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Closing Comments

Corn

Corn futures see follow-through short-covering buying as the dollar plummets and wheat prices surge.

The Department of Energy reports that crude oil stocks on May 1 totaled 487 million barrels, down 3.9 million from the previous week, but still the largest on record for the week. Stocks are still large, but Wall Street took note that demand is starting to exceed declining production as the rig count drops. The market responded by pushing crude oil prices to new highs for 2015, with added support from the declining dollar, trading at its lowest level in more than two months.

Ethanol stocks remained largely unchanged in the week ending May 1 at 20.8 million barrels, but that remains above the 17.1 million barrels seen in the same week last year. Ethanol production fell to 887K barrels per day as plants took extra down time for maintenance, the lowest in 29 weeks. The past week’s production rate was also down from 921K barrels per day the previous week and down from 894K barrels in the same week last year.

The data suggests that the industry used 94.1 million bushels of corn in the week reported, down from 97.8 million the previous week and down from 96.3 million in the same week last year. Estimated corn usage to date for ethanol production is 3.503 billion bushels, up 119 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 4 million bushels, down from 10 million the previous week and down from 20 million four weeks prior to that.

Corn futures posted a friendly reversal on the charts Tuesday as a weaker dollar increased money flow into the broader commodity sector. That pushed prices upward to encourage speculative hedge funds to take profits on a portion of their large short positions, creating the positive finish to the day. The dollar plummeted nearly 1,200 points early today, encouraging additional money flow into the broader commodity sector and stimulating more short-covering in the corn market.

Additional support came from double-digit gains in wheat, but buying was capped for today as the lead July contract approached chart resistance at $3.70. Prices then came off their high as the dollar pulled off its lows. Traders may continue to look for excuses to cover a portion of their large short positions ahead of next Tuesday’s USDA crop report. However, sentiment remains bearish at this point, with some traders looking for the opportunity to sell this rally.

Soybeans

Soybean rally runs out of air as port workers delay their strike vote.

Soybean oil rallied to its highest level in two months this morning on demand news, but could not hold those gains. Prices rallied as Egypt tendered to buy 25,000 metric tons of soybean oil and 15,000 tons of sunflower oil. However, traders questioned whether U.S. oil could compete above 33.5 cents, leading to profit taking.

Strength in soyoil supported soybeans initially, but more significant support came as the dollar plummeted nearly 1,200 points on a weak private sector jobs reports, triggering buying of the broader commodity sector. The increased flow of money into commodities posted modest gains in soybeans. Gains were not as large as in corn and wheat as the speculative hedge funds hold smaller short positions in soybeans.

Furthermore, news that the port strike at Rosario has been postponed as the two sides talk capped gains. The government reportedly threatened sanctions if they strike now while ordered to the discussion table. A strike vote has been delayed until May 14. The port workers were considering striking to support a crush workers strike.

In the end, old-crop soybeans posted modest losses as the port workers strike delay more than offset gains from increased money flow due to a sinking dollar. The lead July contract ran into resistance at $9.90, with more significant resistance at $10.00. November soybeans continue to post lower highs on each rally, with trend line resistance near $9.65. Meanwhile key support is near the $9.40 area, which has caught price dips over the past several months.

Wheat

Wheat posts double-digit gains on short-covering amid sinking dollar and poor yield reports out of Central Plains.

Yields on the first day of the Wheat Quality Council tour of the Central Plains averaged 34.3 bushels per acre, down from 34.7 bushels the previous year and the lowest since 2001 for Day One. The group continued to find a variety of good and bad today, with the effects of drought, winterkill and disease dramatically impacting yields.

The reports of problems in the crop come amid massive short positions held by speculative hedge fund managers ahead of a significant crop report next week on May 12. That creates a lot of nervousness among traders. As such, the sharply weaker dollar appears to have provided the needed spark to trigger short-covering that supplied double-digit gains at times in today’s wheat market.

Added support came from a Stats Canada report this morning that showed a dramatic drop in wheat stocks from last year’s big surplus. Stats Canada reported that all-wheat stocks on March 31 totaled 16.738 million metric tons, down 25% from the previous year. The sharp drop also reflected the benefits of a relatively weak Canadian dollar that facilitated an strong export program, versus a strong U.S. dollar that hampered export efforts.

Wheat futures posted double-digit gains at all three markets as speculative hedge fund managers covered a portion of their massive short positions. Sentiment remains bearish as export demand languishes, with next Tuesday’s USDA crop report likely to confirm ample stocks as a result of the week demand despite problems in the Central Plains. However, traders are typically nervous leaning too hard in one direction or the other going into major USDA reports, knowing the agency’s tendency to throw balls.

Beef

Live cattle futures slip lower in consolidation while waiting for cash after rally fails below $152.

Feeders in the Plains are said to be asking $163 to $164 per cwt on a live basis for fat cattle, while packers have thus far been silent. Last week’s cash trade took place at mostly $160 to $163. This week’s futures trade thus far seems to reflect expectations of at least steady money, but the massive discount indicates that traders remain skeptical that cash prices will be able to hold longer-term.

June live cattle futures again tested and again failed at $152 on Tuesday. That strengthens resistance at that area, with additional resistance seen at $152.44 per cwt. Prices traded both sides of unchanged today, spending the bulk of the session inside the previous day’s trading session while waiting for greater clarity from the cash market.

Today’s kill is pegged at 106,000 head, down 9,000 from the previous week and down 15,000 from the previous year. Week-to-date slaughter is estimated at 333,000 head, down 2,000 from the previous week and down 26,000 from the same period last year.

Feeder cattle futures followed a similar pattern, with Tuesday’s trade finding resistance at $216, which is just above the 200-day moving average. Gains have been limited by some recent weakness in the cash market for lighter-weight cattle. The latest CME 7-day feeder cattle cash index came in at $216.03 per cwt, up $0.26 on the day and up $1.13 on the week, but showing some topping action in recent days.

Boxed beef movement on the spot daily market Tuesday totaled 155 loads, up from 147 loads the previous day and up from 152 loads the previous week. Choice cuts slipped $0.08 to $255.56 per cwt, while Select cuts fell $0.30 to $243.60. that pushed the Choice/Select spread to $11.96 per cwt, up from $11.74 the previous day and up from $9.74 the previous week. Movement at mid-morning today was strong at 156 loads, with Choice cuts up $1.07 and Select cuts up $0.64 per cwt.

Pork

Lean hog futures continue higher, following the trend of the cash and product markets.

Today’s cash market was again steady to $1 higher, with southeast Ohio reported to be $1 to $2 higher. Cash prices continue to trend upward, even though packer margins are estimated at losses of $5 to $6 per head. The latest CME 2-day lean hog index came in today at a new three-month high of $73.04 per cwt, up $1.87 on the day, up $6.55 over the past week and up $13.46 over the past 22 consecutive trading days.

Today’s kill is estimated at 422,000 head of hogs, down 4,000 from the previous week, but up 14,000 from the previous year. Week-to-date slaughter is estimated at 1.266 million head, down 18,000 from the previous week, but up 60,000 from the same period last year.

Product movement was strong Tuesday at 464 loads, up from 272 loads the previous day and up from 437 loads the previous week. The composite pork product price rose $1.70 to a new three-month high of $76.02 per cwt. The composite price has risen over the past nine consecutive trading days, with gains over the period totaling $8.54 per cwt, although gains in product have not kept up with gains in the cash hog market, leading to negative packer margins.

June lean hogs rallied early today in follow-through buying, taking out the March high on its way to $84.375 per cwt. The rise to three-month highs triggered some profit taking that led prices to pull back a bit. Even so, prices remained strong, even though the market is over-bought and vulnerable to a correction in the days ahead. Prices are now at levels that threat to trigger significant expansion that could exceed growth in demand.

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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