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Closing Comments

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Closing Comments

Corn

Corn futures recover from early losses after finding few sell stops on a probe below chart support.

Crude oil stocks rose by 5.3 million barrels in the week ending April 17, reaching 489 million barrels. Stocks continue to be at record highs for this time of year, with storage facilities slowly filling up. The data cooled bullish ideas that production was slowing to bring supply and demand into balance, although that underlying sentiment continues to provide support for the market.

The Department of Energy reports that ethanol stocks rose to 21.3 million barrels in the week ending April 17, up from 20.6 million the previous week and up from 16.5 million barrels in the same week last year. Stocks continue to hover near the 2012 record high of 22.7 million barrels. Production rose to 930K barrels per day during the week, up from 924K the previous week, but down from the 935K per day pace seen in the same week last year.

The data suggests that ethanol processors used 98.7 million bushels of corn in the week ending April 17, up from 98.1 million the previous week and 98.0 million in the same week last year. Estimated corn usage to date for the marketing year totals 3.311 billion bushels, up 120 million or 4% from the previous year. Corn usage to date exceeds the seasonal pace needed to reach USDA’s target by August 31 by 13 million bushels, but that is down from 15 million the previous week.

Traders were sellers early in the day as they focused on ample world supplies priced cheaper than U.S. corn. However, buyers returned after a probe below chart support at $3.70 in the May and $3.95 in the December failed to find significant sell-stops. Buying remains limited by soft demand, but today’s action suggests that traders aren’t ready to press prices lower before they get a better feel for the planting season.

Soybeans

Soybean futures post modest losses ahead of Brazil truckers strike decision.

Soybean futures leaked lower much of the day, coming under pressure from softening demand, but finding limited selling pressure as fund managers already hold large short (sold) positions. The new-crop soybean/corn price ratio traded as high as 2.43 to 1 as the market continued to encourage expansion of soybean production.

Global soybean demand remains quite strong, although the largest customer of China is beginning to slow shipments as supplies back up at the ports. Some support continues to underpin the market as traders wait to see if truckers strike in Brazil. However, that support was limited today, allowing prices to spend the bulk of the session with modest losses, on the belief that an strike activity that takes place will likely be scattered and localized.

Government staff were facilitating discussions between truckers and shippers in Brazil as the market closed today. The meetings have been going on for the past couple hours, with no decision announced yet. A full-blown truckers strike like we saw in February is not likely, but rather localized strikes that have limited impact. As such, soybean prices struggled throughout the day.

Wheat

Wheat futures consolidate just above this month’s lows while waiting to see how the crop develops this spring.

Wheat futures traded both sides of unchanged in quiet trading today. The market continues to have a bearish cloud hanging over it with export demand anemic and a strong dollar offering little hopes that fresh demand overseas can be stimulated anytime soon. The Plains wheat crop has lots of serious problems that will be highlighted over the next couple weeks leading up to the Wheat Quality Council’s industry tour, but the trade has few concerns as long as demand remains weak.

The wheat industry needs to export 60% of production to make the balance sheet work. This year’s export campaign is struggling to make 43%. The market is saying that we shouldn’t produce it if we can’t sell it. That will likely remain the case until the dollar breaks significantly and/or a major production problem overseas tightens global supplies. The outlook is improving for the Black Sea region, so that puts the best hopes for the bulls on an El Nino induced drought in Australia later this growing season.

The Kansas City/Chicago spread continues to trend lower, with the cash market just a few cents apart. That’s not a recipe for a sustained rally. This market remains vulnerable to considerable weakness over the next 60 days if it is unable to build any upward momentum on Plains crop threats over the next few weeks.

Beef

Live cattle futures chop sideways on expectations that the cash market will drop to close the gap with the board.

Live cattle futures broke sharply on Friday, and again on Monday, while posting only a modest bounce relative to those losses on Tuesday. That suggested that Tuesday’s bounce was more technical in nature than fundamental, even though futures contracts remain at a big discount to the cash market. The best argument the bulls can make this week is that we “might” see steady money in the cash market. That’s not the type of sentiment needed to sustain a rally.

Thus far futures contracts are holding an area of support that held many sell-offs over the past year, which should limit downside risk near-term. However, few traders show a stomach for pushing prices higher at this time. As such, additional weakness cannot be ruled out, particularly if these areas of support give way and the cash market continues to trend lower.

The cash market remains quiet, although there have been reports of a regional paying $253 per cwt on a dressed basis in Nebraska and Iowa. Low numbers of cattle have also traded in Kansas today at $158 per cwt on a live basis. Packers are expected to keep the chains moving slowly and/or operate on reduced hours again this week, reducing their need to battle on the negotiated market while leaning heavily on formula cattle and beef imports.

One can also make a bullish argument for live cattle prices longer-term as demand ratchets up amid ongoing tight supplies. The case is probably easiest to make right now for the feeder cattle market, with talk of active rebuilding of the cow herd by holding by heifers, keeping supplies going to the feedlots tight.

The balance between supply and demand across the beef sector remains very precarious. However, the packers currently have the edge on slaughter supplies and cheap pork and poultry currently give the edge longer-term to the bears as well as long as packers are able to maintain that balance. Packer margins are positive at an estimated $23.80 per head.

Today’s kill is estimated at 110,000 head, up 3,000 from the previous week, but down 7,000 from the previous year. Week-to-date slaughter is estimated at 330,000 head, up 3,000 from the previous week, but down 6,000 from the same period last year.

Product movement on the spot daily market rose to 137 loads Tuesday, up from 114 loads the previous day and up from 107 loads the previous week. Choice cuts rose $0.68 to $259.82 per cwt, while Select cuts dropped $2.65 to $249.55 per cwt. That pushed the Choice/Select spread to $10.27 per cwt, up from $6.94 the previous day and up from $9.03 the previous week. Movement at mid-morning today was decent at 97 loads, with Choice cuts up $1.36 and Select cuts up $0.84 per cwt.

Feeder cattle futures followed the lead of the fat cattle market today. The cash market continues to trend lower, despite talk of tightening supplies as heifers are held back to rebuild the cowherd. Feeders are worried about margins, with the deferred fat cattle contracts trading at such a big discount. The latest CME 7-day cash feeder cattle index came in today at $216.53 per cwt, down $0.95 on the day, down $2.94 over the past three days and down $3.25 over the past week.

USDA’s cold storage report revealed that beef supplies in the freezer March 31 totaled 479.8 million pounds, down 2% from the previous month, but up 18% from the previous year. The bottom line is that the big build of supplies that we were seeing has slowed; losing some ground over the past month. The news is mildly supportive, but probably not enough on its own to reverse the bearish sentiment hanging over the market.

Pork

Lean hog futures give back much of the previous day’s gains amid ample supplies.

Today’s Midwest cash market was mostly steady, although the closely watched Iowa/Southern Minnesota market was steady to 50 cents higher. Supply and demand are well-balanced, with prices still at a significant discount to futures, but trending slowly higher. The latest CME 2-day lean hog index came in at $64.76 per cwt, up $0.49 on the day, up $3.40 on the week and up $5.18 over the past 12 consecutive trading sessions.

Today’s slaughter is estimated at 428,000 head, down 3,000 from the previous week, but up 11,000 from the previous year. Week-to-date slaughter is pegged at 1.290 million head, down 24,000 from the previous week, but up 190,000 from the same period last year.

Product movement continues to be good this week, with 398 loads moving on Tuesday, up from 268 loads the previous day, but down from a strong 409 loads the previous week. The composite pork product price firmed $0.75 to $68.61 per cwt, up $2.13 from the previous week. Movement at midday today was decent at 238 loads, but the composite price was down $1.10 to $67.51 per cwt.

Lean hog futures posted significant losses for much of today’s trade. Supply and demand are in pretty good balance right now, but traders are conflicted over the eventual impact of the avian flu problem. Will it push a flood of cheap poultry meat onto the market, or spread so fast that it reduces the supply of cheaper alternative meat. As such, I look for pork to establish a broad sideways trading pattern while it tries to answer the question over avian flu.

USDA’s cold storage report showed there were 668.6 million pounds of pork in the freezer on March 31, down 2.6% from the previous month, but up 16% from the previous year. Pork supplies saw significant growth into the winter, but the USDA data suggests that that growth has now brought supply and demand into better balance, with surplus supplies pulling back a bit. The data is mildly supportive, but probably not sufficient to alter current market dynamics.

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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