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Closing Comments

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Closing Comments

Corn

Corn exports are poor due to “high” prices, but the trade hasn’t given up on buying acres either.

Exporters sold 17 million bushels of corn in the week ending March 26, including 16 million old-crop bushels. The old-crop sales were down from 17.1 million the previous week and were down from the five-year average for the week of 39.3 million bushels.

Marketing year sales total 1.472 billion bushels, down 152 million or 9% from the previous year. Exporters typically sell 78% of final corn shipments by this point in the marketing year, whereas they had sold 85% by this point last year. This year they have sold 82% of USDA’s target for the marketing year thus far. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 68 million bushels, but that is down from 92 million the previous week.

Grain sorghum export sales in the week were a net reduction of 4 million bushels. That was due to China buying 0.4 million old-crop and 4.3 million new-crop bushels, while “unknown destinations” reduced previous purchases of old-crop grain sorghum by 8.7 million bushels.

Marketing year sales to all destinations totals 310 million bushels, up 174 million or 127% from the previous year. Exporters typically sell 65% of final grain sorghum shipments by this point in the marketing year, whereas they had sold 64% by this point last year. However, this year they have already sold 103% of USDA’s target that keeps getting pushed higher, with the overwhelming bulk of that going to Chinese end users. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 116 million bushels, but that is down from 126 million the previous week.

It was a roller coaster ride for corn this week, but the bullish case for a summer rally suffered harm. Old-crop corn stocks are bountiful and new-crop is only friendly to the market if we have a weather threat this summer, which forecasters are currently downplaying.

The new-crop soybean/corn price ratio rose to 2.4 to 1 following USDA’s data dump earlier in the week, buying soybean acres at the expense of corn. Momentum began to shift back to corn to close out the week, but gains were also limited by fears of imports of Brazilian corn into the U.S. Southeast. Brazilian corn was priced roughly 64 cents, while Ukrainian corn is roughly 25 cents cheaper than that.

As such, this is the time of year that the market tends to want to add acres by pushing prices higher, but doing so risks seeing Brazilian corn contracted for import into the Southeast for delivery in the last half of this year.

Soybeans

Old-crop soybean demand sinks, while traders are still propping up new-crop prices.

Exporters sold 21.9 million bushels of soybeans in the week ending March 26, but just 1 million bushels of that total were old-crop bushels. The old-crop sales were down from 18.6 million bushels sold the previous week and were down from the five-year average for the week of 8.7 million bushels. China reduced previous purchases of old-crop soybeans by 1.5 million, while “unknown destinations” reduced previous purchases by 1.9 million bushels. China bought 4.3 million bushels of new-crop soybeans, while “unknown destinations,” likely also China, bought 13.2 million bushels.

Marketing year sales total 1.782 billion bushels, up 146 million or 9% from the previous year. Exporters typically sell 90% of final soybean shipments by this point, whereas they had sold 99.3% by this point last year. This year they have already sold 99.6% of USDA’s target. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 165 million bushels, but that is down from 179 million the previous week.

Soymeal demand remains unseasonably strong, providing underlying support for soybeans. Exporters sold 214.1K metric tons of soymeal in the week ending March 26, down from 224.3K the previous week, but nearly twice the five-year average for the week of 124K tons. Actual shipments in the week totaled 291.5K tons, down from 304K the previous week, but up from the five-year average for the week of 198.3K tons.

USDA provided soybeans with a big boost this week. The report wasn’t bullish, but it was less bearish than expected. Speculative hedge fund managers love to be long (bought) soybeans. USDA gave them an excuse to resume long positions.

The long-term fundamentals remain quite bearish, despite USDA’s recent data release, but many fund managers still believe that has already been priced into the market. As such, the market is still buying soybean acres, despite this year’s big surplus, despite expectations for expanding acres in Brazil in six months and despite expectations that U.S. supplies will grow in the marketing year ahead. However, the near-term seasonal indicators are friendly for soybeans in the month of April.

Wheat

Wheat receives a boost from a lower dollar, raising export hopes.

Exporters sold just 10.8 million bushels of wheat in the week ending March 26, and the old-crop portion of that total came to just 6.0 million bushels. The old-crop sales were actually up from a pathetic 3.8 million bushels sold the previous week, but were still less than half of the five-year average for the week of 13.6 million bushels.

Marketing year sales total 842 million bushels, down 270 million or 24% from the previous year. Sales to date still exceed the seasonal pace needed to hit USDA’s target by May 31 by 17 million bushels, but that is down from 21 million bushels the previous week.

Wheat prices surged higher today, but were not able to hold those highs going into the weekend. Strength emanated from a weak dollar that raised hopes of improving exports in the days and weeks ahead.

Additional support came from reports that some western Nebraska areas were displaying winterkill over 60 to 80% of impacted fields. I’ve actually seen pictures of worse damage than that from northwestern Kansas, with damage reaching south into southwest Kansas and east into north central Kansas and southcentral Nebraska. Fundamentally, the damage isn’t enough to matter as long as exports are so poor, but wheat trades headlines and the damage is currently making headlines.

Chicago May wheat blew through chart resistance at $5.40 to reach a high of $5.445, but that fell a half-cent below the February 17 high, leading to profit taking going into the three-day holiday weekend. As a result, the contract fell back below $5.40 going into the weekend, opening the door for renewed selling to again test the bottom of the recent range above $5. The key may very well be Monday’s first weekly USDA crop ratings.

Beef

Live cattle futures push through chart resistance on expectations of stronger cash trade.

Live cattle futures finished the week strong after trading a relatively narrow range for the lead April contract primarily between $161 and $163 during the week. The contract managed to take out the late high for the February contract of $163.10, but was still waiting for direction from the cash market.

The holiday-shortened trade week leaves us without Friday and Saturday slaughter data at this point, but Thursday’s kill was estimated at 103,000 head, down 5,000 from the previous week and down 15,000 from the previous year. Week-to-date slaughter through Thursday is 421,000 head, up 2,000 on the week, but down 49,000 from the same period last year. Packer margins were estimated at losses of $26.45 to close out the week, compared to losses of $42.90 per head to close out the previous week.

Exporters sold a net 5.2K metric tons of beef in the week ending March 26, down from 13.1K tons the previous week and down from 13.8K tons in the same week last year. This brings estimated sales for the calendar year to 194K metric tons, down 57K or 23% from the previous year. Actual shipments in the week totaled 11.8K tons, down from 12.5K the previous week and down from 12.2K in the same week last year. Estimated shipments for the calendar year to date totaled 139K tons, down 10K or 7% from the previous year.

Product movement rose to 175 loads on Wednesday, up from 115 loads the previous day and up from 152 loads the previous week. Choice cuts rose another $1.29 to $255.42 per cwt. It was the eighth consecutive trading day with higher Choice cuts with gains through the period totaling $10.91 per cwt. Select cuts were up $1.57 to $250.21 per cwt. The Choice/Select spread was at $5.21 per cwt, down from $5.49 the previous day, but up from $3.37 the previous week. Movement at mid-morning today stood at just 54 loads, but Choice cuts were up another $0.98 and Select cuts up $0.61 per cwt.

The feeder cattle market rose on firming demand for light weight cattle as well, with the lead April contract moving above key resistance at $220 per cwt. The latest cash index came in at $219.89 per cwt, up $1.24 on the day and up $2.26 on the week.

Pork

Profit taking pressures deferred lean hog futures after a week of gains post-USDA.

Lean hog futures were mixed to lower to close out the week of trade. The bulls had their way for much of the week, following a friendly USDA quarterly hogs and pigs report the previous Friday. However, traders began to worry that the rally may have encouraged more expansion and took profits going into the three-day holiday weekend, especially for the deferred contracts that had seen the greatest strength during the week.

Ironically, the lead April contract posted the lone gains seen on Thursday, despite trading at a premium to the cash market. That suggests that the trade expects the cash market to bounce in the days ahead as the April contract approaches expiration on April 14. The latest CME 2-day lean hog index was posted at $59.68 per cwt, down $0.02 on the day, down $1.63 on the week and down $8.41 over the past 19 consecutive trading days.

The holiday-shortened trading week prevents us from having Friday and Saturday slaughter data, but Thursday’s kill was estimated at 434,000 head, up 2,000 from the previous week and up 27,000 from the same period last year. Week-to-date slaughter totals 1.729 million head, down 4,000 from the previous week, but up 107,000 from the same period last year. Packer margins are estimated at profits of $9.35 per head, down from $16.15 at the end of the previous week.

Exporters sold 28.3K metric tons of pork in the week ending March 26 as prices continue to tumble, offsetting the strong dollar. The total is up from 19.5K the previous week and up from 13.6K tons sold in the same week last year. This brings estimated calendar-year sales to date to 283K metric tons, up 99K tons or 54% from the previous year. Actual shipments during the week totaled 22.7K metric tons, up from 21.2K the previous week and up from 11.5K tons in the same week last year. Estimated calendar year shipments total 226K tons, up 87K tons or 63% from the previous year.

Product movement on Wednesday totaled 502 loads, up from 418 loads the previous day and up from 478 loads the previous week. The composite pork product price dropped to a new low of $63.98 per cwt, down $1.38 on the day.

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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