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Closing Comments

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Closing Comments

Corn

Strong dollar pressures corn prices, despite friendly USDA crop report.

The bulk of the changes in USDA’s balance sheet came on the corn tables. The agency cut ethanol usage by 50 million bushels, while increasing feed and exports by 50 million bushels each. The net result was a 50-million bushel drop in this year’s ending stocks to 1.777 billion bushels, when the trade was expecting stocks to basically remain unchanged near 1.827 billion.

Furthermore, USDA made a number of changes to its global balance sheet that further tightened supplies. The net result was for global supplies to drop to a 69-day supply. That’s just two weeks larger than a 40-year low in supplies set in the 2006-07 marketing year and nearly matched again in both the 2010-11 and 2011-12 marketing years.

The world is comfortable with “just in time” supplies, which is why prices are down where they are currently trading. However, that doesn’t leave much of a margin for error should a problem develop with the 2015 crop, particularly with acreage being down in Argentina, Brazil and Ukraine.

December corn came under pressure from yet another surge in the dollar that yielded selling in global commodity and equity markets. The contract eventually hit sell stops below key support that broke it through the bottom of its recent converging wedge formation on the charts. That suggested lower prices ahead. USDA refocused the trade briefly, with prices pushing back into positive territory and back into the aforementioned wedge formation. However, it struggled to hold those gains, suggesting that this market continues to have a weaker bias.

Soybeans

USDA made few changes to the soybean balance sheet, allowing them to slip lower with the rest of the markets.

USDA made virtually no changes of note to either its domestic or global balance sheet. The failure to adjust its Brazilian production downward is actually bearish, as that leaves the door for the estimate to creep higher as it has done in other big crop years. Yet, CONAB (Brazil’s equivalent to our USDA) lowered its production estimate this morning to 93.3 mmt, down from 94.6 mmt previously. USDA kept its estimate at 94.5 mmt for Brazil and 56 mmt in Argentina. The sense is that Argentina could go higher, but local analysts are still assessing possible damage from excessive rains.

Soybean prices were lower today, but remain in a sideways to firmer trading range near-term. Support came from strengthening soymeal basis as export demand remains solid, but pressure comes from the big South American crop, which is expected to dominate the global market in the weeks and months ahead.

Wheat

USDA makes few changes to wheat balance sheet.

Wheat came under significant pressure this morning as the dollar pushed sharply higher. Additional pressure came from expectations that USDA would boost domestic wheat stocks by nearly 10 million bushels. The agency did not do that, but basically left them unchanged. The lack of a bearish adjustment was considered friendly, although it still leaves us with a lot of wheat. Adjustments to individual wheat classes were very small tweaks as well.

In the end, wheat prices remain vulnerable. There’s still a bias toward the market adding risk premium as spring emerges, but we still lack the type of headlines that could support such strength. Wheat ratings in the Plains are low, but improving and last year’s drought was unable to produce much energy in the market due to ample supplies overseas made cheaper by currency exchange rate changes. This year’s fundamentals are similar, with fewer threats to the crop.

Beef

Nearby contracts firm on ideas that cash cattle will hold onto last week’s gains in this week’s trade.

Skepticism continues to abound in the live cattle futures market. The deferred contracts hold onto their large discounts, which they added to in today’s trade. The nearby contracts reluctantly drift closer to the cash market, which is well above the board.

This week’s showlist was surprisingly small in some states and down significantly overall, raising prospects that this week’s negotiated trade will be at least near last week’s levels of up to $162 per cwt on a live basis. That’s more than $7 above the lead April contract, which is slowly trying to close the gap. I’m still looking for April to slowly work its way up to the $158 to $160 level, while the deferred contracts maintain a big discount.

Today’s kill is expected to total 109,000 head, matching week ago levels, but down 8,000 from year ago levels. Week-to-date slaughter is estimated at 219,000 head, up 1,000 from the previous week, but down 4,000 from the same period last year.

Monday’s boxed beef movement dropped to 128 loads, down from 130 loads on Friday, but up from a dismal 70 loads the previous week. Choice cuts were down $0.89 to $247.59 per cwt, while Select cuts were up $1.36 to $245.75 per cwt. That dropped the Choice/Select spread to $1.84 per cwt, down from $4.09 the previous day and down from $3.22 the previous week. Movement at mid-morning today was routine at 88 loads. Choice cuts were up $0.41 to $248.00, while Select cuts were down $0.15 to $245.60 per cwt.

The feeder cattle market is heating up seasonally, aided by cheap corn and firmer fat cattle prices. The latest CME cash index came in at $212 per cwt, essentially matching the lead March contract. The index is up $1.75 from the previous day and up $5.76 over the past 6 days.

Pork

Weaker cash market weighs on lean hog futures.

Today’s cash market as mostly $0.50 to $1.00 lower at Midwest markets, as the weather warms and roads clear, allowing the flow of hogs to increase. The latest CME 2-day lean hog index came in at $67.52 per cwt, down $0.40 on the day, but still up $1.92 on the week. However, the index is expected to continue to slide in the days ahead, providing little reason for futures to sustain a rally.

Today’s slaughter is estimated at 433,000 head, down 2,000 from the previous week, but up 21,000 from the previous year. Week-to-date slaughter is estimated at 865,000 head, down 2,000 from the previous week, but up 46,000 from the same period last year.

Product movement eased up to 275 loads Monday, up from 274 loads on Friday, but down from 344 loads the previous week. The composite pork product price dropped to $68.75 per cwt, down $0.07 from the previous day and down $0.92 from the previous week.

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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