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Closing Comments



Closing Comments


Strong upfront demand and slow farmer selling continues to support lead corn contracts, but a sustained rally likely needs to see the December contract lead.

The Department of Energy reports that ethanol stocks slipped to 21.2 million barrels in the week ending March 6, down from 21.5 million the previous week, but still above the 15.9 million barrels seen in storage at this time last year. Ethanol production rose to 944K barrels per day during the week, up from 931K the previous week and up from 869K barrels per day in the same week last year.

Ethanol corn usage during the week is estimated to be 100.2 million bushels, up from 98.8 million the previous week and up from 93.6 million in the same week last year. That brings estimated corn usage for the marketing year to date to 2.712 billion bushels, up 107 million or 4% from the previous year. Estimated corn usage to date exceeds the seasonal pace needed to reach USDA’s target by August 31 by 14 million bushels, up from 12 million the previous week.

Corn prices pushed higher overnight as Asian and European traders reacted to yesterday’s USDA crop report that showed tighter than expected domestic and global corn supplies. Prices firmed despite another impressive move in the dollar, surging over 1,000 points at times to its highest level since April 2003.

I believe that a sustained rally in the corn market needs to be led by the December contract, but that wasn’t the case today, leading to concerns about its sustainability. December broke out of its wedge formation to the downside just ahead of the report Tuesday, but then rallied back into its previous range. It tried to break out to the upside overnight, but again found sustaining the move difficult.

The nearby contracts led the way on tight supplies amid slow farmer selling, despite chatter that European corn is close to working into the East Coast. In the end, this is a market struggling to go anywhere, with December comfortable in the $4.10 to $4.20 range.

Allendale released the results of its survey of farmers in 30 states this morning. That survey revealed intentions to plant 88.5 million acres of corn this year, down 2.1 million from the previous year. Farm Futures is expected to release the results of its producer survey next Wednesday, with USDA releasing the results of its official survey on March 31.

December corn appears to be most comfortable trading between $4.10 and $4.20 per bushel. I believe that it needs to work higher to grab a few more acres, but the market thus far is showing little interest in doing so and that needs to be respected.


Soybeans firm in light of Argentine and Brazilian strikes that in reality have little impact on the fundamentals.

Argentine farmers began a three-day strike today, with a general strike taking place in Brazil that blocked some roads. That provided the fundamental support for an overnight bounce in soybean prices that carried into today’s session as well. Additional support comes from expectations that rains will delay harvest in northern areas of Brazil over the next two weeks, while tropical rains are also expected to slow cargo loading at southern ports. However, there is little evidence to this point that the above is resulting in much new business for U.S. soybeans.

There is evidence that export demand for soymeal is being extended by the lack of availability of South American supplies, which is supporting strength in both the cash and futures markets for soymeal. That in turn is pushing crush margins upward, providing some underlying support for soybean prices as processors try to pull supplies out of farmers’ hands. Fundamentally, strength in the soymeal market provides better justification for strength in soybeans near-term, although that is expected to soften as we move through the next several months.

May soymeal has good support at $320 with a bias to the upside currently. That continues to provide support for May soybeans near $9.80, with resistance at $10.04 and $10.40. Longer-term, supply is expected to overwhelm demand, but that may not become apparent to the market until the March 31 planting intentions report, or perhaps deeper into the growing season. An Allendale survey of farmers in 30 states revealed expectations to increase soybean area by 2.3 million acres this year.


Wheat prices rise despite a strong dollar.

Wheat prices moved modestly higher overnight and worked to hold those gains through much of today’s session, despite a dollar that traded more than 1,000 points higher at times. Fundamentally, traders pointed toward dryness in the Southern Plains, with little moisture in the forecast over the next two weeks as temperatures warm. Rain prospects are a bit better in the central Plains for the 6- to 15-day period, but drier southern areas are expected to remain dry.

The crop currently has good topsoil moisture following recent storm systems, but that isn’t expected to last long amid spring warmth and winds. Crop ratings are expected to initially improve, but then turn lower as moisture runs out later this month.

The above isn’t bullish wheat yet at this point, but it makes hedge fund managers holding record short (sold) positions in Kansas City and large short positions in Chicago nervous. As such, they’re covering a portion of those short positions at current prices near multi-year lows. We likely would have seen more strength today if not for the strength of the dollar, which continues to severely hurt export demand.

Chicago did find some support from a Tunisian tender to buy 4.6 million bushels of soft milling wheat. However, Minneapolis felt pressure from a weak Canadian dollar that made its hard red spring wheat more attractive on the global market.


Feeder cattle lead the beef complex higher with support from the cash market, but fat cattle futures traders remain skeptical.

Demand at the sale barn continues to strengthen, pushing feeder cattle prices higher as spring emerges in the Plains. The latest CME cash index came in at $212.58 per cwt, up $0.58 on the day, up $5.93 over the past week and up $6.34 over the past 7 consecutive trading days.

Strength in the feeder cattle market provided support for the fat cattle market amid evidence that this week’s negotiated cash trade should be steady with last week or better. Last week’s trade firmed into late Friday to reach $162 per cwt on a live basis and $259 per cwt on a dressed basis. Feeders are said to be asking $163 to $164, but packers so far have been slow to respond, despite significantly smaller showlists this week, although there are unconfirmed reports of a packer offering $258 on a dressed basis in Nebraska.

Today’s kill is estimated at 103,000 head of cattle, down 3,000 from the previous week and down 16,000 from the previous year. Week-to-date slaughter is pegged at 322,000 head, down 2,000 from the previous week and down 20,000 from the same period last year. The slower chain speed should help tighten product supplies to support boxed beef prices, but cheap pork limits the ability for beef prices to rise.

Boxed beef movement increased to 142 loads Tuesday, up from 128 loads the previous day and up from 110 loads the previous week. Choice cuts firmed 20 cents to $247.79 per cwt, while Select cuts dropped $0.63 to $245.12. This firmed the Choice/Select spread to $2.67 per cwt, up from $1.84 the previous day, but down from $4.33 the previous week. Movement at mid-morning today was routine at 96 loads, with Choice cuts down a nickel and Select cuts down 6 cents.


Avian flu confirmation adds weight to the pork complex amid larger meat supplies.

Officials confirmed avian flu in a turkey flock in Arkansas, with implications for the pork industry. Traders fear that customers will begin blocking imports of U.S. poultry, causing supplies to back up here in the United States. That would increase the supply of cheaper alternative meat at the retail level, even as pork supplies continue to increase.

As such, April lean hogs plummeted over the Noon hour dropping to $63.325 before recovering. That drop came within a dime of the February 18 low for the contract, posting a double-bottom on the charts. Typically one would expect the market to test that bottom again to see if it has support.

Today’s cash market was mostly steady, although Illinois prices were quoted at steady to 50 cents lower. The latest CME cash index came in at $67.22 per cwt, down $0.30 on the day, down $0.87 over the past three days, but still up $0.55 over the past week. Regardless, the cash market is trading at roughly a $4 premium to the lead futures at this point, suggesting an expectation that we will see additional weakness in the cash market.

Product movement Tuesday rose to 393 loads, up from 275 loads the previous day, but down from 447 loads the previous week. The composite pork product price dropped $0.12 to $68.63 per cwt, which is also down $0.38 over the past week. Movement at midday today was unimpressive for a Wednesday at 242 loads, but with the composite price $0.42 higher to $69.05 per cwt.

Today’s slaughter was estimated at 433,000 head, matching the previous week, but up 17,000 from the previous year. Week-to-date kill is estimated at 1.293 million head, down 7,000 from the previous week, but up 58,000 from the previous week. Slaughter numbers continue to trend above year ago levels at higher carcass weights. The trade next looks to USDA’s March 27 quarterly hogs and pigs report for indication of whether producers are continuing to expand the breeding herd.

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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