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Closing Comments

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Closing Comments

Corn

Corn futures finish well after slipping on favorable weather early in the session.

The Department of Energy surprised traders this morning with a larger-than-expected drop in crude oil stocks, pegging them at 484.8 million barrels, down 2.2 million from the previous week. That still leaves stocks at their highest level on record for this time of year, but the data suggests that demand is beginning to exceed supply after rig counts have been slashed following the big drop in prices over the past nine months.

Meanwhile, ethanol stocks fell to a fresh four-month low of 20.3 million barrels in the week ending May 8, down from 20.8 million the previous week, but still up from 17.3 million barrels in the same week last year. Ethanol production rose to 912K barrels per day during the week, up from 887K the previous week, but down from 922K barrels per day in the same week last year.

The data suggests that ethanol producers used 96.8 million bushels of corn in the week ending May 8, up from 94.1 million the previous week, but down from 99.3 million in the same week last year. That brings estimated corn usage for the marketing year to date to 3.600 billion bushels, up 116 million or 3% from the previous year. Estimated corn usage to date falls short of the seasonal pace needed to reach USDA’s target by August 31 by 2 million bushels, after exceeding the pace by 4 million the previous week.

July corn finished the day a nickel off its lows and near session highs after holding a test of the previous day’s lows. December corn held well above the previous session’s lows and also finished near the session high. That leaves the door open for a short-covering rally, even though the longer-term outlook is bearish, short of a significant weather event. December corn needs to show an ability to hold above $3.80, which was today’s session high.

Soybeans

Soybean prices bounce off chart support, but struggles to hold those gains late.

It was tempting to consider today’s bounce in the soybean market as indication that the worst is behind us, but traders have not forgotten that large 500 million-bushel estimate for ending stocks for the 2015-16 marketing year. That number will provide the prism through which traders will view all fundamental reports such as exports news, crush reports and weather updates in the weeks and months ahead. As such, this market is vulnerable to considerable more weakness.

Our partners at Commodity Weather Group have been talking about a weak El Nino weather pattern for months, but it has made the headlines once again this week, with some Pacific Rim countries issuing warnings. CWG looked back at previous El Nino years, parsing out those years with abnormally warm sea surface conditions off the west coast of California and Baja California.

They found just four years since 1950 that fit that criteria. Each of those four years provided above-trend soybean yields, with three of them being record high yields. That’s because the combination tended to provide favorable growing conditions in the Midwest. Four years is not a large number to give confidence, but the pattern fits well with CWG’s outlook for the summer growing season.

The National Oilseed Processors Association is expected to release its estimate of member soybean crush activity in April on Friday. A Reuters’ survey of trade participants reveals that they expect NOPA April soybean crush to total 147.827 million bushels, within a range of 140.5 to 152.4 million. If realized, the total would be down from 162.8 million bushels crushed in March, but up from 132.7 million crushed the previous year.

USDA’s 500-million bushel projection for next year’s surplus stocks suggests that rallies will be meant to be sold until a legitimate threat emerges to supply. We certainly saw that play out today, with prices struggling to hold gains. Traders are reluctant to press prices below key chart support at this point until they see more of the crop go into the ground and get a good start, but rallies will likely be difficult to sustain, even though the upfront cash market remains strong due to slow farmer selling.

Wheat

Wheat futures erase losses late after failing to sustain selling above recent lows.

There was nothing bullish about Tuesday’s USDA crop report. USDA projected a rise in global wheat stocks in the 2015-16 marketing year to a 104-day supply, while domestic stocks rise to a 135-day supply. That makes it pretty tough to get bullish wheat at a time when the bulk of alternative supplies around the world are priced below U.S. prices.

Wheat prices tried to bounce anyway on Tuesday, as speculative hedge fund managers had already built record large short (sold) positions ahead of the report, pricing in those bearish expectations. As such, there was an opportunity for a short-covering rally following the report as traders took profits on those profitable positions.

That didn’t happen; or at least has not happened yet, as the collapse in soybeans reinvigorated the bears. It still could happen, as the dollar works lower, particularly if corn does carve out a near-term low. However, traders holding large short positions thus far remain confident and content to continue holding them.

Wheat prices firmed back into positive territory late in the day, posting a positive reversal on the charts. That’s not a guarantee that we’ll see a short-covering rally, but it’s a positive baby step in that direction. Follow-through buying will be needed, with Chicago July needing to establish itself above $4.87 per bushel, while the $5.10 level is the next level to watch for Kansas City.

Beef

Live cattle futures show bias toward breaking higher on the strength of product prices.

June live cattle futures probed the top of the trading range at $152 that has largely contained the market today. It was the second attempt to pop out of that range in the past three sessions. The first attempt failed, but this one was fueled by strength in the product market; specifically values for Choice cuts. That raised prospects that this week’s cash trade could see higher prices from last week’s $161 to $164 range in the Plains feedlot belt.

Product movement on the spot daily market rose to 161 loads Tuesday, up from 133 loads the previous day and up from 155 loads the previous week. Choice cuts rose $1.39 to $260.96 per cwt, bringing them within $3 of the all-time record high set in January. Select cuts were down $0.35 to $247.75 per cwt.

That pushed the Choice/Select spread to a five-month high of $13.21 per cwt, up from $11.47 the previous day and up from $11.96 the previous week. Movement at mid-morning today was good at 106 loads, with Choice cuts up another $1.73 to $262.69 per cwt, while Select cuts were up $1.38 to $249.13.

Feeder cattle futures followed the lead of the fat cattle market, moving higher with it on the probe higher. The latest cash index came in at $219.26 per cwt, unchanged from the previous day, but up $3.23 from the previous week. The lead May contract gapped above the 200-day moving average on Monday and hasn’t looked back, with next resistance between $219 and $220 per cwt. August feeder cattle still need to take out resistance at $219 on the charts.

Today’s estimated kill is 112,000 head, up 10,000 from the previous week, but down 8,000 from the previous year. Week-to-date slaughter is pegged at 339,000 head, up 10,000 from the previous week, but down 16,0000 from the same period last year.

June live cattle showed encouraging signs today as it moved above $152 this afternoon. While positive, the next step necessary to build confidence in the move would be a close above Monday’s high of $152.925.

Pork

Lean hog futures continue to consolidate while the cash market plays catch-up.

The lead May lean hog futures contract is scheduled to go off the board tomorrow. It posted modest gains through much of the day on ideas that the cash index will continue its rise. Meanwhile, the deferred contracts continued to consolidate, with June lean hogs consolidating largely just below $85 per cwt. The market was over-bought and at a premium to the cash market, giving it some room to consolidate while demand adjusts to three-month highs in cash and product prices.

Today’s Midwest cash market was largely steady to $1 higher today, with the closely watched Iowa/Southern Minnesota market steady to $0.25 higher. The latest CME 2-day lean hog came in at $79.09 per cwt, up $1.11 on the day, up $6.05 on the week and up $19.51 over the past 27 consecutive trading days with gains.

Product movement rose to 335 loads on Tuesday, up from 220 loads the previous day, but down from a strong 464 loads the previous week. However, prices continue to climb. The composite pork product price rose to a fresh three-month high of $83.67 per cwt, up $2.67 on the day, up $7.65 over the past week and up $16.19 over the past 14 consecutive trading days. Movement at midday today was good at 230 loads, but the composite pork product price slipped $0.68 to $82.99 per cwt.

Today’s kill is pegged at 418,000 head, up 2,000 from the previous week and up 10,000 from the previous year. Week-to-date kill is pegged at 1.250 million head, down 10,000 from the previous week, but up 36,000 from the same period last year.

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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