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Closing Comments

Corn

Corn finishes the day mixed after falling to fresh six-month lows early on active planting window and bearish chart signals.

The dollar broke lower today, trading to its lowest level since the first week of March. Selling picked up momentum as it broke below the previous April lows, with currency traders increasingly feeling compelled to take profits following the dollar’s surge to 12-year highs in recent months. Money flow into the broader commodity sector increased as the dollar broke. We could see that increase in the days ahead if the dollar finishes the day near session lows, perhaps encouraging speculative fund managers to cover a portion of their large short (sold) positions in the grains.

USDA’s weekly crop progress report indicated that corn planting progress on April 26 reached 19%, matching trade expectations, while I was looking for 18% completion. The five-year average for the date is 25%, but progress this past week likely closed that gap, and possibly took us ahead of the average pace. The greatest advances took place in the western Midwest, with Minnesota at 38% planted, up from the normal pace of 20%. Eastern areas continued to be slow, with Indiana and Ohio at 3% and 2% respectively.

USDA pushed grain sorghum exports this year to a robust 350 million bushels, counting on early-harvested new-crop supplies in the Southern Plains to help reach that target ahead of the end of the current marketing year on August 31. As such, we need to monitor progress for the crop in that region. Texas planting progress as of April 26 was at 57%, down from the average pace for the week of 61%. However, Oklahoma was at 20%, up from the typical pace of 6%.

Weak wheat prices continued to add pressure to corn prices today, although traders remain bearish corn aside from the weakness in wheat. The record planting progress for one week is 43%, reached in May 1992 and again in May 2013. We may not reach that this week, but substantial progress is expected, with most areas of the Midwest seeing eight to nine days of relatively good planting conditions. A few more interruptions unfortunately may occur in the eastern Midwest. Rapid early planting tends to favor good yields and increased acreage.

Corn prices garnered enough strength to erase early losses as wheat prices firmed late-morning. Prices posted new six-month lows early, but then firmed late morning to post modest gains. However, traders remain bearish corn, particularly with active planting expected this week. We could see more strength return on short-covering ahead of USDA’s May 12th crop report, if wheat mounts a significant short-covering rally, but rallies will likely be sold.

Soybeans

Soybeans rally on tight cash supplies, but can’t hold onto gains as global supplies increase.

USDA reports that just 2% of the soybean crop was planted as of April 26, down from the five-year average for the week of 4%. I was looking for 5% of the crop to be in the ground. The only state above average was Mississippi at 39%, versus the normal pace of 34%. I believe that reflects a shift away from corn in the Delta due to planting delays. However, Louisiana has been too wet, sitting at just 25% planted, down 13 points from the five-year average for the week.

Demand talk continues to provide underlying support for soybeans, although the bulk of old-crop business has gone south of the equator. USDA’s daily export reporting system today confirmed that “unknown destinations” bought another 14.3 million bushels of U.S. soybeans, although all of the purchase was for new-crop supplies.

Old-crop soybeans again led the way higher today, with processors complaining that farmers will not sell them supplies. This triggered some buy signals on the charts, encouraging double-digit gains at times. New-crop contracts pushed higher as well following USDA data showing slow planting progress, with active corn planting this week expected to limit soybean expansion. This pushed the new-crop soybean/corn price ratio 2.49 to 1 at the close in an attempt to buy soybean acres.

Soybean prices finished the day in positive territory, but much closer to session lows than to session highs. Prices eased into the close suggesting waning upward momentum. Traders are reluctant to build long positions in the market with a huge crop being harvested in South America and acreage expanding here this spring. Traders also expect producer selling to increase if/when prices approach $10, adding to their reluctance to be long.

Wheat

Wheat posts fresh multi-year lows, but shows signs of a possible near-term low.

USDA reports that 28% of the winter wheat crop was headed as of April 26, up from 16% the previous week and up from the five-year average for the week of 24%. Progress was ahead of normal in the drought-stricken area of Kansas, Oklahoma and Texas, while behind normal in most other states. Winter wheat tends to speed up maturing when under stress.

The crop rated a condition index score of 323, down 2 points on the week, but matching the 10-year average for the week. Poor conditions in the Central Plains are being offset by generally good conditions in the Midwest and much of the South. The wheat-state of Kansas held an index of 286, down 5 points on the week, but up 14 points from the previous year.

The spring wheat crop was 55% planted on April 26, up from 36% the previous week and up from the five-year average pace for the week of 29%. Each of the six major spring wheat states were well ahead of the normal pace for the date as dry conditions remain the area’s greatest challenge. Spring wheat emergence stood at 9%, up from 4% the previous year and matching the five-year average for the week.

Chicago, Kansas City and Minneapolis wheat markets all made nearly five-year lows today, are oversold, with speculative hedge funds holding massive short positions. It was the third day of fund selling. Big moves in the market often come in three-day swings. Supportive headlines out of the Central Plains are expected to increase over the coming week, aided by the Wheat Quality Council tour, with the USDA production estimate and updated monthly crop report coming on May 12.

As such, the wheat market was looking for a trigger to put in a near-term short-covering rally. It doesn’t mean that today’s lows will hold. Wheat could certainly see lower prices; perhaps much lower. However, today’s break in the dollar below key chart support may prove to be the trigger needed to support a near-term short-covering rally ahead of USDA’s May 12 crop report. The trade remains bearish wheat, so any rally would likely be seen as an opportunity to renew sales, but trade over the coming week will be interesting to watch in wheat.

Beef

Live cattle futures quickly rebound from USDA report slump on realization that supplies are tight.

Live cattle futures fell Monday following an USDA cattle-on-feed report that showed a larger than expected supply of 800+ pound cattle coming off lush spring pasture to the feedlots. However, today’s action reveals that Friday’s report wasn’t bearish. Rather, it was telling the market that supplies are still tight, but more reasonable price action is warranted.

Demand is increasing seasonally as barbecue season gains momentum. The Choice/Select spread continues to trend higher seasonally as consumers look for steaks to put on the grill. The approach of Mother’s Day weekend should increase that demand, followed by graduation celebrations around the country. The supply of slaughter-ready cattle remains tight. Packers continue to purchase cattle and then put more weight on them to try to meet the need.

That strategy has helped them to meet demand with fewer cattle; even facilitating sharp breaks in prices when it has worked especially well. However, it has also allowed cash prices to spike when the strategy has not provided sufficient pounds of beef. As such, each week is an adventure.

The April contract goes off the board on Thursday. It pushed higher today, reaching $161.675 at one point on ideas that we may see cash trade firm this week. The $10 discount of the deferred contracts leaves them vulnerable to additional strength, but of course we’ve seen in recent months that’s not a guarantee of strength.

Feeder cattle futures fed off strength in the fat cattle market, garnering additional support from weaker corn prices early in the day and some indications of a stabilizing cash market. The latest CME cash index today came in at $214.90 per cwt, up $0.55 on the day, up $1.93 over the past two days, but still down $2.58 over the past week.

Today’s kill is estimated at 115,000 head, up 5,000 from the previous week, but down 6,000 from the previous year. Week-to-date slaughter is pegged at 220,000 head, matching the previous week, but still down 15,000 head from the same period last year.

Boxed beef movement on the spot daily market Monday totaled 150 loads, matching Friday’s total and up from 114 loads the previous week. Choice cuts slipped $0.10 to $256.89 per cwt, while Select cuts firmed $0.36 to $247.98. This softened the Choice/Select spread to $8.91 per cwt, down from $9.37 the previous day, but up from $6.94 the previous week. Movement at mid-morning today was slow at 64 loads, but Choice cuts were up $1.24, while Select cuts were up $0.06 per cwt.

Pork

Lean hog futures continue slow trek higher as demand firms and carcass weights slip.

Lean hog futures traders are taking courage from a steadily rising cash and product market. Furthermore, there’s been a shift in sentiment regarding avian flu. Early on it was considered bearish as it would dump cheap poultry meat onto the market next to pork at the retail level. However, the disease’s rapid spread (another 5 sites with 6 million birds confirmed in Iowa Monday) now has traders thinking it will reduce supplies of cheaper alternative meat while increasing demand for pork; on both the domestic and export markets.

Today’s cash market was again mostly steady to $1 higher, with weights continuing to drop, reducing pork supplies hitting the market. The market is current and demand expected to steadily improve. Some producers are focusing more on planting corn than delivering hogs, while other markets are continuing to see hogs come to market. The latest CME 2-day lean hog index was $65.83 per cwt, up $0.44 on the day, up $1.56 on the week and up $6.25 over the past 16 consecutive trading days.

Today’s kill is estimated at 429,000 head, down 3,000 from the previous week, but up 14,000 from the previous year. Week-to-date slaughter is pegged at 858,000 head, down 4,000 from the previous week, but up 99,000 head from the same period last year.

Product movement reached 289 loads Monday, up from 279 loads on Friday and up from 268 loads the previous week. The composite pork product price firmed to a two-month high of $70.86 per cwt, up $0.92 on the day and up $3 over the past week. Movement at midday today was good at 204 loads, although the composite price slipped $0.42 to $70.44 per cwt on weakness in the butt and ham cuts.

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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