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Closing Comments



Closing Comments


USDA issues neutral corn report, but early strength was capped by collapsing soybean prices.

USDA released its first regular supply and demand balance sheets for the 2015-16 marketing year, establishing the foundation that future fundamental developments will build upon. In other words, futures weather developments, demand trends, etc. will be viewed through the filter provided by the crop report.

Traders quietly raised fears ahead of the crop report that USDA might raise its trend yield and/or planted acreage estimate due to the rapid planting progress for this year’s corn crop. However, that did not happen. USDA stayed with 89.2 million planted acres and a trend yield of 166.8 bushels per acre. It expects a small 50-million bushel rise in feed usage in the year ahead to 5.3 billion bushels, while ethanol demand remains unchanged at 5.2 billion bushels. Exports are expected to rise 75 million to 1.9 billion bushels.

In the end, USDA expects surplus stocks for the 2015-16 marketing year to fall to 1.746 billion bushels, down from 1.851 billion in the current-year and very close to pre-report trade estimates of 1.752 billion bushels. That translates into a 46-day supply, down from a 50-day supply in the current-year. Global supplies actually inched lower in the report at a 71-day supply. That’s just a 16-day supply above 40-year lows in global stocks.

One of the challenges will likely be whether we can export 1.9 billion bushels. USDA pushed its Argentine corn production estimate to 24.5 million metric tons, up from 24 mmt previously. However, the agency pointed toward very favorable weather in pushing Brazil’s corn crop to 78 mmt, up from 75 mmt in April, with one respected private analyst in Brazil pegging the crop above 82 mmt. That could give us stiff competition late this summer through the fall.

Monday’s USDA crop progress report revealed that 75% of the corn crop was planted as of May 10, up 20 points on the week and up from the five-year average for the week of 57%. There continued to be lingering delays in Colorado, North Carolina and Texas, but every other state was on or ahead of the typical pace for the week. In fact, Minnesota led the way at 95% planted, up from the five-year average for the week of 50%. Planting progress reached 64% in North Dakota, versus the typical pace of 29%.

Corn emergence as of May 10 was at 29%, up 20 points on the week and above the five-year average pace for the week of 24%. Emergence was delayed in southern and eastern areas where adverse weather had previously delayed planting progress, but the gap is closing.

Large speculative short (sold) positions in corn led to some profit taking after the report, which was largely neutral, was released. Additional support came from soybean/corn spread trading. I’ve been watching for signs that the corn market could see a significant short-covering rally unfold in the days following the crop report, but unfortunately, the quite bearish soybean report is providing an anchor to hold corn down thus far.

December corn posted a friendly double-bottom on the charts near $3.72, but it didn’t finish well. This market acts like it would like to bounce, but thus far soybeans are behaving like a large anchor on the market.


USDA throws the bears plenty of fodder in the soybean pits.

USDA’s crop report raised Argentina’s soybean crop to 58.5 million metric tons, matching pre-report trade expectations and up from 57 mmt the previous month. Brazil’s crop was left unchanged at 94.50 mmt.

Domestically, USDA dropped old-crop soybean stocks to 350 million bushels after raising both crush and exports by 10 million bushels respectively. That then becomes the beginning balance for the 2015-16 marketing year on September 1. USDA stuck with its 84.6 million planted acres projected on March 31, although that will likely rise some on June 30. It also used a strong trend yield of 46 bushels per acre, while I’m more comfortable with a trend yield of 44.9 bushels per acre at this time.

The agency pegs new-crop 2015-16 ending stocks on August 31, 2016 at 500 million bushels, up 150 million from the current year and 300 million bushels over levels needed to excite the bulls again. USDA has over-estimated new-crop stocks in its May crop report in 16 of the past 19 years, but that still doesn’t do much to turn a 500 million-bushel number friendly.

This is quite bearish soybeans until/unless a significant weather problem emerges. Furthermore, USDA is forecasting next year’s Argentine and Brazilian soybean crops at 57 mmt and 97 mmt respectively, suggesting that global supplies will remain more than ample for some time to come until/unless weather patterns change.

USDA reported late Monday that soybean planting progress reached 31% by May 10, up 18 points on the week and up 11 points from the five-year average for the week. Modest planting delays were seen in Indiana, Kansas, Kentucky, Missouri, North Carolina and North Dakota. Progress was otherwise good in the other significant production states.

July soybeans fell to four-week lows, breaking through chart support at $9.6775. Next support is at $9.40 for the lead contract, but downside momentum may be tough to stop if farmers begin to panic sell. November soybeans are just above their contract low from last fall of $9.275, with sell-stops likely below that if it gives way. Old-crop could find support from South American supply disruptions, with another strike expected to impact ports starting on Monday, but new-crop has little to support it until/unless a weather problem emerges.


Wheat short-covering rally falls flat, damaging hopes for a post-report selling opportunity amid rising stocks.

USDA released its first 2015 wheat production estimates based on actual field surveys, reflecting some of the good and bad of this year’s crop. The total wheat crop was pegged at 2.087 billion bushels, up 61 million from the previous year, but down 9 million from the average pre-report trade estimate for the current year.

All winter wheat production is estimated at 1.472 billion, up 94 million from the previous year, but essentially matching trade expectations. The hard red winter wheat crop is estimated at 853 million bushels, 115 million from the previous year, but only 8 million above trade expectations. Soft red winter wheat is pegged at 416 million bushels, down 39 million from 2014 and down 4 million from trade expectations. In essence, the production estimates were neutral to the market.

Old-crop ending stocks rose to 709 million bushels on poor export demand. That number then becomes the beginning balance for the new-crop year on June 1. Total usage is expected to rise by 87 million bushels in the coming year, including a 65-million bushel rise in export demand. However, the larger crop is still expected to boost 2015-16 ending stocks to 793 million bushels or a large 135-day supply, up from a 126-day supply in the year that ends on May 31.

USDA reported Monday that 56% of the winter wheat crop had headed as of May 10, up 13 points on the week and above the five-year average for the week of 45%. In general, the soft red winter wheat crop was delayed in heading progress, while the hard red winter wheat crop was ahead of normal. That was most pronounced in Kansas, where the state has faced a great deal of stress. Kansas wheat was 70% headed, up 29 points on the week and up from the five-year average for the week of 46%.

The crop rated a condition index score of 326 (500=perfect crop), versus 325 the previous week, 273 in the same week last year and above the 10-year average for the week of 318. Condition scores slipped modestly in Montana, Oklahoma, Oregon, South Dakota and Washington, but were stable to higher in all other states. Kansas and South Dakota had the lowest scores of note at 287 and 266 respectively. Soft red winter wheat scores overall were better than hard red winter scores.

Spring wheat planting progress reached 87% as of May 10, up from 75% the previous week and above the five-year average for the week of 51%. The state with the slowest planting progress was North Dakota, but it was 82% planted, up from the five-year average for the week of 37%. The crop’s emergence was at 54%; more than twice the normal pace of 25%. Every one of the six major spring wheat states were at least 19 points ahead of the normal pace for emergence at this time of year.

In the end, domestic ending stocks rose a bit more than the trade expected, with global stocks easing higher to a 104-day supply as well. There’s nothing bullish about those numbers, but traders had already priced very bearish sentiment into the market. As such, we saw some “sell-the-rumor, buy-the-fact” buying emerge today, with traders taking profits on a portion of their massively large short (sold) positions. One of the keys will be whether sinking soybeans will drag corn lower as well, limiting strength in wheat?

Prices rallied to two-week highs in Chicago and Kansas City ahead of the report, but could not hold that strength into the close. Chicago July needs to re-establish itself above $4.87 to encourage more profit taking on large speculative short positions in that market. Some winter wheat in the northwestern Central Plains got nicked by a freeze last night, but it needs to make more headlines if we’re going to see Kansas City lead the way, which is what needs to happen longer-term to sustain a rally.


Cattle futures remain range-bound while waiting for this week’s cash trade.

Live cattle futures traded both sides of unchanged today as emotions continue to drive this market within a broader trading range. The lead June contract remains entrenched primarily within a broad trading range of $148 to $152, which ironically is $10 below where the cash market has been trading. In fact, the cash market has spent the bulk of the time since last summer above $153.

The cash market remains amazingly resilient while the futures market remains amazingly skeptical. Both markets have had their day and both markets have had their lessons in humility as this market trades anything but traditional patterns amid tight supplies and resilient demand.

Monday’s reversal in the futures market provided a bearish sign for the market, despite strength in the cash market. The breakout to the upside that collapsed with a poor finish suggests more weakness ahead. Yet, breaks to, and occasionally through, the bottom of the aforementioned trading range tend to provide reversals to the upside as the cash market drags the market reluctantly higher once again.

So where do we go from here? That’s been the ongoing debate for the past 12 months. There are reports in the trade that a major packer paid $160 per cwt on a live basis this week for cattle to be delivered the first week of June, suggesting that packer sees that as a bargain price for early June. Seasonal demand would suggest that the demand for cattle should be strong this week, even with the larger captive supply and larger showlist. Choice cuts are trading just below record high prices, providing profitable margins at this point to encourage packers to run more cattle through the plants.

Movement on the spot daily market was good for a Monday at 133 loads, down from 140 loads Friday and down from a strong 147 the previous week. Choice cuts moved for $259.57 per cwt, up $1.45 on the day and just below the record high of $263.81 set in January. Select cuts rose $1.28 to $248.10 per cwt. That firmed the Choice/Select spread to $11.47 per cwt, up from $11.30 the previous day, but down from $11.74 the previous week.

Today’s kill is pegged at 114,000 head, matching the previous week, but down 6,000 from the previous year. Week-to-date slaughter is estimated at 227,000 head, matching the previous week, but down 8,000 from the same period last year.

The lead May feeder cattle futures contract found support from the cash market, while the deferred contracts came under greater weakness as corn prices firmed early and fat cattle prices softened. The latest CME 7-day feeder cattle index came in at $219.26 per cwt, up an impressive $4.45 on the day and up $3.49 over the past week.

June live cattle rallied into the noon hour, topping out at $151.65 before pulling back. Once again, traders got cold feet just below $152, which has gained increasing significance for the trade.


Lean hog futures post new three-month highs on solid fundamentals.

Lean hog futures traded both sides of unchanged again today as the market continues to consolidate after reaching three-month highs on Friday. Negative packer margins were a concern, but slower gains in the cash market have improved those margins to just over $2 losses per head. Product movement had been slowing as prices trended higher.

Today’s Midwest cash market was mostly steady to $0.50 higher in Illinois and in the closely watched Iowa/Southern Minnesota markets, while mostly steady elsewhere. The latest CME 2-day lean hog index came in at $77.98 per cwt, up $0.84 on the day, up $6.81 on the week and up $18.40 over the past 26 consecutive trading days.

Product movement Monday totaled 220 loads, down slightly from 223 loads on Friday and down from 272 loads the previous Monday. The composite pork product price pushed to a new three-month high of $81.00 per cwt, up $1.43 on the day, up $6.68 over the past week and up $13.52 per cwt over the past 13 consecutive trading days. Movement at midday today was routine at 197 loads, with the composite price at $82.29 per cwt, up another $1.29 on the day.

Today’s kill is pegged at 423,000 head, up 4,000 from the previous week and up 8,000 from the previous year. Week-to-date kill is pegged at 832,000 head, down 12,000 from the previous week, but up 26,000 from the same period last year.

June lean hogs finished the day strong, pushing to a new three-month high over the noon hour. The charts suggest additional strength ahead, even though the market remains over-bought and vulnerable to more consolidation and/or correction lower in the near-term. The 200-day moving average sits above the market at $87.62 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

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