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Closing Comments

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Closing Comments

Corn

Corn futures firm on weak dollar and positive chart signals amid fears of declining acreage.

Exporters shipped 39.2 million bushels of corn in the week ending March 19, up from 28.9 million the previous week and above the five-year average for the week of 32.8 million bushels. Marketing year shipments total 846 million bushels, up 17 million or 2% from the previous year.

A look at the data finds that exporters typically ship 52% of final corn shipments by this point in the year that ends August 31, whereas they had shipped 43% by this point last year. This year they have shipped 47% of USDA’s target for the year. As such, shipments to date fall short of the seasonal pace needed to hit USDA’s target by 80 million bushels, versus being short by 84 million the previous week.

Grain sorghum shipments totaled 9.5 million bushels in the week ending March 19, down from an impressive 13.9 million the previous week, but up from the five-year average for the week of 3.7 million the previous week. Shipments to Chinese end users accounted for 8.9 million bushels of the past week’s total.

Marketing year shipments to all destinations total 213 million bushels, up 128 million or 151% from the previous year. Exporters typically ship 55% of final grain sorghum shipments by this point in the marketing year, whereas they had shipped 40% by this point last year. However, this year they have already shipped 71% of USDA’s target for the year ending August 31. As such, shipments to date exceed the seasonal pace needed to hit USDA’s target by August 31 by 47 million bushels, up from 45 million the previous week.

Friday’s rally was good for turning chart signals positive, with follow-through buying today. That buying received an extra boost from a dollar that traded more than 800 points lower at times, stimulating an increase of money flow into the broader commodity sector. Fundamentally, the market is finally focused on adding corn acres in order to widen the safety net, just in case adverse weather provides a drag to yields this summer.

The dollar looks weak near-term, which should facilitate additional strength in December futures, but the currency market remains vulnerable to unexpected volatility due to possible developments in Europe and elsewhere. The new-crop soybean/corn price ratio spent much of the day trading near 2.31 to 1, but settled at 2.33.

Soybeans

Soybean futures move reluctantly higher, following the rest of the commodity sector, with support from strong soymeal demand.

Exporters shipped 19.1 million bushels of soybeans, down from 21.5 million the previous week and down from the five-year average for the week of 26.8 million bushels. The past week’s shipments included 4.9 million bushels destined for China; the bulk of which passed through Pacific Northwest ports. No soybeans were loaded at Gulf terminals during the week.

Marketing year shipments total 1.604 billion bushels, up 147 million or 10% from the previous year. Exporters typically ship 78% of final soybean shipments by this point in the marketing year, whereas they had shipped 88% by this point last year. However, this year they have already shipped 90% of USDA’s target for the year. As such, shipments to date exceed the seasonal pace needed to hit USDA’s target by 207 million bushels, although that is down from 222 million the previous week.

Soymeal export sales and shipments remain unseasonably strong, but demand for whole soybeans to export is dropping off rapidly as supplies of cheaper South American soybeans grow rapidly. However, money was flowing into the broader commodity sector as the dollar fell today, pushing money into the oilseed as well.

The lead May soybean contract managed to trade back above trend line support off its October and January lows, after spending most of last week below it. Meanwhile, the November new-crop contract added to gains, after surviving a test of that same support last week.

Wheat

Winter wheat futures gap higher on a weaker dollar, although gains are limited as prices approach the February highs.

Exporters shipped 18.8 million bushels of wheat in the week ending March 19, down from 19.1 million the previous week and down from the five-year average for the week of 21.7 million bushels. However, traders took note that shipments to Brazil totaled 2.1 million bushels during the week.

Marketing year shipments to all destinations total 676 million bushels, down 258 million or 28% from the previous year. Exporters typically ship 78% of final wheat shipments by this point in the marketing year that ends May 31, whereas they had shipped 79% by this point last year. However, this year they have only shipped 75% of USDA’s target. As such, shipments to date fall short of the seasonal pace needed to reach USDA’s target by 29 million bushels, versus short by 30 million the previous week.

The weaker dollar raises hopes of stronger export sales, with the past week’s shipments providing some encouragement. Dryness and winterkill concerns in the Plains provide fundamental support, although these production issues only matter if demand gets healthy once again. That means that wheat likely needs sustained weakness in the dollar near-term to sustain the current rally. The trend remains higher, but keep an eye on the dollar.

Beef

Futures prices touch daily limit gains following Friday’s strong cash action.

April live cattle futures gapped above the 100-day moving average in impressive fashion to start the week, as did the lead March feeder cattle contract. In fact, the lead live cattle contract traded the $3 daily limit higher late in the session. Futures traders were reacting to impressive dynamics in the cash cattle market on Friday afternoon.

Some packers were dark on Friday, as the supply of cattle was simply too small, while they also wanted to slow the kill to support product prices. As such, last week’s kill was the lowest for the year at 518,000 if you don’t count the week that included New Year’s Day. In fact, the week’s kill was down 10.5% from the same week last year.

Friday afternoon’s cash trade emerged shortly after USDA’s cattle-on-feed report revealed few surprises, while confirming smaller placements once again. Cash trade started at $163 in Kansas, up $2 on the week, while it firmed to $165 in western Nebraska and Colorado. Some packers are believed to have come up short of their needs.

The industry had benefited from a strong dollar that made it profitable to import beef, but the dollar is now weakening, removing some of that advantage. All of this takes place as we move into the last fall week of March, with barbecue season just around the corner starting with Easter weekend in early April. As such, the current dynamics suggest the possibility that we could see the lead contract trade to $165, but a precarious balance of abundant supplies of cheaper pork and poultry and a volatile currency market leave all of this at risk.

Strength in the fat cattle market fans bullish embers in the feeder cattle market as well, even with higher corn prices. The latest CME cash index came in at $215.60 per cwt, up $1.63 from the previous day, up $2.99 over the past two days of gains and up $1.80 over the past week. Today’s cash index is down roughly $1.50 from the lead March contract.

Boxed beef movement was routine at mid-morning at 66 loads. Choice cuts were up $1.10 to $245.61, while Select cuts were down $0.45 to $242.83 per cwt. Today’s kill is estimated at 107,000 head, down 3,000 from the previous week and down 9,000 from the same period last year.

USDA’s cold storage report showed that beef in the freezer on February 28 were up slightly from the previous month, but up 20% from the previous year. However, more concerning longer-term is a build in supplies of pork and poultry. This may become a bigger problem once the spring barbecue season wanes.

Pork

Lean hog futures consolidate ahead of Friday’s USDA quarterly hogs and pigs report.

Today’s cash market was mostly steady to $1 lower in the closely watched Iowa/southern Minnesota market, while steady to 50 cents weaker in much of the rest of the Midwest, as supply continues to exceed demand. The latest cash index came in at $62.90 per cwt, down $0.66 on the day, down $3.08 over the past week and down $5.19 over the past 11 consecutively lower trading days.

Yet, futures prices saw modest strength today as traders began to look ahead to Friday’s highly-anticipated USDA quarterly hogs and pigs report. They’ve seen quite a run in the lean hog market and many traders would like to take profits out of the market ahead of Friday’s release, just in case the agency has a big surprise up their sleeve. As such, the lead April contract consolidated largely within the trading range of the past two session, but with a higher bias.

However, the upside appears to be fairly limited as long as the cash and product markets remain under pressure. The composite pork product price firmed $0.59 to $68.62 per cwt at midday, but on slow movement at just 137 loads.

Today’s kill is estimated at 434,000 head, up 16,000 from the previous week and up 21,000 from the same period last year.

USDA’s cold storage report found that pork supplies in the freezer on February 28 were up 15% from the previous month and up 5% from the previous year. All major cuts saw significant gains from the previous month. Just as concerning were poultry supplies, which were up 4% on the month and up 6% on the year. This is a problem for market bulls in the hog market. The focus now shifts to Friday’s USDA quarterly hogs and pigs report.

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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