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Closing Comments



Closing Comments


USDA boosts corn demand, but prices drop anyway on broad commodity weakness.

USDA cut U.S. corn ending stocks more than the trade expected, pegging them at 1.827 billion. That’s 52 million bushels below the average trade guess going into the report, while just 10 million above our estimate at Water Street. The agency arrived at the number by cutting feed usage by 25 million, while increasing ethanol usage by another 75 million bushels.

The increase in ethanol usage came as processors continue to work at a rate that is higher than previously anticipated by USDA, but it also was influenced by what we’ve been telling you about Chinese demand for grain sorghum. Chinese end users trying to avoid high-priced domestic corn and unable to import U.S. corn are soaking up all of our grain sorghum supplies.

USDA pegged grain sorghum exports at 300 million bushels, up from 270 million the previous month and up from 212 million the previous year. It offsets the move by cutting grain sorghum ethanol usage by 15 million bushels. Feed usage dropped  by 10 million as well.

The current export target is 69% of the total crop produced last year. In fact, USDA’s revised export target may still be too low for grain sorghum. Chinese end users are already actively buying a portion of next year’s crop as well. The net result of USDA’s adjustments to the grain sorghum balance sheet is to leave stocks at just 27 million bushels, down 5 million from January and at just a 22-day supply.

Back to corn, USDA left Brazil’s production unchanged at 75 million metric tons, which is no surprise since the majority of the crop is just now being planted in what they call the safrinha corn crop. However, USDA bumped its Argentine production estimate by 1 mmt to 23 mmt. That estimate will likely continue to rise in the months ahead, based on expectations of continued favorable weather.

Corn demand is rising and stocks are falling, but they’re still big. That allowed corn prices to go the direction of the rest of the commodity complex, which is lower. The dollar strengthened and crude oil declined as Germany’s finance minister suggested that Greece needed to accept the current terms with no desire to extended grace toward the debt-ridden country. The euro dropped and dollar rallied, leading to another round of broad-based selling in the commodity sector.

March corn tried and failed again to test resistance at $3.925, giving way to selling pressure after the second attempt failed. That doesn’t rule out higher prices, but reinforces strength at that resistance level. The December chart continues to look a bit better, but still struggled today as well due to sharp losses in the soybean complex.


Soybean prices tumble despite USDA confirming stronger demand, as the agency also confirms a big South American crop.

USDA surprised traders by pegging U.S. soybean stocks at 385 million bushels, down from 410 million the previous month and down from the average trade pre-report estimate of 398 million bushels. However, the estimate remains above where I expect it to end up at 369 million bushels.

The agency reached the estimate by increasing exports by 20 million and increasing crush by 15 million bushels. It partially offset that by increasing imports by 10 million bushels, which again is not a surprise, considering price relationships between the United States and Canada.

The above would appear to be friendly, but 385 million bushels is still a lot of soybeans and the South American crop is big. USDA cut its Brazilian estimate by 1 mmt to 94.5 mmt, with more downward adjustment possible. However, USDA raised the Argentine crop by 1 mmt to 56 mmt, with more upward revisions expected in the months ahead.

Receiving less attention, but nonetheless significant, USDA raised its Chinese 2014 production estimate by 0.55 mmt or 20 million bushels. However, it kept China’s import estimate unchanged at 74 mmt. Total usage crept higher to 3.167 billion bushels, up 11 million on the month and up 217 million on the year.

ABIOVE represents Brazil’s crush industry. It revised its soybean production estimate to 92.3 million metric tons today, up from 91.9 mmt previously. The estimate is still below USDA’s estimate, suggesting more downside risk in future reports. However, it is up from its previous estimate, suggesting that it too could make a move closer to USDA in future revisions. I continue to see the crop somewhere between 93 and 94 mmt. Much of the crop is grown in the back country of Brazil, making good estimates difficult for the industry to achieve.

Price reaction in the soybean market was rather mild, compared to some recent crop report days. Prices tried a couple times to push higher on the tighter stocks, but then gave way to a renewed focus on the big South American harvest, sinking crude oil prices and a strong dollar.

The initial market reaction took prices nearly 7 cents above the 20-day moving average, which had been capping prices. However, the market then reversed lower, dropping to one-week lows, suggesting additional weakness is possible in the days ahead. Trade sentiment is bearish ahead of next week’s USDA Outlook Forum as well, with expectations that data to be released on Wednesday will peg 2015-16 marketing year ending stocks near 500 million bushels.


Wheat prices slide with the rest of the commodity complex as USDA cuts exports amid strong dollar.

USDA bumped 2014-15 wheat ending stocks by 5 million to 692 million bushels, versus trade expectations of 689 million and my pre-report estimate of 697 million bushels. The agency cut imports by 20 million, while cutting exports by 25 million bushels. In the end, it’s not very friendly for the balance sheet to see export demand so soft so as to drop prices to the point where imports out of Canada no longer work as well.

Breaking it down by class, hard red winter wheat stocks grew by 15 million bushels, while soft red winter grow by 10 million bushels. Those increases were partially offset by a 20 million bushel reduction in hard red spring supplies. Hard red spring wheat now sees the strongest exports of the major wheat classes at 295 million bushels, followed by hard red winter at 285 million and white wheat at 150 million bushels.

On the global front, USDA raised Argentine production by 0.5 mmt, while boosting EU production by 0.18 mmt. Global wheat stocks rose by 1.85 mmt or 68 million bushels. Unfortunately, USDA provided little for market bulls to hang onto on the global balance sheet.

Hopes for sustaining this month’s rally were damaged when traders pushed prices to double-digit losses following USDA’s crop report. They came off their low ahead of the close, but still remain quite weak. Minneapolis gained on the winter wheat markets reflecting changes in the balance sheet showing tighter hard red spring and larger winter wheat supplies, but today’s action suggests that a sideways trading pattern may be the best that we can hope for near-term.


USDA boosts beef demand, but rising supplies leaves stocks unchanged.

USDA raised 2014 beef ending stocks by 56 million to 586 million pounds, providing an equal increase in the size of 2015 beginning stocks. 2015 beef production increased 391 million pounds following the recent bearish cattle inventory report showing faster growth in the cow herd than previously believed, with imports also raised by 40 million pounds. Exports dropped by 75 million pounds as the strong dollar hurts demand, but domestic demand was good, with total usage up 561 million pounds, leaving ending stocks unchanged at 485 million.

The nearby live cattle futures contracts traded both sides of unchanged today, but found a way to rally into the afternoon on hopes/expectations of firmer cash later this week. Feeder cattle futures struggled again on ideas that supplies are increasing and feeding margins are hurting, but tight upfront supplies continue to support the nearby prospects for fat cattle.

This week’s show list is considerably smaller following active buying by packers last week. Look for a slower chain speed again this week, reducing the number of animals needed, but also providing some stability for the boxed beef market. Product prices are now in an area where they should find some support and packers need to move enough beef to maintain market share with pork. Monday’s slaughter is estimated at 110,000 head, up 5,000 from the previous week and up 22,000 from the same day last year.

Boxed beef movement Monday totaled 163 loads, up from 151 loads on Friday and up from 142 loads the previous week. Choice cuts were down $0.60 to $238.48 per cwt, while Select cuts were down $1.51 to $232.30 for Select cuts. This boosted the Choice/Select spread to $6.18 per cwt, up from $5.27 the previous day, but down from $7.01 the previous week. Movement at mid-morning today was just 69 loads, with Choice cuts down $0.03 and Select cuts up $1.02 per cwt.

The latest CME cash feeder cattle index came in at $208.90 per cwt, up $0.24 on the day. It was just the third time in the past 22 trading days that the index posted a gain for the day. Otherwise, the index is down $26.32 per cwt over that period.


Pork prices remain under pressure on slowing export shipments amid rising supplies.

USDA raised 2014 pork supplies by 11 million to 551 million pounds, which becomes the beginning supplies for 2015. This year’s pork production is now pegged at 24.103 billion pounds, up 195 million from January’s estimate. Exports drop by 430 million pounds as a strong dollar and West Coast port workers slow movement. However, domestic usage of pork rises 636 million pounds, leaving ending stocks unchanged at 605 million pounds.

The expiring February lean hog contract moved modestly higher today, attempting to close the gap with the cash market before going off the board this weekend. The cash market remains at a premium to the contract, but it is also dropping to close the gap. Other contracts tried to bounce, before turning lower to trade at new lows for the move.

Today’s cash market was again weaker, with most Midwest locations $0.50 to $1.00 lower. The latest CME cash came in at $66.65 per cwt, down $1.25 on the day. That’s the largest one-day loss for the index since December 19. The index is down $3.70 per cwt over the past week and down $21.86 over the past 41 straight trading days that it has been in decline.

Product movement rose to 361 loads Monday, up from 336 loads on Friday and up from 275 loads the previous week. The composite pork product price rose $0.76 to $73.70 per cwt; it’s first increase in a week for the composite price. Movement at midday today was routine at best at 184 loads, with the composite price down another $1.99 to a new four-year low of $71.71 per cwt.

This market is past due for a correction higher. It’s tried several times and failed. A probe to new lows today uncovered buying interest, but the close wasn’t impressive and both cash and product prices continue to drop at a significant pace.

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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