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Closing Comments

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Closing Comments

Corn

Export demand is strong, but traders are shifting their focus to the size of the supply.

Exporters sold 44.1 million bushels of corn in the week ending February 5, including 39.5 million old-crop bushels, with the biggest taker being Mexico at 16.8 million bushels of old-crop and 3.2 million bushels of new-crop corn. The old-crop sales were up from 33.5 million bushels sold the previous week and up from the five-year average for the week of 34.3 million bushels.

Marketing year sales to all destinations total 1.305 billion bushels, down 52 million or 4% from the previous year. Exporters typically sell 66% of final corn shipments by this point in the marketing year, whereas they had sold 71% by this point last year. However, this year they have already sold 75% of USDA’s target for the year that ends August 31. As such, sales to date exceed the seasonal pace needed to hit USDA’s target by 155 million bushels, up from 154 million the previous week.

Exporters sold 13.1 million bushels of grain sorghum in the week ending February 5, up from 8.8 million the previous week and up from the five-year average for the week of 1.3 million. Sales to Chinese end users accounted for 6.4 million bushels, while “unknown destination” (likely China) bought another 4.7 million, with the rest going to Japan.

Marketing year sales to all destinations total 291 million bushels, up 161 million or 124% from the previous year. Exporters typically sell 56% of final grain sorghum shipments by this point this point in the year, whereas they had sold 61% by this point last year. USDA raised the target to 300 million bushels on Tuesday, but sales to date are already at 97% of that target. As such, sales to date exceed the seasonal pace needed to hit USDA’s target by August 31 by 122 million bushels, up from 112 million the previous week.

It’s still relatively early, but Argentine corn production estimates are rising. We’ve already seen USDA raise its estimate by 1 mmt (40 million bushels) to 23 mmt. Next, the Rosario Grain Exchange raised its estimate to 23.5 mmt, up from 22.4 mmt previously, although the Buenos Aires Grain Exchange remains at 22.5 mmt. Lanworth, using both satellite and ground truth, pegs the crop at 28.8 mmt. The safrinha corn crop is still being planted in Brazil, but there’s little reason to believe currently that we won’t have 75 mmt from there. Bottom line: we are expected to have a lot of competition from South America later this year.

Futures prices separated from the rest of the commodity complex today, despite roughly a 1,000-point drop in the dollar. Traders are shifting their focus to the supply side of the balance sheet amid rising South American production estimates and increased corn movement in Iowa. The good news is that March corn found support at the 100-day moving average near $3.81, but the new-crop soybean/corn price ratio increased to 2.34 to 1.

Soybeans

A big South American harvest is on its way, but upfront demand for soybeans and soymeal remains strong.

Exporters sold 27.4 million bushels of soybeans in the week ending February 5, with all but 29K of the total being old-crop. The old-crop sales were up from 18.0 million bushels sold the previous week and up from the five-year average for the week of 6.1 million bushels. Sales to China accounted for 22.2 million bushels of the past week’s total, while “unknown destinations” reduced previous purchases by 5.4 million.

Marketing year sales to all destinations total 1.697 billion bushels, up 115 million or 7% from the previous year. Exporters typically sell 82% of final soybean shipments by this point in the marketing year, whereas they had sold 96% by this point last year. Thus far, they have sold 95% of USDA’s target for the current year. As such, sales to date exceed the seasonal pace needed to hit USDA’s target by August 31 by 223 million bushels, up from 217 million the previous year.

Demand for soymeal remains seasonally strong as well, amid ongoing tightness in South American supplies at this early date. Export sales in the week ending February 5 totaled 189.4K metric tons, down from 296.3K the previous week, but up from the five-year average for the week of 112.7K tons. Actual shipments during the week totaled 283.2K metric tons, up from 144.2K the previous week and up from the five-year average for the week of 190.7K tons.

The National Oilseed Processors Association is scheduled to release its January crush data on Tuesday. The trade expects NOPA to report that its members crushed 162.7 million bushels in January, which would be a record for the month. However, that would be down from the all-time monthly record of 165.384 million bushels in December 2013 and essentially matched last December. Water Street is looking for a record 166.135 million bushels.

CONAB, Brazil’s equivalent of our USDA, pegs its soybean crop at 94.6 million metric tons, down from 95.9 mmt in January, but close to USDA’s revised estimate of 94.5 mmt. Lanworth, which uses satellites and ground-truth, pegs the crop at 94.5 mmt as well.

However, the Rosario Grain Exchange pegged the Argentine crop at 58 mmt, up from 54.5 mmt previously and up from USDA’s revised estimate of 56 mmt. Lanworth puts the Argentine crop at 59.7 mmt. It’s still early in Argentina, but it looks like increases in the Argentine crop due to favorable weather will more than offset losses in Brazil due to areas of heat and dryness.

Rumors of a possible truckers strike in Brazil floated through the markets today, providing some support. However, the head of the largest truckers union told Reuters it has no such plans for a strike. Harvest delays due to heavy rain are also seen as temporary at this point.

March soybeans posted 6-cent gains today. That doesn’t seem that impressive, but it provided the most significant break above the 20-day moving average in a month. While encouraging, it would take consecutive closes above $10 before I would get too excited about this market amid the big supplies coming south of the equator.

Wheat

U.S. wheat supplies are more than ample and demand is soft thanks to the strong dollar.

Exporters sold 15.4 million bushels of wheat in the week ending February 5, including 15.0 million old-crop bushels. The old-crop sales were up from 14.6 million the previous week, but were down from the five-year average for the week of 18.6 million the previous week. The past week’s sales included 0.9 million bushels of U.S. hard red winter wheat to Brazilian millers, suggesting that they may be back due to concerns about Argentine quality.

Marketing year sales to all destinations total 762 million bushels, down 241 million or 24% from the previous year. Yet, sales to date exceed the seasonal pace needed to reach USDA’s target by May 31 by 29 million bushels, versus 30 million the previous week.

Europe is having a banner year exporting wheat, while our exports are struggling. The euro is weak, while the dollar is near 11-year highs. U.S. white wheat supplies are rather snug, but all the major wheat classes have ample supplies. One can make an argument that U.S. winter wheat conditions are not good, but it’s difficult to keep traders focused on that in February. As a result, wheat prices eroded lower today.

Beef

Futures firm on expectations of steady to stronger cash trade as product prices firm.

Exporters sold 13.8K metric tons of beef in the week ending February 5, down from 14.0K tons the previous week and down from 16.6K in the same week last year. Sales for the year to date total an estimated 113.6K tons, down 43K or 27% from the previous year amid a strong dollar and work slowdown at West Coast ports. Actual shipments in the week totaled 11.5K tons, up from 9.4K the previous week, but down from 11.9K the previous week. Shipments for the year to date total an estimated 55.4K tons, down 8K or 12% from the previous year.

One feeder in Iowa claims he sold cattle at $160 per cwt on a live basis on Wednesday. He said that it pained him to do so, but that the basis opportunity was too good to pass up. Elsewhere, feeders are said to be passing up bids of $161 per cwt, raising speculation that this week’s trade will be steady to higher than the previous week. The bulk of last week’s trade took place at $160 to $162.50 per cwt.

Packer margins improved to losses of $63.15 per head today after product prices rose on Wednesday. Losses had been estimated at $82.45 the previous day.

Boxed beef movement rose to 163 loads Wednesday, up from 123 loads the previous day, but down from 196 loads the previous week. Choice cuts were up $1.31 to $239.74 per cwt. It was just the third day since January 14 of seeing higher Choice cut prices. Select cuts were up $2.80 to $236.36. This narrowed the Choice/Select spread to $3.38 per cwt, down from $4.87 the previous day and down from $7.17 the previous week. Movement at mid-morning today was good at 113 loads, with Choice cuts down $0.13 and Select cuts down $0.61 per cwt.

The latest cash feeder cattle index came in at $209.84 per cwt, up $0.94 on the day and the first time that we’ve seen consecutively higher days in a month. That provided underlying support for the feeder cattle futures contracts that had been trading at a substantial discount to the cash market, with additional support coming from higher live cattle contracts on prospects for better cash action. February live cattle futures are trading just below $160 after having narrowed the gap with cash, but April is roughly $8 lower with resistance at $153, suggesting skepticism by traders.

Pork

Futures post a technical bounce, but hog fundamentals remain weak.

Exporters sold an impressive 24.2K metric tons of pork in the week ending February 5, despite the work slowdown at West Coast ports. The lowest prices in four years are helping to offset the strong dollar. Sales during the week were up from 18.8K tons the previous week and nearly twice the 12.6K tons sold in the same week last year.

Estimated sales for the year to date total 143K tons, up 31K or 27% from the previous year. Shipments during the week totaled 17.6K tons, down from 18.4K the previous week, but up from 11.0K in the same week last year. Estimated year to date sales total 90.2K tons, up 30K or 50% from the previous year.

Today’s cash market was again mostly steady to $1 lower, with perhaps a bias toward the $1 lower. The latest CME cash index dropped to $64.82 per cwt, down $0.96 on the day, down $4.62 on the week and down $23.69 per cwt over the past 43 consecutive trading days.

Product movement rose to 496 loads Wednesday, up from 412 the previous day and up from 443 loads the previous week. The composite pork product price rose $0.27 to $72.81 per cwt. Movement at midday today was routine at best at 196 loads, with the composite price down $0.51 to another multi-year low of $72.30 per cwt.

Futures prices bounced, but remained within the previous day’s trading range. This market is past due for a more significant correction higher, but the fundamentals continue to weigh on it, making rallies difficult to sustain.

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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