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Closing Comments

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Closing Comments

Corn

Corn futures push higher on short-covering and demand as wheat leads the way.

Exporters sold 35.2 million bushels of corn in the week ending May 14, including 32 million old-crop bushels. The old-crop sales were up from 14.6 million bushels sold the previous week and were up from the five-year average for the week of 23.3 million bushels. China reduced previous old-crop purchases by 35.4K bushels during the week, while buying 2.3 million new-crop bushels of corn.

Marketing year sales to all destinations total 1.667 billion bushels, down 106 million or 6% from the previous year. Exporters typically sell 89% of final corn shipments by this point in the year, whereas they had sold 92% by this point last year. Thus far this year they have sold 91% of USDA’s target for the year. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by 40 million bushels and that is up from 38 million the previous week.

Exporters sold 14.6 million bushels of grain sorghum in the week in which USDA’s attaché to China warned that officials there may try to block future imports to force end users to utilize high-priced domestic corn currently in reserve. The total included 4 million old-crop bushels of grain sorghum, up from 1.6 million the previous week and up from the five-year average for the week of 1.2 million bushels.

China bought 7.1 million old-crop bushels during the week, including 3.2 million switched from “unknown destinations” and reductions of 0.2 million bushels. “Unknown destinations” reduced previous purchases by 3.1 million bushels. China bought 6.4 million new-crop bushels, while “unknown destinations” bought 4.25 million new-crop bushels.

Marketing year sales to all destinations total 323 million bushels of grain sorghum, up 167 million or 107% from the previous year. Exporters typically sell 75% of final grain sorghum shipments by this point, whereas they had sold 74% by this point last year. However, this year they have already sold 92% of USDA’s target. As such, sales to date exceed the seasonal pace needed to hit USDA’s target by 62 million bushels, which is unchanged from the previous week.

USDA’s daily export reporting service today reported that “unknown destinations” bought 8 million bushels of corn. The purchase was a split of 6 million old-crop and 2 million new-crop bushels. We likely won’t learn of the buyer’s identity until delivery.

Respected Brazilian consultant Agro Consult raised its corn production estimates for both its first and second (safrinha) crops. It pegs the 1st crop at 30.7 million metric tons, up from 29 mmt previously, while putting the safrinha crop at 51.4 mmt, up from 50.4 mmt previously. That puts total Brazilian production at 82.1 mmt, up from USDA’s estimate of 78 mmt, with the excess bushels largely expected to flow to the export market competing with U.S. corn later this year. Meanwhile, Argentina raised its corn crop to 31 mmt, up from 30 mmt previously and up from USDA’s latest estimate of 24.50 mmt.

July corn rallied off support at $3.60 today, finishing 1-1/2 cents below the session high at $3.65. The next objective is a move above $3.70, but traders will also be paying attention to the wheat, currency and energy markets, as well as the approaching three-day holiday weekend.

Soybeans

Soybeans struggle to hold gains as demand softens and production estimates rise.

Exporters sold 8.9 million bushels of soybeans in the week ending May 14, including 6.1 million old-crop bushels. The old-crop sales were up from 5.0 million bushels sold the previous week, but were down from the five-year average for the week of 13.2 million bushels. China was largely absent from the U.S. market during the week.

Marketing year sales to all destinations total 1.827 billion bushels, up 178 million or 11% from the previous year. Exporters typically sell 96% of final shipments by this point, whereas they had sold 100% by this point last year. However, this year they have already sold 102% of USDA’s target. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 94 million bushels, although that is down from 108 million bushels the previous week.

A contentious strike starting May 5 continues among crush workers in Argentine. Exporters are reportedly refraining from buying grain to pressure the government to resolve the strike. As a result, movement has come to a halt, with up to 40 ships at bay and reportedly sending export business for soymeal and soyoil elsewhere. However, that shift in export business did not show up in the U.S. books, at least not as of May 14.

USDA reported that exporters sold 103K metric tons of soymeal during the week ending May 14, up from 45.2K the previous week, but down from the five-year average for the week of 126.6K tons. Actual shipments during the week totaled just 107.2K metric tons, down from 201.8K the previous week and down from the five-year average for the week of 127.2K tons.

Agro Consult raised its soybean production estimate for Brazil to 96.1 mmt, up from 95.8 mmt previously and above USDA’s estimate of 94.50 mmt. Further south, Argentina raised its official estimate of its soybean crop to 60 mmt, up from 59 mmt previously and up from USDA’s latest estimate of 58.50 mmt.

July soybeans tried to bounce off the bottom of a channel that has held the market throughout 2015, but it couldn’t hold onto gains. Slowing demand combined with rising production estimates on both sides of the equator make it difficult for traders to be long (bought) right now. Both the July and November contracts finished the day near session lows and just above Wednesday’s lows.

The new-crop soybean/corn price ratio settled at 2.41 to 1 today, down from 2.54 ahead of USDA’s report. I look for the ratio to drop below 2 later this growing season as soybeans lose ground to corn.

Wheat

Short-covering resumes in wheat market on weather concerns as dollar rally pulls back.

Exporters sold 7.4 million bushels of wheat in the week ending May 14, including just 2.7 million old-crop bushels. The old-crop sales were down from 4.2 million bushels sold the previous week and were down from the five-year average for the week of 7.1 million bushels. Marketing year sales total 855 million bushels, not including USDA donations to needy countries for the year, down 313 million or 27% from the previous year. Sales to date exceed the seasonal pace needed to reach USDA’s target by May 31 by 18 million bushels, unchanged from the previous week.

Speculative hedge fund managers are still leaning hard to the short (sold) side of the market. That makes them nervous when they begin to hear of potential problems in the crop. Historically, they also frequently look for reasons to reverse direction when they see that the speculative community is leaning too hard in one direction or the other.

As a result, they began to cover a portion of their short positions after last week’s USDA crop report. The sudden rally in the dollar at the start of the week brought that short-covering rally to a halt, but it resumed on dollar weakness today, supported by concerns about persistently wet weather damaging wheat in the Southern Plains, dryness in the Canadian Prairies and conditions heating up and drying out in Southern Russia.

The lead July contracts rose to fresh one-month highs in Kansas City and Minneapolis, with Chicago still just below this week’s high of $5.3025. The trend remains higher near-term, although changes in the currency market continue to threaten pull-backs to derail the rally. None of the aforementioned problem areas are yet serious enough to justify a sustained rally, but they do provide justification for the funds to do what they would like to do anyway.

Beef

Live cattle futures firm on better-than-expected cash and product demand ahead of the holiday.

This week’s cash trade kicked off early, with a major packer buying cattle in Kansas at $161 on Wednesday. Additional cattle were bought in Nebraska at $159 to $160 per cwt on a live basis. The largely steady cash trade provided a lift for futures trade. Additional support came from this morning’s USDA weekly export sales report, showing strong demand. We’ve also seen good demand for steaks and the higher end cuts ahead of the Memorial Day holiday.

Export demand spiked earlier this month as the dollar weakened. Exporters sold 18.8K metric tons in the week ending May 14, up from 8.6K the previous week and up from 12.1K in the same week last year. Yet, year-to-date sales are estimated to be down 19% from the previous year’s pace. Actual shipments during the week were 11.8K tons, down from 11.9K the previous week and down from 14.0K metric tons in the same week last year. Estimated shipments for the year to date are down 8% from the previous year, largely due to the combination of high prices and a strong dollar.

Product movement on the spot daily market on Wednesday rose to 175 loads, up from 115 loads the previous day and up from 162 loads the previous week. Choice cuts slipped to $264.98 per cwt, down $0.61 from the previous day’s record high. Select cuts were up $0.03 to $251.06. That slipped the Choice/Select spread to $13.92 per cwt, down from $14.56 the previous day and down from $14.06 the previous week. Movement at mid-morning today was slow at just 57 loads, with Choice cuts down another $0.76 and Select cuts down $0.49 per cwt.

USDA is scheduled to release to important reports on Friday, but both will be released early due to the approaching Memorial Day holiday. Both the cattle-on-feed and cold storage reports will be released at 11 a.m. CDT instead of their normal 2 p.m. time. Trade expectations for the cattle-on-feed report are for it to show on-feed numbers at 101.4% of year ago levels; April placements at 100.9%; April marketings at 92.5% of the previous year.

Today’s kill is pegged at 113,000 head, down 1,000 from the previous week and down 4,000 from the previous year. Week-to-date slaughter is estimated at 453,000 head, matching the previous week, but down 19,000 from the same period last year.

Pork

Lean hog futures rebound on expectations of a post-holiday rebound in cash prices.

Today’s cash market was again mostly steady to $1 lower as packers position for the upcoming three-day holiday weekend and following shortened slaughter week. Yet, firmer product prices improved packer margins, pushing them up to an estimated $6.55 per head and providing incentive to once again push hogs through the plant after the holiday. As a result, June lean hogs pushed higher today, gathering upward momentum late in the day. This adds validity to expectations that the contract may have a bit more upside in it yet.

The latest CME 2-day lean hog index came in at $83.05 per cwt, up $0.48 on the day, up $2.87 over the past week and up $23.47 per cwt over the past 33 consecutive trading days.

Today’s kill is pegged at 425,000 head of hogs, up 5,000 from the previous week and up 53,000 from the previous year. Week-to-date slaughter is pegged at 1.697 million head, up 27,000 from the previous week and up 128,000 from the same period last year.

Product movement Wednesday totaled 404 loads, up from 330 loads the previous day and up from 344 loads the previous week. The composite pork product price slipped to $86.13 per cwt, down 40.42 on the day, but still up $2.73 on the week. Movement at midday today was slow at 121 loads, but the composite product price was up $1.30 to a calendar-year high of $87.43 per cwt.

Exporters sold just 11.2K metric tons of pork in the week ending May 14 as prices reached four-month highs, down from 13.7K tons the previous week and down from 11.6K tons sold in the same week last year. Even so, year-to-date sales are estimated to be up 62% from the previous year. Actual shipments during the week totaled 18.2K metric tons, down from 19.3K the previous week, but up from 10.5K metric tons in the same week last year. Year-to-date shipments are estimated to be up 73% from the previous year’s pace.

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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