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Closing Comments



Closing Comments


USDA catches the corn industry leaning opposite of USDA.

USDA caught the corn market leaning the wrong way. Several noted producer surveys called for a significant drop in corn acres, while recent USDA reports had finally convinced a reluctant trade that demand is strong. Soybean acres on the other hand were expected to see a big increase, again based on several noted producer surveys.

Yet, the agency showed fewer soybean and more corn acres than expected. USDA pegged 2015 corn planting intentions at 89.2 million acres, down from 90.6 million the previous year, but up from the average pre-report trade guess of 88.7 million acres. A trend yield on those acres would still be expected to leave 2015-16 surplus corn stocks near 1.7 billion bushels.

Furthermore, its quarterly stocks report showed 7.745 billion bushels of corn in storage, up 737 million bushels from the previous year and up 136 million from the average trade expectation. That the equivalent to nearly a million acres of corn production, suggesting that USDA’s feed usage estimates are in fact too optimistic.

First the computers knocked corn prices lower, with the lead May contract losing more than 12 cents in the first minute following the data’s release. The human factor then came into play, with traders unwinding their long corn/short soybean positions. That pushed prices down even further. By that time, the charts had turned bearish, leading to follow-through technical selling that saw prices break sharply.

The next job for the market is to find solid footing, from where it can then trade spring weather forecasts and their potential implications for the approaching growing season. For perspective, keep in mind that the global balance sheet still does not show a big surplus. It would not take a big weather problem to tighten supplies for the year ahead and to support a healthy rally.

However, the market is very comfortable with just-in-time supplies in this broader commodity deflationary cycle, leaving prices vulnerable if no weather threat emerges this growing season. History would argue for a bounce this spring, but long-range weather outlooks currently suggest that such rallies should be sold.

Another surprise came in the sorghum acreage estimate from USDA. The agency reports that farmers intend to plant 7.9 million acres this year, up from 7.1 million the previous year, but down from the average pre-report trade guess of 8.1 million, with a whisper number in the trade of 10 million acres. Significant increases were noted in the Delta north into the southern Midwest, but the surprise was that little increase was anticipated for the primary production state of Kansas, despite a lot of farmer chatter there that we would see a shift to more grain sorghum.

December corn tested $4.00 just ahead of the close and settled fractionally above it. That becomes a psychological level of support that will likely be tested tonight, and perhaps again over the next few days. Consecutive closes below that would certainly leave this market vulnerable, but I anticipate that this market will start finding some bargain-hunter buying over the next few days if support holds.


Soybeans rally on USDA’s data, but did little to turn the fundamentals bullish.

USDA pegged March 1 soybean stocks at 1.334 billion bushels, up 340 million from the previous year, but down 12 million from the average pre-report trade estimate. That combines with the January stocks report to suggest that USDA may have over-estimated the size of the 2014 crop.

Furthermore, USDA reports that farmers intend to plant 84.6 million acres to soybeans this year, up from 83.7 million the previous year, but down from the average pre-report trade estimate of 85.9 million acres. That’s still enough acres with a trend yield to produce a 400 million-bushel surplus in the 2015-16 marketing year, but the soybean market’s initial reaction was to push higher due to the large number of corn/soybean spreads that needed to be unwound. However, there was nothing bullish in USDA’s data.

Soybean futures traded nearly a 20-cent range immediately after the report’s release, but then settled down with modest gains for much of the remainder of the session. Soybeans generally have positive seasonal influences in April as the market worries about acreage, but then turns lower once the market becomes comfortable with growing season weather. November dropped to a six-month low of $9.33 early in the session before rallying, setting yet another downside target for later this spring.

Today’s market response to USDA pushed the new-crop soybean/corn price ration to 2.38 to 1, up more than 10 points over the past 24 hours in a move to buy soybean acres over corn, even though soybeans have weaker long-term fundamentals than corn.


Wheat futures collapse on a renewed focus on a stronger dollar amid poor export demand.

USDA pegged March 1 stocks for all wheat at 1.124 billion bushels, up 67 million from the previous year, but down 16 million from the average pre-report trade estimate. Furthermore, the agency pegged all-wheat acres at 55.4 million acres, down 1.4 million on the year and down 400,000 from the average pre-report trade estimate. Durum acres rose to 1.647 million, up from 1.398 million the previous year, but down from expectations of 1.759 million. Other spring wheat acres dropped to 12.969 million acres, down from 13.025 million in 2014 and down from expectations of 13.334 million acres.

The data would appear to be friendly to wheat, but the market’s reaction was anything but friendly. We had sharply higher prices on Monday, but prices were already weaker ahead of the USDA data release. Monday’s strength was largely on profit taking expecting lower winter wheat ratings. They were lower in Kansas and Nebraska, but many other states were stable to higher. As such, wheat traders focused again on the strong dollar and poor export demand.

The bottom line for traders today was the expectation that Russia will be offering new-crop wheat this summer more than $1 per bushel below U.S. soft red winter wheat, and likely closer to $1.35 lower. Some analysts believe that the dollar has completed its correction lower and is now returning for a retest of its 12-year highs, suggesting that wheat exports are going to struggle for quite some time.

The list of states issuing crop ratings increased this past week, while USDA is scheduled to begin releasing national ratings on a weekly basis starting tomorrow. Generally we are seeing ratings in the central Plains decline, while the Southern Plains was stable and central Midwest improved. Of greatest concern was Kansas wheat at 39% Good to Excellent, down 2 points on the week, and Nebraska at 34%, down 15 points over the past month. On the other hand, Illinois’ crop rated 52% Good to Excellent, up 5 points over the past four weeks.

There are a lot of problems with the winter wheat crop in the Plains, but they don’t matter much for the trade if nobody wants to buy it. Yet, traders will likely remain reluctant to push prices to new lows until they know more about this year’s crop. As such, I’m looking for a broad sideways trading range with very choppy trade continuing in the weeks ahead.


Live cattle futures struggle once again after seeing interest in new highs lacking.

Live cattle futures turned lower again today after failing to see interest in even testing recent highs. The lead April contract simply has no interest in pushing above the February contract’s late high of $163.10 until/unless the cash market forces it to do so.

The lead April feeder cattle market failed again to probe above $220 on its fifth attempt to do so in the last six trading days. Feeder cattle rallied sharply following USDA’s report release as corn turned sharply lower, but turned lower again when buying dried up at $220. These become significant areas of resistance for both the fat and feeder cattle markets until such time that cash turns lower, or drags the futures market reluctantly higher.

The latest CME cash feeder cattle index came in at $218.89 per cwt today. That’s up $1.16 from the previous day, up $2.18 over the past two days and up $2.66 over the past week.

Boxed beef movement fell to just 93 loads Monday, down from 109 loads on Friday and down from 107 loads the previous week. Choice cuts were priced at $251.70 per cwt, up $0.90 on the day, while Select cuts were up $0.91 to $247.62 per cwt. That put the Choice/Select spread at $4.08 per cwt, down a penny on the day, but up from $2.56 from the previous week. Movement at mid-morning today stood at just 68 loads, although Choice cuts were up another $2.80, while Select cuts were up $3.16 per cwt.

Today’s kill is estimated at 109,000 head, up 1,000 on the week, but down 10,000 head from the previous year. That brings this week’s kill to date to 218,000 head, up 6,000 on the week, but down 17,000 from the same period last year.


Lean hog futures continue their post-USDA rally.

Today’s cash market was mostly steady in the Midwest for the second day in a row. Yet, the CME 2-day lean hog index continues to grind lower at roughly a half-dollar per day. Today’s index came in at a five-year low of $59.96 per cwt, down $0.43 on the day, down $2.33 on the week and down $8.13 per cwt over the past 17 consecutive trading days.

Today’s kill is estimated at 426,000 head, down 6,000 from the previous week, but up 15,000 from the previous year. Week-to-date slaughter is estimated at 861,000 head, down 5,000 from the previous week, but up 53,000 from the same period last year.

Product movement slowed to 290 loads on Monday, down from 347 loads on Friday and down from 291 loads the previous week. The composite pork product price firmed 4 cents to $65.39 per cwt, but the trend continues lower. Movement at midday today was routine at best at 193 loads, with the composite price down $0.38 to $65.01 per cwt.

The strength in this market continues to be in the deferred contracts following Friday’s USDA quarterly hogs and pigs report that showed that low prices have led producer to ratchet down breeding herd expansion, with farrowing intentions 2% below the previous year for this summer. However, the rally in prices will likely modify that somewhat.

Nonetheless, the lead April contract traded to $62.90 per cwt, above the cash index, but just below resistance at $63.05 per cwt. June hogs traded to their highest level in nearly three weeks, but have several layers of chart resistance just above current levels. The charts are slowly turning higher, but the industry continues to monitor reports of avian flu slowly spreading in the poultry industry that could threaten to bring this rally to an end.

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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