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Closing Comments

Corn

Corn futures slip lower ahead of USDA’s crop report, despite strong export demand.

Exporters shipped 44.7 million bushels of corn in the week ending May 7, up from 41.6 million the previous week and up from the five-year average for the week of 31.6 million bushels. Shipments to China during the week totaled just 0.1 million bushels.

Marketing year shipments total 1.134 billion bushels, down 65 million or 5% from the previous year. Exporters typically ship 66% of final corn shipments by this point in the year, whereas they had shipped 63% last year. Thus far they have shipped 63% of USDA’s target this year. Shipments to date fall short of the seasonal pace to hit USDA’s target by August 31 by 40 million bushels, but that’s an improvement from the deficit of 51 million bushels the previous week.

Exporters shipped 6.8 million bushels of grain sorghum in the week ending May 7, down from 11 million the previous week, but up from the five-year average for the week of 1.8 million bushels. Shipments to China accounted for 6.6 million bushels of the past week’s total.

Marketing year shipments total 274 million bushels, up 152 million or 124% from the previous year. Exporters typically ship 68% of final grain sorghum shipments by this point in the year, whereas they had shipped 58% by this point last year. However, this year they have already shipped 78% of USDA’s target. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 36 million bushels, up from 34 million the previous week.

USDA is scheduled to release its weekly crop progress report at 3 p.m. CDT this afternoon. A Reuters’ survey of trade participants revealed expectations that USDA will report that 73% of the corn crop was planted as of Sunday, May 10, up from 55% the previous week and up from the five-year average for the week of 58%. Water Street submitted an estimate of 71% planted.

Corn futures consolidated lower once again today on bearish expectations that USDA will confirm rapid planting progress this afternoon, while confirming ample supplies over the next year and a half tomorrow morning. This market is bearish, but is also oversold with speculative fund managers holding large short positions that they may want to take profits on if USDA fails to print numbers any more bearish than what is already expected.

Soybeans

Soybeans slip lower ahead of USDA’s crop report amid chatter that Argentine strike may be near resolution.

Exporters shipped 9.7 million bushels of soybeans in the week ending May 7, up from 6.3 million the previous week and up slightly from the five-year average for the week of 9.5 million bushels. No soybeans were shipped to China during the latest week reported.

Marketing year shipments total 1.699 billion bushels, up 167 million or 11% from the previous year. Exporters typically ship 87% of final soybean shipments by this point in the year, whereas they had shipped 93% by this point last year. However, this year they have already shipped 95% of USDA’s target. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 150 million bushels, down from 154 million the previous week.

The aforementioned Reuters’ survey revealed trade expectations that USDA will estimate soybean planting progress as of Sunday at 28%, up from 13% the previous week and above the five-year average for the week of 21%. Water Street submitted an estimate of 24% complete.

Soybean futures started the day with modest gains, while finishing the day with modest losses. Prices slipped lower as trade chatter emerged that strike workers had returned to work in Argentina. Reuters reports that crush workers continue to strike, but that they are currently in talks with management at the Labor Ministry and that an agreement is possible. The powerful port workers union has scheduled a meeting tomorrow to vote on whether to strike in support of the crushers’ union if no agreement is reached.

July soybeans are slowly creeping higher, while November is slowly eroding lower. That fits the fundamentals, with old-crop stocks tight amid slow farmer selling, while future supplies look big.

Wheat

Wheat futures firm late in the day ahead of USDA’s crop report.

Exporters shipped 13.9 million bushels of wheat in the week ending May 7, up from 12 million the previous week, but down from the five-year average for the week of 26.9 million bushels. The past week’s total included 0.06 million bushels shipped to China from West Coast ports.

Marketing year shipments total 788 million bushels, down 300 million or 28% from the previous year. Shipments to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 19 million bushels, compared to a deficit of 16 million the previous week.

The aforementioned Reuters’ survey revealed trade expectations that this afternoon’s USDA crop progress report will show that 87% of the spring wheat crop was planted as of Sunday, up from 75% the previous week and up from the five-year average for the week of 51% planted. Water Street submitted an estimate of 82% planted. The trade expects USDA to show that 44% of the winter wheat crop is rated Good to Excellent, matching our submitted estimate and up 1 point on the week.

The bottom line is that speculative fund managers have already build record large short (sold) positions ahead of tomorrow morning’s USDA crop report. Prices firmed late in the session, suggesting this market may be poised for a short-covering profit taking rally if USDA fails to add fresh bearish fodder tomorrow. The fundamentals remain bearish, but the stage is set for a possible correction rally if traders don’t see a continued flow of bearish news.

Beef

Live cattle futures post bearish reversal after an attempt at a breakout to the upside failed.

Live cattle futures firmed early today, with the lead June contract rising to a one-month high of $152.925 per cwt. The move also busted through trend line resistance off the December and April highs in the process, but could not hold the strength. Profit taking emerged when upward momentum waned, sending prices into negative territory. The pattern of selling rallies on skepticism that cash strength can hold continues to be the predominant theme in live cattle futures.

The contract needs to take out and close above the April 6 high of $154.675 to garner any significant upside momentum. That may be difficult to do without the cash market proving that it can go higher against seasonal tendencies and market skepticism. We’ll likely need to wait until later this week to see if that can be the case. Cash trade opened weak, but finished near steady to a bit higher on the week last week. Expectations thus far for the current week are steady at best, but confidence in that assessment so early in the week is low.

Last week’s product movement on the spot daily market totaled 965 loads, down from a calendar-year high 991 loads the previous week, but up from 839 loads in the same week last year. Choice cuts finished the week at $258.12 per cwt, up $3.48 on the week. Select cuts finished the week at $246.82 per cwt, up $3.60 on the week. The Choice/Select spread slipped to $11.30 per cwt, down $0.12 on the week.

Movement at mid-morning today was a routine 77 loads for a Monday, but Choice cuts were up another $1 and Select cuts were up another $1.53 per cwt. Choice cuts are getting very close to that January record high of $263.81 per cwt once again, trading at $259.12 early today.

Packer margins are estimated at $22.10 per cwt and should spend considerable time in the black as we head into the summer. Today’s kill is estimated at 113,000 head of cattle, matching the previous week, but down 2,000 from the previous year.

The Feeder cattle future market held its ground for the lead May contract, but the deferred contracts slipped into negative territory as fat cattle prices slipped lower, trading both sides of unchanged. August feeder cattle encountered selling once again at the 200-day moving average, which is currently at $218.916 per cwt. The latest CME 7-day cash index came in at $214.81 per cwt, down $0.60 on the day, down $1.22 over the past two days and down $3.19 over the past week.

June live cattle posted a bearish reversal on the day. It probed below Friday’s low, before stabilizing. This market has trouble sustaining losses, but it also has trouble sustaining gains. It has spent much of the past month trading between $148 and $152 per cwt, down roughly $10 from the cash market.

Pork

Lean hog futures consolidate lower to correct an over-bought condition, even as cash and product markets continue to firm.

Lean hog futures consolidated lower today, despite continued strength in both the cash and product markets. Futures prices had built a considerable premium to the cash market and had some room to correct lower, even though the fundamentals beneath the market remain relatively sound. My primary concern at this point is the $5 to $6 losses estimated that packers are facing for each animal they run through the plant, as product prices have risen at a slower rate than the cash market.

Today’s cash market in the Midwest was mostly steady to $0.50 higher, although we did see some trade up to $1 higher. The latest CME 2-day lean hog index came in today at $77.14 per cwt, up $1.16 on the day, up $7.65 on the week and up $17.56 per cwt over the past 25 consecutive trading days.

Today’s kill is estimated at 409,000 head, down 16,000 from the previous week, but up 18,000 from the same period last year. Negative packer margins are slowing incentive to pull hogs into plants as domestic demand softens.

Product movement slipped to 1,574 loads in the past week, down from 1,648 loads the previous week and down from 1,814 loads the previous week. Fortunately, export demand remains strong. The composite pork product price rose to a three-month high of $79.57 per cwt, up $5.71 on the week and up $14.22 over the past six weeks. The composite price has been higher for the past 12 consecutive trading days. Movement was slow at midday today at just 118 loads, while the composite pork product price was up another $1.25 to $80.82 per cwt.

Even so, today’s weakness in the June lean hogs futures contract showed up as mere consolidation on the charts, trading well inside the limits of Friday’s session. The 200-day moving average is currently at $88.67 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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