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Closing Comments

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Closing Comments

Corn

Corn futures add modestly to recent gains amid firming basis, but gains are limited by perceptions of ample long-term supplies.

The week started poorly for the corn market, but then spent the rest of the week trying to recover from Monday’s collapse. Corn prices fell to their lowest level since March 18 as traders saw the glass as “half-full.” U.S. corn continues to be over-priced on the global market, trading nearly 60 cents per bushel above Brazilian supplies at the port late-week, while Ukrainian supplies were nearly 80 cents per bushel below U.S. Gulf prices.

The good news is that corn prices held above the March 18 lows, but the charts remain weak regardless. The bottom line is that we will have a large surplus of corn going into this year’s harvest. Processor bids remain strong at many Midwest locations because farmers refuse to sell, but that is expected to change if the growing season gets off to a good start.

As such, the primary focus is slowly shifting to the growing season ahead. Good planting progress was made over the week, even as far north as the Dakotas, parts of Minnesota and even Michigan. However, all of that activity is expected to slow dramatically now as temperatures cool. The bulk of the delays are again expected to shift to the south, with temperatures warming in the month of May.

As such, there’s little concern in the trade at this point of a sustained planting delay that would threaten acreage. Northwestern areas of the Midwest continue to battle dryness issues, with climatologists concerned that the dryness may linger through the growing season in those regions. However, forecasters indicate that no analog year can be found containing heat threats, with virtually all of them calling for mild to cool temperatures this summer.

Soybeans

 

A truckers strike is expected once again in Brazil this coming week. Road blockages are likely once again; particularly in Mato Grosso. No immediate impact is expected on soybean exports, as some ports have up to a four-week supply. However, we’ll need to monitor the situation to see if it lingers long enough to dry up supplies at the ports at a time when China is trying to stock up on “cheap” supplies.

A strong dollar and a weak real in Brazil encouraged active soybean selling early, but then farmers slowed their selling as a hedge against continued shifts in currency rates until they could price their inputs, which are priced in the local currency. As such, Brazilian consultant AgRural pegs current-year sales at 53% as of the end of March, down from 63% the previous year and down from the five-year average of 64%. Sales of the 2015-16 crop remain slow as long as March soybeans are below $10.

The bulk of the Brazilian harvest (more than 90%) is now behind us, with most remaining fields in southern areas that matured later. Further south, more than a third of Argentina’s crop has been harvested, with the next two weeks expected to favor good harvest conditions.

The lead May soybean contract continues to trade in bearish descending wedge formation on the charts. Today’s rally took prices to the top of that wedge, but the market was unable to push through the top. Failing to do so leaves us vulnerable to a retest of the bottom of the wedge, which is currently at $9.41. Breaking above it would open the door for a test of the $9.90 area. Traders will now monitor the truckers strike in Brazil.

Wheat

Wheat bounces at the end of a long painful week of losses.

Rains have been pretty much as expected over the Plains hard red winter wheat belt, although some areas have been missed by the moisture. Of greatest concern is an area covering parts of southwest Kansas, southeast Colorado and the Texas Panhandle encompassing about 15% of the hard red winter wheat belt and 6% of the overall winter wheat belt. Otherwise, rains have been good, with crop ratings expected to improve over the next couple of weeks as drought-stricken plants have an opportunity to recover.

Russia’s Ag Ministry has reportedly proposed an end to the export tax effective July 1. The action would be expected to flood the global market with more cheap wheat, which is bearish for the world wheat market in the absence of a weather threat in a major producing area of the world. However, no decision on the proposal is expected until sometime in May or June.

Prices bounced modestly to close the week, but the gains were very small relative to the week’s losses. Traders will now look for crop ratings to reflect the increased moisture in the Plains, with the real test being the industry tour of the hard red winter wheat belt that is still two weeks away.

Kansas City continues to look weak relative to Chicago, providing few signals that this market is about to sustain a longer-term rally. Rallies will likely occur, but they will be difficult to sustain until/unless the dollar breaks more significantly leading to stronger exports and/or a significant threat emerges in a major producing area of the world.

Egypt tendered to buy wheat in a snap tender Friday afternoon. The results of that tender on Monday morning should provide an indication to the market of the competitiveness, or the lack thereof, of U.S. wheat.

Beef

Live cattle futures drop sharply on weaker cash and product prices.

Live cattle futures started the week with a sharp break to their lowest level since March 18 after cash cattle traded the previous Friday $4 lower than the previous week. June live cattle found support at the 40-day moving average at $147.81 at that time, which is below the $150 level that has generally held the cash market on breaks over the past year.

As such, futures rebounded through Thursday, especially since they were already at a sizeable discount to the cash market. However, that strength collapsed to close the week again. Weakness started when the prices for Choice cuts broke sharply Friday morning, with the real break coming on reports that cash cattle had traded in Kansas at $161 per cwt on a live basis, down from mostly $162 to $163 the previous week. Reports had cattle trading in Nebraska at $260 per cwt on a dressed basis, down $5 on the week.

The Friday kill is estimated at 100,000 head, up 10,000 on the week, but matching the previous year. Saturday slaughter was pegged at 4,000 head, bringing the week’s kill to 533,000 head, up 31,000 from the previous week’s dismal total, but still down 32,000 from the same week last year. This brings estimated slaughter for the calendar year to 8.194 million head of cattle, down 666,000 or 7.5% the previous year.

The Feeder cattle market tumbled on declining margins for newly purchased light-weight cattle. Many contracts dropped the $4.50 daily limit late in the session, opening the way for expanded limits on Monday. Today’s drop leaves the May contract sitting just above Monday’s low of $208.25 per cwt. Meanwhile, the latest CME 7-day cash index came in at $219.47 per cwt, up $1.07 on the day, but down $0.21 from the previous week.

Product movement rose to 161 loads Thursday, up from 144 loads the previous day and up from 135 loads the previous week. Choice cuts slipped $0.42 to $260.38 per cwt, while Select cuts lost $0.25 to $250.97 per cwt. The Choice/Select spread slipped to $9.41 per cwt, down from $9.58 the previous day, but up from $5.94 the previous week. Movement at mid-morning today was routine at 94 loads, but Choice cuts broke $2.69 to $257.69 per cwt, while Select cuts firmed $0.48 to $251.45.

The top several contracts locked the $3 daily limit lower to close the week, suggesting that we will again see expanded trading limits of $4.50 on Monday. We’ll be watching to see if the 50-day moving average will catch the market once again. The indicator should be near $148.70 on Monday.

Pork

Avian flu fears continue to hang over lean hog futures.

Lean hog futures rallied sharply to one-month highs to start the week, but then collapsed again mid-week on avian flu concerns. The cash market continues to show signs of carving out a broad near-term low. Product prices are doing the same. However, USDA confirmed avian flu in Iowa over the past week, with more cases in Minnesota as well. Fortunately, the disease has not yet impacted poultry production in the top-producing states of Alabama and Georgia, but it is continuing to spread.

Continued spread of the disease would be expected to flood the retail counter with cheap poultry prices, which would be expected to apply downward pressure on pork prices as well. Those fears weighed on lean hog futures late in the week, particularly since the market is already at a big premium to the cash market. The CME 2-day lean hog index finished the week at $62.98 per cwt, up another $0.82 on the day and up $3.40 over the past nine consecutive trading days.

The Friday kill is estimated at 419,000 head, up 23,000 from the previous week and up 39,000 from the previous year. Saturday’s kill is estimated at 79,000 head of hogs, bringing the week’s total to 2.243 million head, up 71,000 from the previous week and up 240,000 from the same week last year. That brings 2015 slaughter to 34.277 million head, up 1.693 million or 5.2% from the previous year.

Product movement Thursday slipped to 324 loads from a robust 538 loads on Wednesday and up from 287 loads the previous week. The composite product price slipped $1.15 to $66.14 per cwt, matching the previous week’s level. Movement at midday today was slow at 149 loads, but the composite price bounced $0.49 to $66.63 per cwt.

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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