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Closing Comments

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Closing Comments

Corn

Corn holds onto modest gains on slow farmer selling and attempting to buy acres as soybeans and wheat continue their downward trek.

Exporters sold 38.8 million bushels of corn in the week ending February 26, including 32.6 million old-crop bushels. The old-crop sales were up from 28.2 million bushels the previous week and above the five-year average for the week of 29.6 million bushels. Marketing year sales total 1.403 billion bushels, down 75 million or 5% from the previous year, whereas this year’s USDA target is down 8.7% from the previous year.

Exporters typically sell 71% of final corn shipments by this point in the year, whereas they had sold 77% by this point last year. However, this year they have already sold 80% of USDA’s target for the year ending August 31. Sales to date exceed the seasonal pace needed to hit USDA’s target by 161 million bushels, up from 153 million the previous week.

Exporters sold 9.4 million bushels of grain sorghum in the week ending February 26, including 7.2 million old-crop bushels. The old-crop sales were up from 0.1 million the previous week and up from the five-year average for the week of 0.7 million bushels. The past week’s sales included purchases of 15.0 million old-crop and 2.4 million new-crop bushels by China that were partially offset by reductions of previous purchases by “unknown destinations” of 7.9 million bushels.

Marketing year grain sorghum sales total 300 million bushels, which matches USDA’s recently upward revised target. Exporters typically sell 60% of final grain sorghum shipments by this point in the year, whereas they had sold 64% by this point last year. However, this year they have already sold 100% of USDA’s target for the year which is currently at the mid-point. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 120 million bushels, up from 115 million the previous week.

USDA’s daily export reporting service today indicated continued demand for grain sorghum. “Unknown destinations,” which probably represents Chinese end users, bought another 4.25 million new-crop bushels of grain sorghum, with old-crop supplies basically all spoken for already.

Corn shipments to China are nearly non-existent since port authorities closed the door due to the presence of Viptera corn last year. Officials have since cleared Viptera, due to their need to import protein-rich DDGS supplies, but shipments of corn still are not happening. Meanwhile, China imported roughly 40 million bushels of Ukrainian corn in 2014.

Corn futures continue to trade in a converging wedge formation that often tends to precede a major move in one direction or the other. My bias continues to be modestly to the upside to buy acres near-term, but that will likely depend on the scope of ongoing losses in soybeans. The boundary of the edge tomorrow are roughly between $4.085 & $4.17.

Soybeans

Soybeans remain under pressure as chart signals turn lower amid the increased flow of Brazilian soybeans.

Exporters sold 18.4 million bushels of soybeans in the week ending February 26; virtually all of which was old-crop. The week’s sales were up from 16.9 million bushels sold the previous week, but were down from the five-year average for the week of 20.0 million. Sales to China accounted for 4.5 million bushels of the total, while “unknown destinations” accounted for another 5.0 million.

Marketing year sales to all destinations total 1.750 billion bushels, up 127 million or 8% from the previous year. Exporters typically sell 86% of final soybean shipments by this point in the year, whereas they had sold 98% by this point last year. This year they have sold 98% of USDA’s target. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 204 million bushels, but that is down from 209 million the previous week.

Soymeal surged again in late February on the lack of availability from South America, with sales reaching 130.2K metric tons in the week ending February 26. The total was up from net cancellations of 6.4K tons the previous week and were above the five-year average for the week of 110.7K tons. Actual shipments of soymeal during the week were also strong at 259.8K metric tons, up from 216.6K the previous week and up from the five-year average for the week of 193.8K tons.

Harvest delays continue to be a factor in Brazil, but soybeans are flowing sufficiently to meet demand at this point. Rains are easing in northwestern areas through the weekend, before a wetter pattern returns next week.

Production estimates have been slipping lower in Brazil, due to heat and dryness in January. To this point, those losses have been made up by gains in the Argentine crop. However, excessive rains may not be taking the top off Argentina’s crop as well. The Buenos Aires Grain Exchange currently pegs the crop at 57 million metric tons, up from 56 mmt and up from last year’s 54 mmt crop.

However, the exchange says that a reduction of its estimate is “in the cards” for future estimates as damage reports come in from recent flooding. Local reports indicate that 20% of the grain belt received nearly 14” of rain over the past 15 days. Even so, the combined Argentine & Brazilian crop is still expected to be a very large one.

The May soybean contract ended the day at trend line support off its January and February lows. Failure to hold that level would likely target the $9.70 level, with next support at $9.61. In the end, the continued ability of Brazilian farmers to harvest and sell their soybeans provide a key indicator.

The November contract is finally losing ground to December corn to discourage acreage. The new-crop soybean/corn price ratio finished today’s trade at 2.33 to 1, down from 2.4 in recent days. The ratio likely needs to get closer to 2.2 to 2.25 to have its desired impact on slowing soybean expansion in favor of more corn acres.

Wheat

Favorable growing conditions, a strong dollar and slow export sales drive wheat futures lower.

Exporters sold 18.7 million bushels of wheat in the week ending February 26, including 17.3 million old-crop bushels. The old-crop bushels look pretty good at first glance, up from 12.1 million the previous week and up from the five-year average for the week of 14.7 million. However, 6.4 million of the old-crop sales were hard red winter wheat purchased by Egypt using a $100 million grant. Without that grant, weekly old-crop sales would have been a dismal 10.9 million bushels.

Marketing year sales to all destinations total 801 million bushels, down 251 million or 24% from the previous year. Yet, this year’s target is so low that it keeps us close to the pace needed. In fact, sales to date exceed the seasonal pace needed to reach USDA’s target by May 31 by 26 million bushels, up from 21 million the previous week.

Ukraine expects to have reduced production this year, partially due to military action in the region. However, Russia and much of the rest of the Black Sea Region and Europe are coming out of the winter with pretty good conditions. Furthermore, dry areas of China are expected to see good moisture over the next couple of weeks and dry areas of the U.S. Plains have enjoyed a wetter pattern in recent weeks.

As such, there are simply few supportive headlines to counter the poor export demand driven by the strong dollar. The dollar traded more than 600 points higher at times today to new 11-year highs, making it difficult for U.S. wheat to compete. Prices came under pressure, with losses accelerating as they dropped below previous contract lows in Chicago and Kansas City.

This was the type of day in which we would frequently see Egypt come in with a snap tender to buy wheat. Regardless, U.S. wheat will likely continue to struggle amid the lack of headline threats to the Northern Hemisphere crop. I anticipated that we would add some risk premium going into March and April, but worried about our ability to do so if support gave way, which is exactly what happened.

Beef

Traders mark time waiting for cash trade.

USDA’s weekly export sales data released this week covered the last week of February, which was the first week after settlement of the West Coast port slowdown. It will likely take many weeks before the backlog is cleared from the ports, which is expected to continue to keep a lid on meat sales and shipments.

A look at the data shows that beef sales during the week ending February 26 totaled just 8.6K metric tons, down from 13.9K the previous week and down from 11.1K in the same week last year. Estimated 2015 sales to date total 146.8K tons, down 42.4K or 22% from the previous year. Actual shipments during the week totaled 11.8K tons, up slightly from 11.5K the past three weeks, as well as in the same week last year. Estimated calendar year shipments total 90.2K tons, down 8K or 8% from the previous year.

Today’s estimated slaughter is 108,000 head of cattle, matching week-ago levels, but down 2,000 from the same day last year. This brings estimated kill for the week to date to 432,000 head, up 15,000 from the previous week, but down 10,000 from the same period last year.

Overall demand continues to struggle in light of the recent rally in boxed beef prices that have pushed packer margins back into the black. As such, a number of those in the trade anticipate that we will see product prices work lower again in the weeks ahead, trying to compete with pork amid a late barbecue season. That will likely make sustained gains in the cash market difficult, which is why futures prices have not shown more enthusiasm for closing the gap.

Boxed beef movement rose to 148 loads Wednesday, up from 110 the previous day and up from 123 loads the previous week. The improved demand came on lower prices for Choice cuts, which were down $1.03 to $248.58 per cwt. Select cuts were up $1.95 to $247.23. This narrowed the Choice/Select spread to $1.35 per cwt, down from $4.33 the previous day and down from $1.56 the previous week. Movement at mid-morning today was a solid 101 loads, with  Choice cuts up $0.33 and Select cuts up $0.23 per cwt.

Feeder cattle futures were softer in the lead March contract, but added modestly to gains in the deferred. The latest cash index came in at $206.66 per cwt, up a penny from Wednesday and up $0.42 over the past three days.

Pork

Lean hog futures turn lower again on soft product prices as the supply rises faster than demand.

Exporters sold 19.0K metric tons of pork in the week ending February 26, down from 19.3K the previous week, but up from 9.5K in the same week last year. This brings estimated calendar year sales to 195.2K tons, up 44.4K or 29% from the previous year. Actual shipments during the week were 17.9K tons, up from 16.0K the previous week and up from total from the same week last year of 10.8K tons. Estimated calendar year shipments total 142.0K tons, up 47.5K or 50% from the previous year.

Domestic demand remains solid too, with product movement at 473 loads, Wednesday, up from 447 loads the previous day, although that was down from a robust 506 loads the previous week. The composite pork product price bounced briefly Wednesday, up $0.97 to $69.68 per cwt. Movement at midday today was disappointing at 150 loads, with the composite pork product price down $1.49 to $68.49 per cwt.

Today’s estimated kill comes in at 408,000 head amid weather problems in southern and eastern areas, down 15,000 from the previous week and down 9,000 from the previous year. Week-to-date slaughter is estimated at 1.708 million head, up 42,000 from the previous week and up 73,000 from the same period last year, and at heavier weights.

Today’s cash market was mostly steady in the eastern Midwest, where transportation problems continue to slow movement. However, prices were generally steady to 50 cents lower west of the Mississippi. The latest CME cash index came in at $67.73 per cwt, up $1.06 on the day and up $7.46 over the past 8 trading days. The question is, how long can prices continue to rise if product prices are still trending lower. Packer margins today were estimated at $2.85 per head.

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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