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Closing Comments

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Closing Comments

Corn

December corn continues to leak lower amid expectations for higher stocks.

Corn futures were under pressure for the bulk of today’s session, as negative sentiment continues to plague this market ahead of Thursday’s USDA crop report. The trade expects USDA to cut feed usage in Thursday’s report, resulting in roughly an 80 million-bushel increase in old-crop stocks. That’s not a big adjustment, considering the size of the balance sheet already at this point, but it has certainly created a bearish cloud over the feed grain complex, with little concern about the growing season ahead.

Commodity Weather Group continues to monitor changes in sea surface temperatures in key locations of the Pacific that are believed to be driving this year’s weather pattern. CWG then looks at other analog years with similar conditions at this point and the resulting weather pattern for June, July and August. This week’s look at these dynamics still support a wet-bias for the summer, but August now leans drier. However, temperatures are expected to be mild for the summer as a whole, minimizing stress on crops and supporting trend or better yields for row crops.

December corn spent much of the winter predominantly between $4.10 and $4.20 per bushel. It dropped well-below that range following USDA’s March 31 acreage and stocks reports, rallied back up, but has been unable to re-establish itself in that range; let alone challenge the top of it. As such, we must be wary of the current commodity deflationary cycle and its possible ramifications for the corn market, even though the margin for error will be small this summer.

Soybeans

Soybeans sink on rising South American production prospects ahead of Thursday’s USDA report.

Soybean futures added to Monday’s losses today as demand continues to shift south of the equator. Brazil soybean shipments are expected to peak this month, leading to sharply lower demand for U.S. soybeans and soymeal. Demand for soymeal has been lingering, but it is expected to begin waning from this point forward.

Most telling today may have been the weakness in the July/November soybean spread. There’s a strong seasonal tendency for this spread to rise over the next month, but this year’s big upfront supplies will likely make that difficult. Today’s weakness in the spread shows the lack of demand for nearby soybeans.

The trade expects USDA to cut about 15 million bushels from soybean stocks on Thursday morning, but it will likely add to South American supplies when it does so, pointing to lower prices in the weeks and months ahead. Seasonally, soybeans tend to show a firming trend in April, but turn lower as we move into May and become comfortable with the season’s weather pattern.

Wheat

Wheat futures are weak on sluggish demand amid a strong dollar and on wetter forecasts for the Plains.

Monday afternoon’s USDA crop progress report was the first of the spring growing season. Traders expected it to show that 42% of the crop rated Good to Excellent, but the crop came in at 44%. However, that doesn’t really tell the story when you have the kind of variability seen in this year’s crop. That necessitates a score that looks at the full spectrum of crop ratings.

The crop rates a condition index score for the crop as of April 5 was 331, down from 360 at the end of November, but up from 301 in the same week last year. The poorest ratings came from Kansas (307), Nebraska (296) and South Dakota (297). The central Plains continued to see significant deterioration. Meanwhile, conditions are much better in Illinois (351), Indiana (350) and Ohio (355).

Putting it altogether, the winter wheat crop is pretty average for this time of year, with the biggest problems in the central Plains, but better wheat elsewhere. The focus now shifts to trends in crop ratings from week to week, with forecasters anticipating a wetter pattern developing in the Plains starting at the end of this week.

Traders were unimpressed by the problems outlined in the above, pointing toward expectations of a wetter weather pattern beginning this weekend in the Central Plains. Instead, they focused on the strong dollar early today, indicating that it will prevent a recovery in export demand.

However, that weakness didn’t hold either, as bargain hunters emerged to buy wheat as prices approached the bottom of bull channels on the charts. Wheat prices have been on a roller coaster ride, but the overall pattern has been one of higher highs and higher lows, creating a channel trending higher on the charts. That’s to be expected this time of year when the crop is most vulnerable to weather and pests, but it is likely a short-term rally if crops elsewhere in the world continue to do well.

Nonetheless, wheat futures still had a negative bias at the end of the day, with the largest losses in Kansas City. Weakness was greatest there amid forecasts for wetter weather arriving in the week ahead. However, any sustained rally likely needs to be led by Kansas City, so today’s weakness doesn’t bode well longer-term unless Kansas City can turn things around. The trade anticipates few changes on USDA’s wheat balance sheet Thursday.

Beef

Live cattle futures firm after early selling dries up amid strong cash expectations.

Live cattle futures gave way to follow-through selling early in today’s session after a bearish reversal on Monday. However, traders were not willing to press the weakness too hard amid expectations that this week’s cash trade may again be steady to higher. Skepticism remains high, with futures prices already at a big discount to the cash market. Traders believe the cash market is very near its high, but futures have already priced a significant break in and the cash market continues to prove resilient.

June live cattle futures found support just above $150 per cwt today. That’s significant, considering it is nearly $20 below last week’s high in the cash market. From a practical standpoint, $158 has held this market through much of the winter and early spring. As such, June live cattle have already priced some bearish fundamentals into the market that really have not yet been confirmed and may not be. The trade expects supplies to increase later this spring, but demand will likely expand as well.

Boxed beef movement jumped to a four week high for a Monday yesterday at 126 loads, up from 111 loads on Friday and up from 93 loads the previous week. Choice cuts rose $0.91 to $256.48 per cwt, while Select cuts were up $2.26 to $251.55. That dropped the Choice/Select spread to $4.93 per cwt, down from $6.28 the previous day, but up from $4.08 the previous week. Movement at mid-morning today though was very sluggish at just 44 loads, although Choice cuts were up $0.91 and Select cuts were up $0.53 per cwt.

Today’s kill is estimated at 110,000 head, up 1,000 from the previous week, but down 9,000 from the previous year. That brings estimated slaughter for the week to date to 206,000 head, down 12,000 from the previous week and down 27,000 from the previous year.

Feeder cattle futures came under a bit more pressure today than the fat cattle market on ideas that fat cattle prices may be near their highs, with lower prices ahead. The sharp discount already in the deferred fat cattle futures prices underlines that expectation. The nearby cash market has remained strong to this point, but is showing signs of weakening. The latest CME cash index came in at $221.23 per cwt, down $0.95 on the day, but still up $2.34 over the past week.

Pork

Rally loses momentum in lean hog futures, even as cash market starts to turn higher.

Today’s Midwest cash market was mostly steady, although some markets were up to $1 higher in Indiana. The Midwest cash market has been mostly steady for the past week now, suggesting that it may be carving out a broad bottom. Furthermore, today’s CME 2-day lean hog index posted gains for the first time since March 4, breaking a streak of 21 straight trading days of being lower, with losses for the period totaling $8.51 per cwt. Today’s index comes in at $59.64 per cwt, up $0.06 on the day, but down $0.32 on the week.

The cash market may be stabilizing, but futures prices have already built this into the market. Prices rallied for much of the week following USDA’s friendly quarterly hogs and pigs report, led by the deferred contracts. However, sustaining that rally would likely alter the friendly farrowing intentions, leading to expanded production once again. As such, the rally in the futures market is beginning to lose momentum until/unless the near-term fundamentals provide stronger support. Resistance for the June contract increases near $78 per cwt.

Packers continue to enjoy double-digit profits as product prices stabilize as well; generally between $10 and $12 per head. Product movement Monday totaled 252 loads, up from 239 loads the previous day, but down from 290 loads the previous week. The composite pork product price slipped a nickel to $65.70 per cwt, but remains above recent lows. Mondays composite price is still up $0.31 from the same day last week. Movement at midday today was good at 221 loads, with the composite price up another $0.80 to $66.50 per cwt.

Today’s kill is estimated at 433,000 head, up 7,000 from the previous week and up 17,000 from the previous year. Week-to-date kill is estimated at 721,000 head, down 140,000 from the previous week and down 97,000 from the same period last year.

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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