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Closing Comments



Closing Comments


Cheaper ocean freight rates result in a surge in export sales, but supplies of corn still remain large.

Exporters sold an impressive 86 million bushels of corn in the week ending January 15, a seven-year high. The weekly total was up from 32.2 million bushels sold in the previous week and up from the five-year average for the week of 33.9 million bushels. The big buyer during the week was “unknown destinations” at 19 million bushels, with other big buyers including regular customers of Japan, South Korea and Taiwan, who were taking advantage of cheaper ocean freight rates to the region.

Marketing year sales to all destinations total 1.195 billion bushels, up 26 million or 2% from the previous year. Exporters typically sell 59% of final corn shipments by this point in the marketing year, whereas they had sold 61% by this point last year. However, this year they have already sold 68% of USDA’s target for the year that ends August 31. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by 156 million bushels, up from 108 million the previous week.

Exporters sold 12.1 million bushels of grain sorghum in the week ending January 15, up from 10.8 million the previous week and up from the five-year average for the week of 1.1 million bushels. The week’s total included sales of 8.2 million bushels to China and 3.4 million to “unknown destinations.”

Marketing year sales to all destinations total 260 million bushels, up 143 million or 122% from the previous year as Chinese end users try to quietly grab every bushel we have before anyone realizes the shelves are empty this spring. Exporters typically sell 51% of final grain sorghum shipments by this point in the marketing year that ends August 31, whereas they had sold 55% by this point last year. However, they have already sold 96% of USDA’s newly revised target this year. As such, sales to date exceed the seasonal pace needed to hit USDA’s target by 123 million bushels, up from 115 million the previous year.

Friday’s reported weekly export sales data was certainly impressive as buyers took advantage of a break in ocean freight rates to extend coverage. The demand puts us well above the sales pace needed to reach USDA’s target, but we’re in no danger of running out of corn ahead of next year’s harvest.

There are two major potential supply threats that could prove supportive later this year, with the world generally shifting from corn toward soybean production. First, an abnormally wet February in Mato Grosso, Mato Grosso do Sul and surrounding areas of Brazil could prevent soybeans from being harvested so that safrinha corn can be planted. The safrinha crop is where the bulk of Brazil’s exportable supplies come from, accounting for roughly 60% of its annual production. To this point, forecasters lean toward normal to below normal rainfall during the period, which would be bearish for corn.

The second potential threat to supplies is the 2015 U.S. crop. We will likely see a modest decline in acreage with producers shifting to more soybeans. That drop in acres can be managed as long as we produce a trend yield, but a below trend yield could make things interesting and that takes us to weather patterns. Commodity Weather Group sees a higher risk for below normal rainfall in the central Plains and western Midwest this summer, but that doesn’t guarantee a below trend national average yield.

Until/unless one of the above threats emerges, the major funds will likely see corn as another member of the commodity sector in a deflationary period. Losses probably won’t be as great for corn because of the two above potential risks, but that doesn’t mean that we couldn’t see some painful losses. Furthermore, we can’t rule out an above-trend yield that would build global supplies further, creating even more downward price risk.

As such, downside price risk manage must still be the greater priority for the producer. March corn futures were steady to weaker on the week, while December corn actually gained $0.025 over the past week.


The soymeal export season is being extended, but demand for whole soybeans is beginning to shift south of the equator ahead of what is expected to be a large harvest that further adds to global surpluses.

Exporters sold a net 4.2 million bushels of soybeans in the week ending January 15, including just 0.5 million old-crop bushels. The weekly old-crop sales total included cancellations of 2.8 million bushels by China, along with reductions of previous purchases of 15.2 million bushels by “unknown destinations.” However, the total would be disappointing if those cancellations didn’t take place, reflecting the global market’s growing confidence in the approaching South American harvest.

Marketing year sales to all destinations total 1.629 billion bushels, up 83 million or 5% from the previous year. Exporters typically sell 78% of final soybean shipments by this point in the marketing year that ends August 31, whereas they had sold 94% by this point last year. This year exporters have sold 92% of USDA’s target for the marketing year. As such, sales to date exceed the seasonal pace needed to hit USDA’s target by 252 million bushels, but that is down from 296 million the previous week as the gap begins to rapidly converge.

Soymeal business surged again in the week ending January 15 as the harvest delays in South America, keeping premiums high from those markets. Exporters sold 284.5K metric tons during the week ending January 15, up from 72.2K the previous week and up from the five-year average for the week of 167.5K tons. Actual shipments during the week remained strong at 302.9K tons. That was down from 440.2K tons the previous week, but still up from the five-year average for the week of 206.5K tons.

Spot soybean futures lost 19 cents over the past week, while new-crop November soybeans lost 15-1/2 cents. We are not about to run out of soybeans ahead of this year’s U.S. harvest and traders are becoming increasingly comfortable with a large South American harvest. Timely rains over the last half of the week should help many of those soybeans finish with pod fill. Some local analysts are ratcheting down their production estimates due to recent dryness, but their estimates are still nearly 10% above year ago levels.

The big South American harvest is expected to be followed by a 3 to 4-million acre rise in U.S. acreage this spring. A dry summer could still tighten supplies, but the surplus from last year’s crop combined with anticipated surplus supplies from South America and expected larger acreage mean that it would likely need to be a significant weather event to tighten supplies. As such, soybeans probably face the greatest downside price risk in the near-term.


Wheat falls with broader commodity complex as the dollar surges higher.

Exporters sold 20.7 million bushels of wheat in the week ending January 15, including 16.8 million old-crop bushels. The old-crop sales were up from 10.5 million bushels sold the previous week, but down from the five-year average of 25.2 million the previous week. Marketing year sales total 713 million bushels, down 217 million or 23% from the previous year. Sales to date still exceed the seasonal pace needed to hit USDA’s target by May 31 by 5 million bushels, but that is down from 7 million the previous week.

This year’s winter wheat acreage is down and conditions are deteriorating over the winter. That could prove to be a story this spring if dry weather remains a problem in parts of the belt. However, the current focus is exports. The latest USDA weekly data was more encouraging, but the recent surge in the dollar doesn’t bode well for maintaining that newly found demand.

Wheat prices are trying to stabilize, but traders see very few headlines to justify going against the tide of commodity deflationary pressures. That leaves the market vulnerable to continuing to leak lower until we get closer to spring, when the flow of fundamental news is expected to increase. That’s not a guarantee that we’ll see higher prices at that time, as global wheat supplies remain more than adequate, but it does improve the chances of supportive headlines due to the poor condition of the U.S. crop on fewer acres.

Tensions increased significantly in Ukraine over the past week, with Russian troops reportedly joining separatist rebels to fight Ukrainian forces. That provided some support for Chicago soft wheat, but in the end, it is not expected to increase demand for U.S. wheat.

The biggest blow came to the hard red wheat classes. The quality protein supplies are tightest on the global market, but we’re not running out. As such, Canada’s surprise drop in interest rates this past week proved to be a big blow for hard red wheat. The resulting drop in the Canadian dollar combined with a surge in the U.S. dollar quickly priced our hard red wheat out of the market while making Canadian supplies more attractive. As such, the hard red wheat classes had to drop to try to stay competitive.


Collapse of the beef complex continues as demand wanes.

Live cattle futures continue their decline that found its energy in index fund portfolio rebalancing earlier this month. The charts are bearish and traders are making money “trading the trend.” Unfortunately, the fundamentals are in decline, not providing the impetus to turn this train around. As such, the week ended with cattle locking the $3 daily limit lower mid-morning on weak demand, building supplies and a strong dollar that is expected to provide additional challenges for exports.

Thursday’s USDA cold storage report added to that bearish tone, showing that beef in the freezer on December 31 was very close to year ago levels as demand drops to recent low supply levels. In fact, supplies are starting to build again, with beef in the freezer up 11% from the previous month, although some of that could be expected as consumers focus on cheaper Christmas hams. However, boneless beef supplies, also up 11% over the previous year, were considered to the most telling number for market bears.

Cash cattle trade was reported to have finished the week with some movement at $163 per cwt on a live basis in Texas, but much of that strength was likely due to the foot of snow that fell there mid-week. Prices were otherwise mostly $4 lower on the week. The weaker cash market comes amid trade reports that packers have large numbers of cattle contracted for February delivery. The sharp discount of futures to the cash give a significant basis advantage to those feeders who are hedged, but gives little consolation to those who are not.

Exporters sold just 9.6K metric tons of beef in the week ending January 15, down from 11.1K the previous week and down from 14.3K the previous year as a strong dollar hurt our competitiveness. Actual shipments were a bit better at 11.0K tons, down from 12.6K the previous week and down from 12.1K the previous year.

USDA data shows that carcasses are beginning to lighten seasonally, but those carcass weights are still up 27 pounds from year ago levels, adding to supplies. As such, the industry needs to get more current, but feeders are reluctant to give in to packers at current price levels. Tonnage is also being added by an increase in dairy cow slaughter, which is expected to remain a factor for many months to come.

Feeder cattle futures locked the $4.50 per cwt daily limit lower by mid-morning as traders eyed weakening demand at the sale barn as reflected by a tumbling cash index. The latest CME cash index came in at $220.23 per cwt, down $8.94 over the past week and down $14.99 per cwt over the past nine trading days.

USDA’s cattle-on-feed report indicated that feeders were feeding 10.690 million head of cattle on January 1, up 100K from the previous year. Yet, that was down about 70K from the average trade expectation. December placements totaled 1.544 million head, down 69K from trade expectations. Marketings came in at 1.655 million head, which was close to trade expectations. Overall, the data was supportive for next week’s trade, especially after recent sharp losses. However, Monday’s response may have more to do with what’s happening in the financial markets, depending on weekend headlines.

Boxed beef movement totaled 130 loads on Thursday, down from 193 loads the previous day, but up from 100 loads the previous week. Choice cuts were down another $1.54 to $255.65 per cwt, while Select cuts were up $0.48 to $248.89 per cwt. That narrowed the Choice/Select spread to $6.76 per cwt, down from $8.78 the previous day and down from $8.81 the previous week. Movement at mid-morning today was sluggish at 63 loads, with Choice cuts down another $1.77 and Select cuts up $0.54 per cwt.


Demand is good, but the pork supply is growing even faster.

Thursday’s USDA cold storage report showed that, while pork supplies are still down 10% from the previous year, those supplies are growing, rising by 2% over the previous month. Furthermore, the biggest drag on supplies was in the hams, which were down 14% from the previous year and down 31% from the previous month, but that was largely due to a shift to holiday hams amid higher priced beef prices. Butts were also down 15% on the month, but still up 5% year-on-year. Other cuts were up significantly from the previous month, with many also up from the previous year.

Slaughter numbers continue to come in above year ago levels and at heavier weights. As a result, we’re seeing production numbers come in up to 4% above year ago levels. Demand is good, but supply is rising at a rapid pace as well. Producers worried about lower prices are keeping current, not requiring packers making nearly $30 per head pay up to get the hogs.

The latest CME cash index came in at $74.11 per cwt, down $0.44 on the day, down $1.87 over the past week and down $14.40 over the past 29 straight trading days that have seen losses.

Exporters sold an impressive 23.9K metric tons of pork in the week ending January 15, down from 28.1K the previous week, but up from 14.7K the previous year. Yet, the total remains impressive considering the strength of the dollar. Actual shipments dropped to 16.3K tons, down from 19.8K the previous week, but up from 12.6K tons in the same week last year.

Product movement Thursday totaled 257 loads, down from 473 loads the previous day and down from 312 loads the previous week. The composite pork product price dropped $2.34 on the day to $84.70 per cwt. Movement at midday today was modest at 181 loads, with the composite price down another $0.99 to $83.71 per cwt.

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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