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Closing Comments



Closing Comments


Corn ends week near weekly lows as dollar surges and yield prospects rise.

Corn futures have been choppy with a weaker bias over the past week. They have particularly paid the price when soybeans were under pressure as well as a stronger dollar. Overall sentiment remains bearish, with traders perceiving the growing season to be off to a great start. Producers will likely have some trouble getting the final acres planted, but overall the trade is looking for a good crop.

That perception was boosted by Iowa State Climatologist Elwynn Taylor boosting his national yield estimate to 170 bushels per acre now that we are in an El Nino weather pattern. The crop is a long way from harvest, but so far traders have not seen sufficient reason to exit their large short (sold) positions. A strong rally in wheat could provide such a stimulus, but so far rallies in the dollar have made sustaining a rally in wheat difficult. Meanwhile, collapsing soybean prices are providing an anchor for corn prices, making it difficult to sustain a bounce.

December corn lost 5 cents over the past week, while July was down 5.5 cents. Prices held above trend line support from the past couple of weeks, but the charts are beginning to look more like a bear flag, with soybeans pulling them down. USDA is expected to release the first crop ratings of the season on Tuesday afternoon, but this market needs a shot in the arm to avoid sliding lower into June.


Argentine strikes fail to support soybeans, with traders focusing on big supplies.

The story of the soybean market continues to be USDA’s print of a 500 million-bushel ending stock estimate for the new-crop year. Prices continued their slide over the past week, breaking through key areas of chart support. First, November soybeans fell below their fall low of $9.275. That was followed by the lead July contract falling below the bottom of the channel that has held it throughout the bulk of 2015 thus far.

Soybeans found some support on Thursday night from reports that Argentina’s largest labor union will join the crusher’s union on strike on June 1 if a settlement is not reached by that point. The broader strike would be expected to totally shut down shipments from the large Rosario port. As such, there are anecdotal reports of soymeal/soyoil buyers looking north for shipments. U.S. implied crush margins have spiked, suggesting that some of that business is coming to our shores, but we’ll need to see next Thursday’s USDA weekly export sales report to see the scope of the business.

In the meantime, the trade continues to focus on the “500” number printed by USDA. In fact, an El Nino weather pattern suggests that we could see an even larger number down the road with above-trend yields. As such, traders are reluctant to be long (bought) soybeans as demand otherwise softens amid rising global stocks, with South American production estimates continuing to rise.

November soybeans lost 27.5 cents over the past week, while July soybeans lost 29 cents. The charts look ugly. The focus is on an El Nino summer providing a big crop, with South American production estimates rising as well. A broader Argentine strike can provide a bounce, but the long-term picture remains bearish until something dramatically reduces production relative to demand.


Wheat futures sink as rising dollar refocuses trade on poor export demand.

Wheat futures posted modest gains for the week, but it was a roller coaster ride to get there. A short-covering rally had prices moving higher a week ago, but that was cut short by a surge in the dollar to start the week. Prices rebounded again mid-week, but another surge in the dollar pulled the rug out from beneath the market to close out the week.

Speculative hedge fund managers still hold large short positions in the wheat market, although they aren’t leaning quite as hard in that direction following the past week’s activity. Even so, this market is still vulnerable to additional strength if the rise in the dollar moderates, corn futures stabilize and production concerns continue to mount in the Southern Plains, Canadian Prairies and South Russia.

Long-term, expect another year of poor export demand. Europe is expected to have another big crop, pushing its exports above 1.1 billion bushels, making it the world’s largest exporter. The Black Sea is also expected to have a big crop if the rains fall in Southern Russia. As such, this rally in wheat needs to be sold, with the charts providing the best indicator of when it has likely run its course. Corn and soybeans are expected to be an anchor to wheat prices longer-term.


Cattle futures close out a quiet week, despite supportive fundamental data.

USDA released its monthly cattle-on-feed report to close out the week, which included a surprise or two. Trade estimates were pretty close for cattle in the feedyards, as well as April marketings, but the trade over-estimated placements during the month of April. The numbers came in as follows:

USDA Cattle-on-Feed

% of Previous Year



















The agency also released its monthly cold storage report. The data showed that all beef in the freezer on April 30 totaled 476,7 million pounds, down 1% on the month, but still up 18% from the previous year. In other words, the data confirmed the trend started the previous month in that expansion of supplies has been reversed as demand exceeds production, but we’re still not running out of beef.

The week’s cash trade took place earlier in the week than anticipated with two big reports coming out at the end of the week. Trade opened in Kansas at $161 per cwt, but then traded in Nebraska at mostly $159 to $160 per cwt on a live basis. Overall, cash trade was mostly steady to a bit weaker than the previous week, but that was stronger than many in the trade anticipated.

The week’s trade in the lead June live cattle futures contract was relatively quiet; spending most of the time within a $2 trading range at a large discount to the cash. Historically, both cash and product prices trade lower in June than they do in May and that is what the trade is counting on. As such, traders are not anxious to push futures higher until/unless forced to do so, which has been the case for much of the past year.

Meanwhile, the feeder cattle market continues to maintain an upward bias due to expectations of cheap corn and the reluctance of the fat cattle cash market to break. The August futures contract continues to bump along just below $220 with a bit of an upward bias, but it has not yet been able to break above that resistance and stay there. The latest cash index came in at $220.30 per cwt, up $0.52 on the day, but down $0.10 on the week.

The Friday kill is pegged at 109,000 head of cattle, down 2,000 from the previous week and down 5,000 from the previous year. Saturday’s slaughter is estimated at 4,000 head, down 1,000 from the previous week and down 14,000 from the previous year. As a result, the week’s slaughter is put at 566,000 head, down 3,000 from the previous week and down 39,000 from the previous year. That brings year-to-date slaughter to 11.013 million head, down 846,000 or 7.1% from the previous year.

Thursday’s product movement on the spot daily market was 124 loads, down from 175 loads the previous day, but up from 113 loads the previous week. Choice cuts were priced at $262.22 per cwt, down $2.76 on the day, while Select cuts were down $1.74 to $249.32 per cwt. That dropped the Choice/Select spread to $12.90 per cwt, down from $13.92 the previous day and down from $13.43 the previous week. Movement at mid-morning today was routine at 83 loads, with Choice cuts down another $1.42 and Select cuts down $1.32 per cwt.


Lean hog futures rebound late in the week, finishing near where they started.

USDA’s monthly cold storage report showed that there were 699.6 million pounds of pork in the freezer on April 30, up 4% on the month and up 20% on the year. The March data had shown that demand had exceeded production, with the build in supplies starting to reverse. However, expansion of the hog herd has once again resumed the growth in supplies, which will likely cap gains in the pork product market. Most of the gains were in hams, which were up 38% on the month and up 66% from the previous year.

The market’s reaction to the cold storage report was rather muted, with traders expecting a rise in demand as retailers traditionally feature pork in the month of June. That demand is typically led by bacon on the popularity of the bacon, lettuce and tomato sandwich in the summertime. Pork belly supplies were at 70.4 million pounds, up 3% on the month, although down 16% from year ago levels.

As such, the question comes back to the front burner over whether the industry is expanding once again at too fast a clip, after the March USDA quarterly hogs and pigs report suggested contraction this summer. We’ll get an update on USDA’s data a month from now, but in the meantime, this data would suggest a warning to futures traders wanting to get too aggressive about continuing to push prices significantly above current levels until we see greater growth in demand, particularly on the export front.

Cash hog prices were again mostly steady to $1 lower to close out the week; a pattern we saw for the final several days of the week as packers used the expectation of a holiday-shortened slaughter week to justify pushing prices lower. That helped push estimated packer margins up to $9 per head, although the trade expects that they will have to start pushing the cash bids again in the coming week to as they anticipate longer slaughter schedules and stronger demand going forward.

The CME 2-day lean hog index continues to push higher. The latest cash index came in at $83.20 per cwt, up $0.15 on the day, up $2.16 on the week and up $23.62 per cwt over the past 34 consecutive trading days. We may see that streak broke early this coming week, but it may resume once again once we move into the month of June if demand rises as the trade anticipates.

The Friday kill was pegged at 411,000 head, up 1,000 on the week and up 18,000 from the previous year. Saturday’s kill was estimated at 39,000 head of hogs, down 9,000 from the previous week, but up 38,000 from the previous year. As such, slaughter for the week is estimated at 2.147 million head, up 19,000 head from the previous week and up 183,000 head from the same week last year. That’s a lot of additional meat hitting the market! Year-to-date slaughter is pegged at 44.979 million head, up 2.421 million or 5.7% from the previous year.

Product movement slipped to 248 loads on Thursday, down from 404 loads on Wednesday and down from 270 loads the previous week as demand remains soft at current price levels. The composite pork product price rose to a 2015 high of $87.05 per cwt on Thursday, up $0.92 on the day, up $2.68 on the week and on pace to see the eighth consecutive week of gains, which is one reason that demand is dropping off and supplies in the freezer are growing again. Movement at midday was slow at 148 loads, with the composite price down $2.05 per cwt on weakness in loins, ribs and hams.

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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