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Closing Comments



Closing Comments


Ethanol demand is strong and export sales are improving, with the farmer remaining tight-fisted. The soybean/corn price ratio is trending lower, with corn getting the supportive end of that spread until more is known about February weather in Brazil’s safrinha corn belt. Gains are limited by sinking soybean prices and favorable weather currently in the Southern Hemisphere.

Exporters shipped 29.4 million bushels of corn in the week ending January 15, up from 19.7 million the previous week and above the five-year average for the week of 26.8 million bushels. However, the opportunity to ship corn to China remains largely closed.

Marketing year shipments to all destinations total 527 million bushels, up 3 million from the previous year. Exporters typically ship 35% of final corn shipments by this point in the marketing year, whereas they had only shipped 27% by this point last year. This year they have shipped 30% of USDA’s target to this point. As such, shipments to date fall short of the seasonal pace needed to hit USDA’s target by 90 million bushels, versus being short by 89 million the previous week.

Exporters shipped 9.2 million bushels of grain sorghum in the week ending January 15, up from 4.8 million the previous week and up from the five-year average for the week of 1.9 million bushels. Shipments to China accounted for 8.5 million bushels of the week’s total.

Marketing year shipments to all destinations total 134 million bushels, up 89 million or 198% from the previous year. Exporters typically ship 38% of final grain sorghum shipments by this point in the season, whereas they had shipped 21% by this point last year. Thus far this year they have already shipped 50% of USDA’s target for the year that ends August 31. As such, shipments to date exceed the seasonal pace needed to hit USDA’s target by 32 million bushels, up from 26 million the previous week.

March corn traded lower overnight, but remained above Friday’s low. Prices firmed late in the session, amid firm interior Midwest basis. The lead March contract acts like it would like to establish a broad sideways trading range; likely between $3.75 to $4.00 near-term, although it’s still too early to say if we’ll be able to hold the bottom of that range. Spot corn futures continue to closely track prices for the 2009 crop, which dropped to $3.52 by February 7, before bouncing modestly ahead of spring.


Soybeans continue to set new lows for the move as the focus shifts to a big South American harvest. Another set of cancellations from China combined with the slowest economic growth in 24 years contributed to weakness today.

Exporters shipped 55.8 million bushels of soybeans in the week ending January 15, down from 68.5 million the previous week, but above the five-year average for the week of 47.9 million bushels. The past week’s total included 40.9 million bushels destined for China.

Marketing year shipments to all destinations total 1.256 billion bushels, up 215 million or 21% from the previous year. Exporters typically ship 54% of final soybean shipments by this point in the marketing year, whereas they had shipped 63% by this point last year. However, exporters have already shipped 71% of USDA’s target for the current year that doesn’t end until August 31.

As such, export shipments to date exceed the seasonal pace needed to hit USDA’s target by August 31 by 299 million bushels, up from 295 million the previous week. However, that gap is expected to begin closing in the next several weeks.

However, the larger news impacting prices today came from China. First, China released data Monday indicating that its gross domestic product, the way we measure economic growth, grew by 7.4% in 2014. That was the slowest growth in 24 years for China. Furthermore, China followed that up by cancelling previous purchases of 6.4 million bushels of soybeans, on top of the 10.5 million cancelled just days earlier.

Ironically, the spot soybean contract has been mirroring price movement seen with the 2009 crop over the past several months. Prices six years ago dropped sharply following USDA’s January crop, trading down to $9.08 in early February before bouncing modestly into the spring. The bottom line is that supply continues to exceed demand, with expanded acreage on both sides of the equator. Prices will have to fix that relationship, unless a weather problem emerges at some point to do so.


Wheat export demand remains weak due to uncompetitive prices amid a strong dollar. However, bargain hunters returned to wheat late morning to correct oversold conditions amid talk of rising conflicts between Russia and Ukraine.

Exporters shipped 11.4 million bushels of wheat in the week ending January 15, up from 8.8 million the previous week, but still below the five-year average for the week of 17.2 million bushels. Marketing year shipments total 529 million bushels, down 255 million or 32% from the previous year. Shipments to date fall short of the seasonal pace needed to hit USDA’s target by May 31 by 40 million bushels, versus falling short by 36 million the previous week.

Wheat prices found support late morning on reports that Russian troops were advancing into eastern Ukraine. Ukrainian sources report that their forces had stopped the advancement, but also that the fighting was intense. Support comes from ideas that exports might be shut off from this region, but the odds of such remain well below 50%, with plenty of other cheaper alternative sources still available if it does occur. However, this will be something to watch, as it can create supportive headlines.

The wheat market dropped to its lowest level since November 11 in Chicago and October 3 in Kansas City amid broad-based commodity liquidation early today. However, the late-day rally erased those losses. Chart signals remain bearish, but bargain hunters are starting to buy the breaks, suggesting that prices are approaching an area of value. We’ll need to keep an eye on Ukraine, but otherwise I don’t see any fundamental support for a sustained rally until we get closer to the winter crop breaking dormancy.


Bearish chart signals continue to dominate the beef sector, influencing the fundamentals as well.

Live cattle futures continued their bearish ways today, with the lead February contract trading down to $151.45 per cwt, its lowest level since August 28. This week’s slaughter rate should be the highest since the Christmas break, which will likely necessitate packers buying a large volume on the negotiated market. However, the sharp break in today’s futures gives them an upper hand, especially after sell stops were tripped below Friday’s lows.

Packer bids in Kansas were said to be at $160 per cwt on a live basis, versus the bulk of last week’s trade at $164, with a few at $164.50. The futures market is oversold and due for a bounce, but we will likely need to see surprising strength in the cash market to give traders the courage to buy the board. Open interest continues to tumble, suggesting long liquidation amid a vacuum of buyers as chart signals deteriorate.

Packer margins are estimated at profits of $3.75 per head, up from estimated losses of $57.30 per head a weak ago. Last week’s slaughter was estimated at 546K head, up from 538K the previous week, but down from 601K in the same week last year. Carcass weights averaged 825 pounds, down 4 pounds from last month’s high. As such, overall beef production for last week was down 6% from the previous year, while production year to date is down 7% from the previous year.

The product market appears to have topped seasonally, although prices were bouncing again this morning on slow movement. Boxed beef movement dropped to 112 loads Monday, down from 141 loads on Friday and down from 158 loads the previous week. Choice cuts dropped $1.03 to $259.42 per cwt, while Select cuts were down $0.99 to $249.85. That dropped to the Choice/Select spread to $9.57 per cwt, down from $9.61 the previous day, but up from $8.40 the previous week. Movement at mid-morning today was just 72 loads, with Choice cuts up $0.87, while Select cuts were up $2.00 per cwt.

January feeder cattle had to respect their discount to the cash market as they near expiration on January 29, while the deferred contracts respected weakness in the cash market, as well as the fat cattle market. The latest cash index came in at $224.13 per cwt, down $2.26 on the day and down $11.09 per cwt over the past six trading days.


Pork demand is good, but expansion in the hog herd has supply overwhelming that demand, leading to weaker prices.

Last week’s kill is estimated at 2.276 million head of hogs, up from 2.143 million the previous week and up from 2.263 million the previous year. Year to date slaughter is estimated at 5.194 million head, down 6.1% from the previous year. However, that gap is rapidly closing. Overall pork production last week came in at 464.3 million pounds, up 4.1% from the same week last year. Estimated packer margins are good at $22.65 per head.

Today’s cash market was mostly $0.50 to $1.00 lower. The latest CME cash index came in at $75.08 per cwt, down $0.50 on the day. The index has been declining for the past 26 trading days in a row going back to late last year, with losses over that period totaling $13.43 per cwt.

The good news has been in stabilizing product prices. Monday’s product movement totaled 287 loads, up from 256 loads on Friday, but down from 293 loads the previous week. The composite pork product prices rose $0.16 to $84.53 per cwt. The composite price posted modest net gains of less than $1 in each of the past two weeks.

Yet, futures prices are now leading the cash market lower. The market is oversold and due for a bounce, but few traders have the courage to buy this market when they are making money following the trend lower.

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

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