and $151 per cwt.

The primary question before the market is whether packer demand will remain strong enough to support even higher prices amid a strong dollar that is limiting exports and encouraging imports. As such, each week’s cash trade obviously has a significant impact. Thus far the cash market has surprised the past two weeks. Today’s kill is pegged at 107,000 head of cattle, matching the previous Monday, but falling short of the 113,000 head slaughtered in the same day last year.

Product movement over the past week in the spot daily market totaled 682 loads, up from 672 loads the previous week and a three-week high. The total compares to 751 loads moving on the spot market in the same week last year.

Choice cuts finished the week at $236.34 per cwt, up $3.09 on the week and up $5.64 over the past two weeks. Select cuts finished the week at $230.14 per cwt, up $0.85 on the week and up $1.91 over the past two weeks. The Choice/Select spread finished the week at $6.20 per cwt, up $2.24 on the week and up $3.73 over the past two weeks. Movement at mid-morning today was routine for a Monday at 71 loads. Choice cuts were up another $1.41, while Select cuts were up $1.05 per cwt.

Feeder cattle came under pressure as corn prices took off this morning. Yet, prices came off their lows on ideas that the board was already at a discount to the cash market. Today’s 7-day cash index came in at $216.66 per cwt, down $0.047 on the day and down $0.37 on the week.

Pork

Lean hogs succumb to supply fears.

Lean hog futures attempted a bounce off trend line support that has held the market for much of the past month, including Friday’s close. However, prices eventually pulled through the support level, tripping sell stops that accelerated losses. As such, the October contract dropped to a two-week low of $62.70 per cwt.

Product movement totaled 1,651 loads over the past week, up from 1,567 loads the previous week and a four-week high. The past week’s total compared to just 1,497 loads moving in the same week last year. However, the composite pork product price was at $124.99 per cwt in that week, just below record highs. The composite price finished this past week at a new calendar year high of $90.17 per cwt, up $2.69 on the week and up $9.38 over the past four weeks. Movement at midday today was very slow at 119 loads, with the composite pork product price down $0.82 on weakness in loin, rib and belly prices.

Demand for product has been strong, led by seasonal strength for bacon and school lunch buying. Both of those factors are expected to wane after Labor Day, which is also when carcass weights tend to trend higher once again as weather cools. Furthermore, imports out of Canada have been rising. 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 market was steady, to mostly $1 lower as the supply of cash hogs begins to exceed demand amid fears of even lower prices down the road. The latest CME 2-day lean hog index today came in at $79.10 per cwt, up $0.02 on the day, up $0.42 over the past four consecutive trading days, but up just $0.35 over the past week. The index has traded primarily a couple dollars either side of $80 this summer, but the board suggests that traders expect that support to give way after Labor Day.

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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