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Closing Comments

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Closing Comments

Corn

Corn holds its ground as soybean and wheat prices sink, despite increased farmer selling.

Crude oil stocks dropped by 1.9 million to 477.4 million barrels in the week ending May 29. However, that still leaves stocks near 80 year highs for this time of year. Distillate stocks (including diesel) rose by 3.8 million barrels and are in the middle of the average range for this time of year.

Ethanol stocks remained essentially unchanged in the week ending May 29 at 20.1 million barrels, but that was up from 18.3 million barrels in the same week last year. Production of ethanol rose to 972K barrels per day, up from 969K barrels the previous week and up from 938K barrels per day in the same week last year.

That brings estimated corn usage in the week up to 103.2 million bushels, up from 102.8 million the previous week and up from 101 million bushels utilized in the same week last year. Estimated corn usage to date totals 3.908 billion bushels, up 124 million or 3% from the previous year. Corn use to date falls short of the seasonal pace needed to reach USDA’s target by August 31 by 5 million bushels, versus falling short by 4 million the previous week.

USDA data shows that exports of dried distillers grains and solubles to China reached 601,834 metric tons in April. That’s the second largest monthly total ever to go to China; second only to 609,938 tons shipped to China in November 2013. Exports to all destinations in April totaled 928,120 metric tons, which was the largest monthly total since exporters shipped 1.086 million metric tons in August of last year.

Corn prices pulled back overnight, but then firmed back into positive territory as the dollar reversed lower and money began to flow once again into the broader commodity sector. That money flow wasn’t as enthusiastic as it was the previous day, so it’s influence wasn’t as strong in the grain and oilseed sector. However, the influence was still there. In fact, money flowed out of the broader commodity sector late in the trading session, even with the dollar still in negative territory.

This week’s double-digit gains pale compared to 83-cent decline we’ve seen in the July contract since the first of the year, but cash sales are modestly higher, suggesting growing frustration and a bit of give-up attitude in the country. This suggests that we’ll continue to see increasing amounts of cash corn hit the market on rallies the deeper into the summer that we go, with basis at risk of breaking lower.

Yet, it was impressive to see corn futures firm late in the trading session when soybeans and wheat were under pressure; particularly wheat. Early harvest results today in Texas suggests that we may have more wheat that needs to find its way onto the feed grain market, but corn was still able to hold its own on the board, even with a pickup in farmer sales. I don’t think corn can continue this rally without help from wheat, but today’s late resiliency was encouraging.

Soybeans

Rising soybean supplies weigh on futures.

Soyoil resumed its rally today, boosted by last Friday’s EPA renewable fuels standard proposal for biodiesel, as well as this past weekend’s freeze in portions of Manitoba and Saskatchewan in Canada. Both factors are supportive for soyoil prices, which are testing their highest levels in seven months.

However, it’s difficult for strong soyoil prices to sustain a rally in soybeans, particularly when the market finds itself swimming in soybean supplies. Informa raised its Argentine and Brazilian soybean production estimates to 60 and 95.5 million metric tons respectively, both up 1 mmt from the previous month. Global soybean supplies continue to grow, U.S. soybean area is expanding, an El Nino summer favors good yields and Brazil is expected to expand soybean plantings again in six months.

All of this takes place amid fears that China will ease back on its demand growth in the coming year. New-crop bookings by China have been slow after a substantial reduction in its hog herd over the past year and a half. China is the world’s largest importer of soybeans.

July soybeans found little buying interest above Tuesday’s high, leading prices to pull back. Pressure on the nearby contract suggest that farmer sales are increasing relative to demand as well. There’s less panic among processors needing to acquire supplies. We could still see another 20 to 30 cents in the November contract if corn is able to sustain its move higher, but that’s still a big “IF” with chart signals needing to be respected. Overseas production is rising and thus far we don’t see any meaningful threats for the U.S. 2015 growing season.

Wheat

Hard wheat markets break late in the trading session, led by Minneapolis.

Wheat futures were under pressure overnight on a stronger dollar, but turned higher this morning as the dollar broke again. In fact, the dollar broke roughly 2,100 points off Monday’s close. However, strength in wheat prices broke again as the dollar came off its lows, with the hard wheat markets leading the way down. The break came after Chicago July wheat ran into chart resistance at a trend line off its April and May highs.

Trade sources report that a few loads of wheat are coming into elevators in Texas, stretching from San Antonio to Fort Worth. Sprouting damage has varied from 2 to 8% in some of those loads. Farmers are said to be using rice tires to harvest wheat before the rains return.

Farmers in the Canadian Prairies face decisions on freeze damaged canola, with seed for replanting very tight. Spring wheat may be an option for some of those acres. Other traders blamed an Informa winter wheat production estimate for the break in Minneapolis, but that didn’t match up very well with market behavior. In the end, demand is poor and production estimates are rising, with Southern Plains wheat facing quality problems that will likely necessitate that at least a portion of it will need to be priced as feed.

Beef

Beef complex slides lower on sharply lower product prices.

The broader meat complex came under pressure today, with feeder cattle leading the beef sector lower. Higher corn prices this week have taken some of the bloom off the rose for optimistic cattle feeders, leading to a pull back after the lead August pulled back from nearly five-month highs late last week. The contract continues to consolidate near chart support at $222 per cwt, while looking to the cash market for direction. The latest CME 7day feeder cattle index today came in at $223.61 per cwt, up $0.55 on the day, up $1.50 over the past week and up $3.83 over the past eight consecutive trading days.

Live cattle futures were under pressure for much of the day across the board, although greater weakness was seen in the deferred contracts. As such, August live cattle appear to be a bit more vulnerable to a larger break than the June contract, which still must respect the spot cash market. That cash market continues to refuse to break, although this week may provide a good test. Feeders were said to be asking $163 to $164 per cwt, with little response from the packers, although there are late reports that feeders are ratcheting down their asking prices.

Product prices are breaking hard, leading to sharply weaker packer margins, currently estimated at $48 per head losses. Today’s kill is estimated to be 111,000 head of cattle, down 6,000 from the previous week and down 6,000 from the previous year. Week-to-date kill is pegged at 335,000 head, up 101,000 head from the previous week, but down 16,000 from the same period last year.

Tuesday’s spot daily product movement rose to 196 loads, up from 132 loads the previous day and up from 123 loads the previous week, but it took a sharp break in prices to do so. Choice cuts dropped another $2.69 to $251.59 per cwt, while Select cuts were down $3.27 to $241.35 per cwt. That pushed the  Choice/Select spread to $10.24 per cwt, up from $9.66 the previous day, but down from $11.87 the previous week.

Movement at mid-morning was very good at 135 loads, but again it took lower prices to spur the demand. Choice cuts were down $2.13 to $249.46 and are now down $16.13 per cwt from the May 19 record high. Select cuts were down another $1.54 this morning to $239.81 per cwt.

Pork

Selling accelerates for lean hogs as cash market stagnates.

We saw signs of the lean hog futures market starting to tip over on Tuesday, with follow-through selling today. The cash market is stagnant, not supporting stronger futures, leading to increased frustration with trying to push the board to new highs. Ironically, product prices are pushing to new highs, but movement has been a problem, suggesting a demand problem.

Today’s cash market was mostly steady, although Illinois and Indiana markets were up to $1 higher. The latest CME 2-day lean hog index came in today at $82.15 per cwt, up $0.09 on the day, but down $0.76 on the week. Today’s rise in the index was the first since May 20, but losses over that period totaled just $1.14 per cwt.

Product movement rose to 423 loads Tuesday, up from 293 loads the previous day and up from 348 loads the previous week. The composite product price firmed to $87.37 per cwt, up $0.27 on the day and up $0.70 on the week. However, movement slowed to just 195 loads at midday today, with the composite price up $0.53 to a new 2015 high of $87.90 per cwt.

Strength in the product continues to hold packer margins positive; estimated at $6.10 per head. Today’s kill is pegged at 418,000 head of hogs, down 7,000 from the previous week, but up 9,000 from the previous year. Week-to-date kill is pegged at 1.260 million head, up 402,000 from the previous week and up 66,000 from the same period last year.

July lean hogs fell to their lowest level since May 20 today, but it should find some near-term support to test at $82.00 per cwt. Next support is roughly $1 lower, but a move to $78 can’t be ruled out.

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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