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Closing Comments

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Closing Comments

Corn

Traders fear increased flow of corn as farmers start to sell this spring.

Exporters shipped 34.9 million bushels of corn in the week ending January 22, up from 29.4 million the previous week and up from the five-year average for the week of 25.2 million. Marketing year shipments total 562 million bushels, up 9 million or 2% from the previous year. Shipments to date fall short of the seasonal pace needed to hit USDA’s target by August 31 by 87 million bushels, versus being short 90 million bushels the previous week.

Exporters shipped 11.9 million bushels of grain sorghum in the week ending January 22, up from 9.2 million the previous week and up from the five-year average for the week of 1.7 million bushels. Shipments to Chinese end users accounted for virtually all of the week’s total.

Marketing year shipments to all destinations total 146 million bushels, up 99 million or 208% from the previous year. Exporters typically ship 40% of final grain sorghum shipments by this point in the year, whereas they had shipped 22% by this point last year. However, this year they have already shipped 54% of USDA’s target for the year. As such, shipments to date exceed the seasonal pace needed to hit USDA’s target by August 31 by 39 million bushels, up from 32 million the previous week.

We will likely see on Wednesday that ethanol corn usage remains near record levels above 100 million bushels per week, with export demand solid as well in recent weeks. However, the strong dollar is making sustaining that export pace more difficult, with lower crude oil prices threatening the future of ethanol demand as well. Basis has been holding well as farmers hold tight, but traders believe that flow of corn will likely increase substantially ahead of spring field work.

As such, corn prices eroded lower today. The charts continue to show a bear flag, suggesting lower prices ahead. Overall, the losses in corn should be less than soybeans longer-term, but there will likely be these times of fluctuations. Rallies will likely be difficult to sustain until/unless traders begin to worry about weather threatening production in a major producing area of the world. Critical support is in the $3.75 – $3.77 area of March corn.

Soybeans

Upfront demand remains strong, providing periodic rallies, but supplies are expected to increase substantially once harvest gains momentum south of the equator.

Exporters shipped 55.9 million bushels of soybeans in the week ending January 22, essentially matching the previous week’s total, but up from the five-year average for the week of 50.4 million bushels. Shipments to China accounted for 28.8 million bushels of the total during the week.

Marketing year shipments to all destinations total 1.312 billion bushels, up 197 million or 18% from the previous year. Exporters typically ship 57% of final soybean shipments by this point in the marketing year, whereas last year they had shipped 68% by this point. However, this year they have already shipped 74% of USDA’s target for the year. As such, shipments to date exceed the seasonal pace needed to hit USDA’s target by August 31 by 296 million bushels, versus 299 million the previous week.

Soybean prices struggled overnight on good South American rains, but rallied in today’s session to post double-digit gains. Export shipments of soybeans remain strong, even if new sales are slow. Crush margins also remain profitable due to strong export demand for soymeal.

Additional support came from a drop in palm oil to new five-month lows on decreased demand. That weighed on soyoil prices, which supported soymeal futures in spread trading. Strength in soymeal added further support to soybeans. Recent dryness likely took the top off the Brazilian soybean crop, but it is still expected to be more than large enough to meet demand, further adding to supplies. Strong demand should provide periodic rallies as we saw today, but this market will likely be vulnerable to considerable weakness in February if yields come in as expected in Brazil.

Wheat

The strong dollar is hurting demand for U.S. wheat.

Exporters shipped 9.7 million bushels of wheat in the week ending January 22, down from 11.5 million the previous week and down from the five-year average for the week of 19.4 million bushels. Marketing year shipments total 539 million bushels, down 260 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 47 million bushels, versus short by 40 million the previous week.

Snows over the northeastern Midwest disappointed forecasters overnight, leaving less protection than expected for next week’s fresh surge of Arctic cold across the region. We’ll have one more chance this weekend to pick up some snow, but if that disappoints as well we could be left with a quarter of the Midwest soft wheat belt vulnerable to winterkill next week.

Wheat prices keep trying to carve out a seasonal low, but weak demand makes it difficult to do so. The strength of the dollar is one of the biggest obstacles for wheat at this point. As such, wheat traders will be watching this week’s actions by the Federal Reserve very closely; particularly its updated policy statement midday Wednesday.

Kansas City March wheat probed to a new contract low of $5.535 today, settling a penny above that level. New lows over the next couple of days would empower the bears, while other traders would like to carve out a bottom at these levels with Kansas City gaining on Chicago once again. Again, the Federal Reserve’s statement on Wednesday could play a key role in this battle.

Beef

Cattle futures flush lower, ignoring Friday’s cattle-on-feed report, but bottom-pickers provide support that pulls prices off their lows.

Feeder cattle futures plummeted today in follow-through selling as fund managers continue to liquidate positions. Live cattle futures followed the feeder cattle market lower, despite Friday’s supportive cattle-on-feed report. Bottom pickers emerged this morning to buy the break, suggesting that we may be nearing a near-term low, but prices still settled lower on the day. The fundamentals are weakening as well, so traders with short (sold) positions still have not felt punished for holding their short positions. It’s generally a bearish sign when bullish data fails to support the market.

If there is a positive sign it may be the move by commercial traders to start hedging their ownership at current price levels. Friday’s CFTC report showed growth in commercial ownership, with today’s rally off the lows likely a product of the same. The packers need the cattle and likely see value at these levels.

Last week’s slaughter was estimated at 576K head, up 30K on the week, but still down 24K from the same week last year. Carcass weights averaged 824 pounds, down 1 pound from the previous week, but up 21 pounds from the previous year. Total beef production came in at 473.4 million pounds, up from 449.5 million the previous week, but down from 480.8 million the previous year.

Boxed beef movement rose to 736 loads over the past week, up from 677 loads the previous week as prices declined, but well below the 874 loads we saw move two weeks ago. Choice cuts finished the week at $253.74, down $6.71 from the previous week and down more than $10 from this month’s record high. Select cuts finished the week at $247.23 per cwt, down $3.61 from the previous week. That dropped the Choice/Select spread to $6.51 per cwt, down $3.10 from the previous week.

Product movement today dropped to 133 loads, down from 139 loads on Friday, but up from 112 loads the previous week. Choice cuts dropped sharply to $251.41 per cwt, down $2.33 on the day. Select cuts dropped $2.44 to $244.79 per cwt. That pushed the Choice/Select spread to $6.62 per cwt, up from $6.51 on Friday, but down from $9.57 a week ago. Packer margins remain positive at $3.60 per head.

The latest CME feeder cattle index came in at $217.61 per cwt, down $2.84 on the day and down $14.77 per cwt over the past 11 trading days. This still leaves it at a premium to the futures market, but it is rapidly dropping to that level. The latest data had 265 head of 752 weight cattle trading at less than $200 per cwt in the Southern Plains.

Pork

Russia rumors provide impetus for short-covering rally, but can it be sustained?

Lean hog futures have come down a long ways and were oversold and due for a bounce. As such, they were primed for a rumor that could provide the impetus for that short-covering rally. Such was the case today as rumors circulated that Russia was lifting its ban on U.S. beef and pork imports. There have been reports that Russia is trying to negotiate the reopening of this market to help with food inflation at home. However, Reuters reports that the U.S. Meat Export Federation says that there has been no movement on Russia’s part to lift the import ban.

Fundamentally, product prices are trading sideways, although with a weaker bias. Meanwhile the cash market continues to slide lower. This has made for profitable packer margins approaching $30 per head, but they haven’t had to chase the market to get the hogs they need.

Last week’s slaughter totaled an estimated 2.316 million head of hogs, up from 2.257 million the previous week. Carcass weights averaged 216 pounds, up one pound from the previous week. Total meat production came in at 499.5 million pounds, up from 485 million the previous week. Last week’s estimated slaughter came in 4.6% above the same week last year, while total slaughter for the year to date is still down 3.6% due to a slow start to the  year.

Today’s cash market was mostly $1 lower, although some were $2 lower in Ohio. The latest CME cash index came in at $73.57 per cwt, down $0.54 on the day and down $14.94 over the past 30 trading days.

Product movement dropped to 1,721 loads in the past week, down from 1,745 loads the previous week and down from 2,100 loads two weeks ago. The composite pork product price finished the week at $84.38 per cwt, up $0.01 on the week. Prices were strong early in the week, but broke to close out the week to end near unchanged, but the penny gain allowed it to post its third consecutive week of gains. However, total gains in the composite price over that three week period total just $1.06 per cwt.

Movement today dropped to 272 loads, down from 323 loads on Friday and down from 287 loads the previous week. The composite pork product price firmed to $84.47 per cwt, up $0.09 on the 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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