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Closing Comments

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Closing Comments

Corn

Corn futures pull back on broad-based weakness as speculative money managers defend their short positions.

Exporters sold 37.2 million bushels of corn in the week ending April 23, including 32.8 million old-crop bushels. The old-crop sales were down from 34.2 million bushels sold the previous week, but were very close to the five-year average for the week of 32.9 million bushels. The total included 0.9 million bushels of old-crop corn sold to China during the week.

Marketing year export sales to all destinations total 1.587 billion bushels, down 145 million or 8% from the previous year. Exporters typically sell 85% of final corn shipments by this point in the marketing year, whereas they had sold 90% by this point last year. Thus far exporters have sold 88% of USDA’s target for the current year. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 60 million bushels, unchanged from the previous week.

Exporters sold 11 million bushels of grain sorghum in the week ending April 23, including just 0.2 million old-crop bushels as those supplies begin to dry up following aggressive buying by Chinese end users this year. The old-crop sales were down from 3.3 million bushels sold the previous week and were down from the five-year average for the week of 3.8 million bushels.

The data showed that Chinese end users bought 2.5 million old-crop bushels during the week, along with 8.6 million new-crop bushels. “Unknown destinations” reduced previous purchases of old-crop by 2.3 million, while buying another 2.2 million new-crop bushels.

Marketing year sales to all destinations total 318 million bushels, up 167 million or 110% from the previous year. Exporters typically sell 70% of final grain sorghum shipments by this point in the marketing year, whereas they had sold 71% by this point last year. However, this year they have already sold 91% of USDA’s target for the year that ends August 31. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by 72 million bushels, although that is down from 78 million the previous week.

Argentina’s Buenos Aires Grain Exchange raised its corn production estimate to 25 million metric tons, up from its previous estimate of 23 mmt. USDA currently has the crop pegged at 24 mmt, while some private estimates pushing 27 to 28 mmt.

December corn is consolidating just above $3.80 per bushel as the market monitors planting progress, weather maps and demand trends. The trade continues to lean bearish, but it’s a bit early for the market to break hard on new-crop expectations. As such, it remains vulnerable to possible short-covering ahead of USDA’s May 12 crop report, although USDA in recent years has tended to release bearish projections for the first new-crop balance sheets of the new season.

Soybeans

Soybean prices break lower in search of direction.

Exporters sold a net 11.6 million bushels of soybeans in the week ending April 23, including 15.9 million bushels of old-crop sales. Obviously, there were net cancellations of previous new-crop purchases. The old-crop sales were up from 3.8 million bushels sold the previous week and above the five-year average for the week of 5.3 million bushels. China bought 7.3 million old-crop bushels during the week, while reducing previous new-crop purchases by 4.9 million.

Marketing year sales to all destinations total 1.803 billion bushels, up 165 million or 10% from the previous year. Exporters typically sell 94% of final soybean shipments by this point in the marketing year, whereas they had sold 100% by this point last year. However, this year they have already sold 101% of USDA’s target. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 124 million bushels, up from 122 million the previous week.

One of the keys to the market has been soymeal demand, which has been robust over the past nine months. Old-crop soymeal sales for the week ending April 23 totaled 134.7K metric tons, up from 107.4K the previous week and up from the five-year average for the week of 108.3K tons.

Actual shipments remain quite strong due to past sales still being fulfilled. Shipments during the week totaled 295.7K metric tons, up from 171.4K the previous week and up from the five-year average for the week of 145.6K metric tons. Yet, soymeal basis continues to slowly weaken as demand softens.

A strike continues to halt shipments at Argentina’s Rosario port, but that had little impact on prices today. A trade rumor that could not be confirmed indicated that the Argentine government has warned striking workers that it will seize their assets if they fail to end their strike by Monday. Either way, U.S. traders are not convinced that the strike will end up materially altering demand for our soybeans.

Argentina’s Buenos Aires Grain Exchange pegs the soybean crop at 60 million metric tons, up from 58.5 mmt previously. USDA currently puts the crop at 57 mmt, while other private estimates are near 58 to 59 mmt.

There’s no question that longer-term soybean fundamentals are bearish if the weather cooperates this summer. Yet, near-term demand is seasonally good relative to slow farmer selling. November soybeans rallied to the top of a wedge formation on the charts, before sinking to the bottom of that same formation, settling in the bottom third of the session’s trading range. That leaves an underlying bearish bias going into the first trading day of May. The new-crop soybean/corn price ratio traded to 2.52 to 1 today, before settling at 2.48.

Wheat

Wheat prices tumble again as bearish fund managers defend their short positions amid demand worries.

Exporters sold a net 14.8 million bushels of wheat in the week ending April 23, but that only tells part of the story. That total includes net reductions of 16.5 million bushels of old-crop wheat and net sales of 31.3 million new-crop bushels. A close look at the sales data showed that a number of countries simply rolled previous purchases of old-crop wheat to the new marketing year that begins June 1. That’s not unusual in late May, but to do so in late April is a bearish sign, particularly in light of Russia saying it will decide over the next couple of weeks whether it will lift its export tax.

Marketing year sales to all destinations total 853 million bushels, down 296 million or 26% from the previous year. Sales to date still exceed the seasonal pace needed to reach USDA’s target by May 31, but that is down from 36 million the previous week.

Trade chatter was starting to pick up Wednesday of a possible short-covering rally if prices would push through overhead chart objectives on a weaker dollar. However, bearish traders jumped on weakness today to hammer wheat prices, defending their large short positions. The market’s apparent next best opportunity to trigger short-covering comes with next week’s industry tour of Kansas and surrounding states, which has very poor crop conditions. Beware if that tour fails to generate any buying enthusiasm.

Beef

Live cattle futures sink while waiting for news of cash sales.

Cattle futures consolidated lower early in today’s trade after Wednesday’s trade failed to sustain a move above Tuesday’s high. The selling came as traders waited for direction from the cash market, which has yet to develop enough to establish any trends. Packers are said to still be offering $157 per cwt on a live basis in Texas and Kansas, with feeders raising their asking price to $163 per cwt.

Futures prices accelerated their losses late morning when they fell into preset sell stops below areas of chart support. That raised fears that we could see lower cash prices emerge after all. However, futures found little selling interest as June dropped to $148, an area that has provided good support on previous breaks, and the buyers slowly returned once again. In the end, it still comes down to this week’s cash trade.

Today’s kill is estimated at 115,000 head, up 10,000 from the previous week, but down 6,000 from the previous year. Week-to-date slaughter is estimated at 450,000 head, up 15,000 on the week but down 25,000 from the previous year.

Product prices continue to hold impressively well. Select cuts have come under a bit more pressure as imports flood the market, but Choice cuts have held well just below record high levels set back in January. Cow slaughter is expected to slow in the months ahead, which should help tighten supplies of grinding meats, providing some support for the Select. The question again will be the resiliency of demand for steaks.

Product movement rose to an impressive 221 loads on the spot daily market Wednesday, which was the highest one-day total since December 10. The total was up from 152 loads the previous day and up from 165 loads the previous week. Overall, this week’s movement is set to continue the spring growth in demand that we’ve seen over the past month.

Choice cuts on Wednesday were up $0.83 to $258.55 per cwt, while Select cuts were down $1.92 to $246.06. That pushed the Choice/Select spread to $12.49 per cwt, its highest level again since December 10. Movement at mid-morning was again good at 115 loads, but on weaker prices. Choice cuts were down $0.89, while Select cuts were down $1.21 per cwt.

Exporters sold a net 12.4K metric tons of beef in the week ending April 23, down from a robust 20K tons the previous week, but up from 11.4K in the same week last year and back to levels near where we had been ahead of the previous week’s spike. Estimated sales to date fall short of the previous year’s pace by 22%. Actual shipments during the week totaled 10.8K metric tons, down from 11.6K the previous week and down from 11.9K tons in the same week last year. Estimated shipments to date are down 6% from the previous year’s pace.

Feeder cattle futures followed the lead set by fat cattle prices, but with a bit more support on weaker corn and stronger cash prices. The latest CME 7-day feeder cattle cash index came in today at $217.37 per cwt, up $1.58 on the day and up $1.80 over the past week. The index has risen four days in a row as demand firms at the sale barn.

Pork

Lean hog futures consolidate after rising above the 100-day moving average on strength in the cash and product market.

Today’s cash market was again steady to $2 higher, although the closely watched Iowa/Southern Minnesota market was mostly steady to 50 cents higher. Regardless, the direction of the cash market continues to be up. Today’s CME 2-day lean hog index came in at $67.25 per cwt, up $0.76 on the day, up $2.15 on the week and up $7.67 per cwt over the past 18 consecutive trading days.

Today’s kill is estimated at 425,000 head of hogs, down 3,000 from the previous week, but up 10,000 from the previous year. Week to date slaughter is pegged at 1.709 million head, down 9,000 from the previous year, but up 127,000 head from the same period last year.

Product movement Wednesday was slow for a Wednesday at 372 loads, down from 437 loads the previous day and down from 393 loads the previous week. Yet, prices continued to trend higher. The composite pork product price rose $0.32 to a new two-month high of $71.34 per cwt, up $3.86 over the past week. The composite price has risen over the past five consecutive days and posted gains on 12 of the past 16 trading days. Movement slowed to just 181 loads at midday today, but the composite price rose another $1.72 to $73.06 on demand for picnics, loins and ribs.

Exporters sold 24.6K metric tons of pork in the week ending April 23, up from 22.5K tons the previous week and above the 9.9K tons sold in the same week last year. Estimated calendar year sales to date exceed the previous year’s pace by 64%. Actual shipments during the week totaled 19.8K metric tons, down from 20.4K the previous week, but up from 9.1K tons in the same week last year. Estimated calendar year shipments to date exceed the previous year’s pace by 70%.

The June lean hogs futures contract traded to $82.625 this morning. It’s been nearly two months since the contract has traded that high. It’s early-day rally sent it surging above the 100-day moving average, but that’s when profit taking started, with traders taking profits on the $10+ move off March lows. Thus far prices have bounced after failing to test Wednesday’s low of $80.225.

Avian flu remains a supportive factor now for futures traders, with another flock testing positive in Iowa today and rumors of another. Thus far more than 15.4 million birds have been culled due to the disease, which continues to spread.

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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