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Closing Comments



Closing Comments


Ethanol production remains strong, with global acreage in decline.

The Department of Energy reported a very small reduction of 58K barrels in ethanol stocks in the week ending February 13, leaving them at 21.1 million barrels, although that is still up considerably from 17.2 million barrels a year earlier. Ethanol production rose slightly to 964K barrels per day during the week, up from 961K barrels per day the previous week and up from 903K barrels per day in the same week last year.

The data suggests that ethanol producers utilized 102.3 million bushels of corn in the week reported, up from 102 million the previous week and up from 97.2 million the previous year. This brings estimated corn usage to date to 2.413 billion bushels, up 95 million or 4% from the previous year. Estimated corn usage to date falls short of the seasonal pace needed to hit USDA’s target by August 31 by 10 million bushels, but that is down from a shortfall of 12 million the previous week. Demand from the ethanol industry for corn remains strong, although it is expected to slip this spring.

USDA released its first of its kind grain crushing report, indicating that processors used 510.1 million bushels in December. Of that total, 456 million bushels were used for ethanol, up 5% from November and up 7% from October. Grain sorghum usage for ethanol was estimated at 1.6 million bushels in December, down 57% from November and down 53% from October. DDGS production in December was pegged at 1.9 million tons, up 8% from November and up 4% from October.

USDA’s annual Outlook Conference always makes headlines in February, but seldom does it reveal any significant market-moving news. The headlines typically focus on economists’ expectations for planted acreage for the spring ahead. These estimates are based on economists pushing pencils and not on any producer surveys. Actual producer surveys are conducted around March 1 and reported on March 31. USDA economists expect farmers to plant 89 million acres of corn this year, which is consistent with our expectations as well as those of many in the industry. Plugging that number into my balance sheet with a trend yield results in ending stocks of 1.4 billion bushels.

Acreage of alternative feed grains are expected to rise 1.2 million to 14.0 million acres. The bulk of that increase is expected to come from grain sorghum, as Chinese end users continue to buy up as many bushels of U.S. supplies of the feed grain as they can.

Another comment that received much less attention was one made by an economist with SovEcon. He expects Black Sea corn exports to drop by 320 to 420 million bushels this year. However, he also told attenders that they should expect global market share for corn exports coming from the Black Sea region to rise significantly in the years ahead. The coming year’s losses though come on top of rising risks that safrinha corn area in Brazil will decline due to rains that have slowed planting.

The new-crop soybean/corn price ratio dropped to 2.5 to 1 today, although it needs to drop closer to 2 to 1 to encourage more corn acreage, particularly in light of anticipated declines from Brazil and the Black Sea. Those declines do not turn corn bullish on their own, but they do significantly reduce the margin for error of a weather event in the U.S. this summer.

December corn continues to trade just below the February 9 high of $4.2175. Buy-stops are believed to be stacked above that level, with the 200-day moving average at $4.2225. However, the market needs to show that it can sustain a move above that level to test for those buy stops.


USDA shocks the trade with a prediction of fewer soybean acres this year.

The real shocker from USDA’s annual Outlook Forum was in its soybean acreage estimate for the coming growing season. Economists believe that farmers will plant 83.5 million acres of soybeans, down from 83.7 million the previous year and down from some private estimates based on producer surveys of 87 to 88 million acres. The acreage cut comes despite reductions of 1.6 million for corn, 1.3 million for all wheat, 1.3 million for cotton and 1.3 million for CRP acreage.

I tend to be more bullish on soybean demand than USDA, but my estimates have tended to be closer to reality for soybeans for usage. Even so, plugging 83.5 million acres into my balance sheet still leaves 2015-16 ending stocks at 350 million bushels

Most traditional grain traders are skeptical of the numbers, but computers do not have the ability to be skeptical. As such, algorithmic computer trading appeared to give soybeans the boost they needed to push prices to new one-month highs following the estimate’s release. Chart signals turned as prices rose, accelerating gains.

Expiration of March options is tomorrow, with the $10 strike price very attractive for traders with skin in the game. Today’s rally simply helps encourage more soybean acres this year, when a reduction is needed. Near-term contracts find support from an extended export season for soybeans and soymeal, but the deferred contracts will need to eventually deal with expectations of rising global supplies.


Egyptian tender emphasizes high price of U.S. wheat relative to the global market.

USDA pegs all wheat acreage at 55.5 million, down 1.3 million from the previous year. The agency had previously pegged winter wheat at 40.5 million acres, down 1.9 million from the previous year. That would suggest that USDA economists anticipate a modest rise in spring wheat and durum acres of 0.6 million.

Egypt issued another snap tender late Wednesday for March delivery, suggesting a significant need to buy wheat soon. The latest tender was opened up to a broad-spectrum of options, versus the previous canceled tender that was limited to U.S. wheat. The latter tended resulted in Egypt buying 8.8 million bushels of wheat, with 6.6 million coming from France and 2.2 million coming from Romania.

The average price in the Egyptian purchase was said to be $6.54 per bushel delivered. That compares prices for U.S. soft red winter wheat offered for two cargoes at $7.28 and $6.76 per bushel. The disparity shows how over-priced U.S. wheat is for this significant buyer of wheat on the global market. It also explains why Egypt canceled the tender for U.S. only wheat.

In the end, the Egyptian business highlighted that U.S. wheat exports will likely continue to struggle at these price levels. Wheat prices tried to follow the rest of the commodity complex higher, but the above poured cold water on those bullish embers, resulting in weaker prices into the close, with Chicago and Kansas City May contracts settling near their session lows.


Live cattle futures are soft ahead of this week’s cash trade.

Live cattle futures consolidated lower today, with traders waiting for this week’s cash action to unfold. Packers were said to be offering mostly $160 per cwt on a live basis, while feeders asked for $165. Most of last week’s thin trade took place at $162 to $163.50 per cwt. April live cattle are trading in a converging area of congestion on the charts, suggesting that a bigger move in one direction or the other is around the corner. Market bulls point toward tight supplies, but the huge discount of the deferred contracts suggests a bias to the downside longer-term as the bias of traders.

Wednesday’s kill came in at an estimated 99,000 head, down 2,000 from the previous week and down 16,000 from the same day last year. That brings estimated slaughter for the week to date to 307,000 head, down from 316,000 the previous week and down from 318,000 the previous year.

The trade expects Friday’s cattle-on-feed report to show that all cattle in feedlots will come in at 99.9% of year ago levels. However, January placements are expected to come in at 87.3% of year ago levels, while January marketings come in at 91.8% of the previous year.

Boxed beef rose to 176 loads on Wednesday, up from 142 loads the previous day and up from 163 loads the previous week. Choice cuts were up $0.66 to $239.78 per cwt, while Select cuts were up $2.65 to $235.85 per cwt. That narrowed the Choice/Select spread to $3.93 per cwt, down from $5.92 the previous day, but up from $3.38 the previous week. Estimated packer margins put losses at $107.55 per head.

Product movement at mid-morning this morning was slow at 81 loads. Choice cuts were up $0.59 to $240.37, while Select cuts were up $0.98 to $236.83 per cwt.

The latest CME cash index came in at $210.48 per cwt, down $0.51 on the day and down $0.45 on the week. That’s still a big premium to the futures market, which continues to be capped at $205.


Lean hog futures rise on profit-taking on hopes of a seasonal low.

Lean hog futures pushed sharply higher on profit-taking on ideas that we may be near a bottom. That premise was based on “hopes” that the West Coast port slowdown will be resolved soon, allowing more pork to flow. Further support comes from signs of stability in the cash and product markets.

The latest CME cash index came in at $60.93 per cwt, down $0.49 on the day, down $3.89 on the week and down $27.58 over the past 48 consecutive days. Today’s cash trade was mostly steady across the Midwest, suggesting that we might finally bring that streak to an end.

Wednesday’s kill is estimated at 424,000 head, down 2,000 from the previous week and down 7,000 from the previous year. This week’s slaughter to date is estimated at 1.246 million head, down 22,000 on the week and down 10,000 from the same period last year.

Product movement totaled 443 loads on Wednesday, up from 350 loads the previous day, but down from 496 loads the previous week. The composite pork product price came in at $72.44 per cwt, up $0.05 on the day and up $0.35 over the past four days.

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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