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Closing Comments

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Closing Comments

Corn

Speculative shorts (sold) take profits following big Wednesday sell-off.

Exporters sold 20.9 million bushels of corn in the week ending August 6, including just 1.1 million old-crop bushels for the year ending August 31. The old-crop sales were actually an improvement from net cancellations of 0.1 million bushels the previous week, but below the five-year average for the week of 6.5 million bushels. China was basically absent from the market during the week. “Unknown destinations” reduced purchases by 11.1 million bushels, largely due to shifts to other buyers, while Taiwan cancelled 4.6 million bushels.

Marketing year sales to all destinations total 1.856 billion bushels, down 58 million or 3% from the previous year. Sales to date fall short of the seasonal pace needed to reach USDA’s target by August 31 by 31 million bushels, after being short by just 17 million bushels the previous week.

Exporters sold a net 4.1 million bushels of grain sorghum in the week ending August 6, including net reductions of 2.4 million old-crop bushels. That compares to net sales of 2.2 million bushels the previous week and the five-year average for the week of 1.8 million bushels. Chinese end users bought 2 million old- and 4.5 million bushels of new-crop grain sorghum in the week. “Unknown destinations” reduced previous old-crop purchases by 4.4 million bushels, while buying 2.1 million new-crop bushels.

Marketing year sales to all destinations total 334.9 million bushels of grain sorghum. Exporters typically sell 86% of final grain sorghum shipments by the first week of August, whereas they had sold 94% last year by this point. However, this year they have already sold 96% of USDA’s target for the year. Sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 34 million bushels, although that is down from 38 million the previous week.

As damaging as Wednesday’s sell-off was, the good news is that December corn rallied more than a dime off its low to settle above support at $3.65. Prices tried to probe lower again overnight, but found limited weakness. That signaled many speculators holding short (sold) positions that they should pocket their profits after such a big drop on Wednesday, lifting prices higher. End users also see Wednesday’s break as an opportunity to extend coverage amid the uncertainty over whether USDA accurately assessed problem areas of the Midwest in the report.

The Pro Farmer tour next week will be closely followed for reports of additional disease problems, etc. with the crop, but it will be several weeks before traders have hard data as combines being to roll north. As such, the market will remain vulnerable to big price swings, with lower prices possible in the meantime. However, we continue to believe that we will see USDA confirm lower production estimates in the months ahead.

Soybeans

Strong demand boosts soybean recovery amid tight old-crop supplies.

Exporters sold 27.8 million bushels of soybeans in the week ending August 6, but the bulk of that was for new-crop supplies. The old-crop portion totaled just 3.5 million bushels, up from net reductions of 16.4 million the previous week, but down from the five-year average for the week of 4.8 million bushels. China bought 12.1 million bushels of new-crop soybeans during the week. “Unknown destinations” reduced previous purchases of 2.1 million old-crop bushels, while buying an additional 8.3 million new-crop bushels, which will be presumed to be China.

Marketing year sales total 1.864 billion bushels of soybeans, up 168 million or 10% from the previous year. Sales to date fall short of the seasonal pace needed to reach USDA’s target by 5 million bushels, after exceeding the pace by 3 million the previous week.

Another key we follow is demand for product, for which the marketing year goes through September 30. Old-crop soymeal sales in the week ending August 6 totaled 57.1K metric tons, up from 41.6K tons the previous week and very close to the five-year average for the week of 60.9K tons. Actual shipments of previous sales already on the books during the week totaled an impressive 211.4K metric tons, up from 106.8K tons the previous week and more than twice the five-year average for the week of 104.6K tons.

Furthermore, new-crop soymeal sales during the week totaled 277K metric tons, suggesting that demand will remain strong as we head into the fall. Strong export demand for soymeal surged a year ago after Argentina defaulted on its debt, compounding doubts among its customers about its ability to deliver. It’s recovered much of that business, but many customers continue to buy more soymeal from U.S. processors. As a result, USDA raised its new-crop soybean crush estimate to a record 1.860 billion bushels Wednesday, up 20 million from the previous month, up 15 million from the previous  year and up 126 million or 7.3% over a two-year period.

Strength in that soymeal demand was exhibited in the futures market today, with the expiring August soymeal contract ending the day $9.50 per ton higher at $344.10 per ton. The September contract was up $7.80 per ton at the close. Strength in meal demand keeps crush margins profitable, leading the expiring August soybean contract to settle 44 cents higher at $9.93 per bushel, down from its high of $9.95 per bushel.

November soybeans ran out of selling interest above $9, leading to a profit taking rally on short-covering today, with soymeal demand providing an added boost. The market has not confirmed a bottom, but I have to like the bounce on the first day following USDA’s bearish report. Unfortunately, the new-crop contracts will likely lack any hard data to support the bulls for several weeks yet.

There’s probably 5 million acres of soybeans that were planted very late and still lacked any size of note on the first of August. Few of the tours venture into this area, with most merely probing the northern fringe of the area containing these small soybeans. Wednesday’s USDA report showed a reduction of 800,000 acres of planted soybeans resulting from its limited resurvey of the southwestern belt. That included 100,000 fewer acres in Arkansas, 50,000 fewer acres in Kansas and 650,000 acres in Missouri.

Wheat

Profit taking lifts wheat, but it still needs help.

Exporters sold 15.5 million bushels of wheat in the week ending August 6, down from an impressive 30.8 million the previous week and down from the five-year average for the week of 23.5 million bushels. Hard red winter wheat were roughly a third of the previous week at just 3.1 million bushels, with soft red winter sales dropping to a measly 2.2 million bushels. Hard red spring wheat sales were less than half their recent pace at just 4.4 million bushels in the week reported. China stood out as a buyer of note, purchasing 1.6 million bushels of hard red and white wheat.

Marketing year sales to all destinations total 329 million bushels, down 63 million or 16% from the previous year. Exporters typically sell 38% of final wheat shipments by the first week of August, whereas they had sold 46% by this point last year. However, this year’s sales amount to just 36% of USDA’s target for the year. Sales to date fall short of the seasonal pace needed to reach USDA’s downwardly revised target by May 31 by 19 million bushels, versus falling short by 15 million the previous week.

Ironically, the past week’s disappointing export sales come after three strong weeks that averaged new sales of 25 million bushels per week. Prices were breaking lower during that three-week period. The disappointing total from the week ending August 6 came as prices were carving out a bottom. It will be interesting to see next Thursday’s data to see if Wednesday’s sharp break stimulated more sales.

Egypt announced today that it purchased another 6.4 million bushels of wheat at an average of $5.30 per bushel in its latest snap tender following Wednesday’s price collapse. The purchase included two cargoes from Ukraine and one from Russia. The cheapest offer came from Ukraine at $4.90 per bushel, based on trade sources claiming knowledge of the deal. U.S. wheat wasn’t even offered, considering its higher price (with freight included) and the quality problems associated with the soft red winter crop.

The bottom line is that U.S. wheat is still over-priced for much of the world, with the exception of those markets to where we have a good freight advantage. Wheat prices can still rally, but they need help from the other markets. They had that today, with traders holding short positions happy to take profits after Chicago September wheat re-established itself Wednesday above chart support at $4.90.

Beef

Live cattle futures rally after bouncing off chart support, while waiting for this week’s cash trade.

Follow-through selling from Wednesday’s collapse pressured cattle prices early in the day, but buying cautiously returned as the October contract held key support at $146. Buying gradually gained momentum as traders gained confidence that they had firm footing below them. October live cattle saw that buying interest slow late in the session at $148 as traders continue to wait for direction from the cash market.

Feeder cattle were reluctant follower, with traders remaining skeptical even as corn prices mounted a post-report bounce. Even so, traders appears cautious, wanting to know more about the actual size of this year’s corn crop. Today’s 7-day cash index came in at $216.69 per cwt, down $0.14 on the day and down $0.38 on the week.

Exporters sold 12.3K metric tons of beef in the week ending August 6, up from 5.9K tons the previous week and up from 9.4K tons in the same week last year. Actual shipments slipped to 10.4K tons during the week, down from 10.5K the previous week and down from 14.0K metric tons in the same week last year.

Product prices continue to rise, particularly for the Choice cuts, as retailers stock up for the Labor Day holiday grilling weekend. That in turn is pushing packer margins upward, but packers continue to keep the chain speed slow to protect those margins amid the flood of imported meat entering the pipeline, which is largely for hamburger. Traders fear declining demand once retailers finish stocking up on steaks for the approaching holiday weekend.

Today’s kill is pegged at 109,000 head of cattle, matching the previous week’s pace, but down 3,000 from the same day last year. Week-to-date kill is pegged at 429,000 head, up 2,000 head from the previous week, but down 27,000 head from the same period last year.

Movement on the spot daily market rose to 137 loads Wednesday, up from 123 loads the previous day, but down from 180 loads the previous week. Choice cuts pushed another $3.09 higher to $244.02 per cwt, while Select cuts were up just $0.65 to $235.45 per cwt. That pushed the Choice/Select spread to a two-month high of $8.57 per cwt, up from $6.13 the previous day and up from $6.36 the previous week. Movement at mid-morning today was slow at 67 loads, with Choice cuts up another $1.26, while Select cuts were down $0.26 per cwt.

Pork

Bearish corn data continues to pressure deferred hog contracts.

Nearby hog contracts saw follow-through buying today after October held key support at $62 on Tuesday. That’s pushing the contract toward resistance near $66, which will likely be tested on Friday. However, the deferred contracts for next spring and early summer remained under pressure following Wednesday’s bearish corn report as traders worry about expansion due to cheap feed.

Packers continue to benefit from seasonal strong demand for bacon and from USDA school lunch program buying, lifting product prices to their highest level since 2014. However, the fear is that carcass weights will begin rising, along with slaughter numbers, as the aforementioned demand begins to wane next month.

For now, the above dynamics continue to keep packer margins near $25 per head. Today’s kill is pegged at 427,000 head, up 3,000 from the previous week and up 21,000 from the previous year. Week-to-date kill is estimated at 1.701 million head of hogs, up 55,000 head from the previous week and up 101,000 head from the same period last year.

Today’s Midwest cash market was mostly steady, although markets in southeastern Ohio were up to 50 cents weaker. Today’s 2-day cash index came in at $78.67 per cwt, down $0.12 on the day, down $0.43 over the past three consecutive days and down $0.29 over the past week.

Product movement slid to 376 loads Wednesday, down from a strong 438 loads the previous day and down from 408 loads the previous week. The composite pork product price slipped to $90.08 per cwt, down $0.69 from the calendar-year high posted the previous day, but still up $0.96 on the week. Movement at midday today was slow at 159 loads, but the composite price rebounded $1.16 to a new calendar-year high of $91.24 per cwt on good demand for loin, picnic and belly cuts.

Exporters sold 16.4K metric tons of pork in the week ending August 6, up from 14.2K tons the previous week, but down from 30.3K tons sold in the same week last year. Actual shipments during the week totaled 17.0K tons, up from 16.8K tons the previous week, but down from 22.6K tons in the same week last year.

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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