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Closing Comments



Closing Comments


USDA bumps Brazilian corn production, boosting global stocks and weighing on prices.

USDA cut 25 million bushels from old-crop corn usage for ethanol in its monthly report, dropping it to 5.75 billion bushels. As a result, old-crop stocks rise to 1.876 billion bushels, which then translates into beginning stocks for the 2015-16 marketing year that begins September 1.

The agency left its production estimates for the 2015 crop unchanged as anticipated in the June report. In fact, it left its demand estimates unchanged on the domestic balance sheet as well, leading new-crop ending stocks at 1.771 billion bushels, up 25 million from the previous month, but down 8 million from trade expectations. As such, the domestic balance sheet was pretty neutral. My balance sheet projects ending new-crop stocks at 1.930 billion bushels, because I’ve already boosted production based on my current yield model, while USDA typically likes to hold yields until August.

However, the market-moving news came from Brazil. USDA pushed its corn production estimate for Brazil up to 81 million metric tons, up from 78 mmt previously and above pre-report trade estimates of 78.7 mmt. All those extra bushels end up on the export market, competing with U.S. corn. As such, I was really surprised that USDA did not reduce U.S. exports on its new-crop balance sheet. That may come in a later report. For now, USDA just added those extra bushels to Brazil’s surplus stocks.

As a result, global new-crop corn stocks rose to 195.19 mmt, up from 191.94 mmt previously, but down from 197.01 mmt for the current year. That puts projected new-crop stocks at a 72-day supply, up just 17 days from 40-year lows set in the 2011-12 marketing year. Yet, the markets are very content with “just-in-time” supplies, until a weather event develops to threaten those supplies.

The Department of Energy reports that crude oil stocks fell another 6.8 million to 470.6 million barrels in the week ending June 5, after falling 1.9 million the previous week. Even so, supplies remain very near 80-year highs for this time of year.

Ethanol stocks rose to 20.2 million barrels in the week ending June 5, up from 20.1 million the previous week and up from 18.4 million barrels in the same week last year. Ethanol production rose to a record-tying 992K barrels per day during the week reported, up from 972K the previous week and up from 944K barrels per day in the same week last year.

That suggests that corn use for ethanol production rose to a record-tying 105.3 million bushels, up from 103.2 million the previous week and up from 101.7 million bushels in the same week last year. Estimated corn usage to date totals 4.013 billion bushels, up 127 million or 3% from the previous year. As such, corn usage to date falls short of the seasonal pace needed to reach USDA’s target by August 31 by 4 million bushels, after falling short by 5 million the previous week.

Corn futures gave way to broad-based selling in the grains this morning ahead of the USDA crop report, with the agency’s data doing little to reverse that trend. Double-digit losses in the wheat market added to the bearish tone. Rallies may be difficult to sustain near-term after the government has raised questions about future ethanol demand and global export competition, although traders are already talking about potential acreage losses in the June 30th report.

July corn lost 7.75 cents on the day, but held above last Thursday’s low of $3.565. December corn lost 8 cents, but also held ¼-cent above last Thursday’s low of $3.745. Those lows need to hold for this market to stabilize, but that would also likely hinge on stability returning to the wheat market as well. Optimism is rising that Europe will bail out Greece, which should be bearish for the dollar and supportive for commodities, but we did not see that provide support today in the grains.


USDA issues a neutral report for soybeans, but weakness in the grains weighed on prices.

USDA added 10 million bushels each to projected old-crop soybean crush and exports, dropping ending stocks by 20 million to 330 million bushels. While positive, it still emphasizes that we aren’t going to run out of soybeans ahead of this year’s harvest. However, it does shrinking beginning stocks for the new marketing year that begins September 1.

The agency left production estimates unchanged for the new marketing year, although total supplies were impacted by the drop in beginning stocks. It also pushed new-crop crush upward by 5 million bushels. The net impact was to drop new-crop ending stocks to 475 million bushels, down 25 million from the previous month and a bit below trade expectations of 487 million bushels. I continue to look for ending stocks of 468 million bushels, based on my current production and demand estimates.

On the global balance sheet, USDA raised Argentine production to 59.50 million metric tons, above trade expectations of 59.18 mmt and above my projection of 59.00 mmt. I’m not surprised at the estimate from USDA, but was a bit surprised that it went this high in the June report. The agency left Brazil’s estimate unchanged at 94.5 mmt. Which is down from trade expectations of 94.76 mmt and down from my estimate of 94.70 mmt.

Overall, this was a pretty neutral report from USDA. As such, traders quickly began looking forward to USDA’s June 30 acreage report, which some expect to show a decline in acres in the southwestern Midwest, while also monitoring tight upfront cash supplies as farmers tightly to remaining old-crop supplies.

The bad news today is that soybean prices finished with modest losses. The good news is that the highs continue to take out previous highs and lows remain above previous lows. Traders quickly began talking about acreage lost in the southwestern Midwest, suggesting that we may be able to see a bit more of a bounce, but nobody has yet presented a compelling case that the world will run out of soybeans over the next year. Supplies remain large and are getting larger.


USDA pulls the rug out from underneath the wheat market.

USDA raised its Kansas yield by 5 bushels to 37 bushels per acre, while adding 2 bushels to Nebraska due to May rains. Now the question is whether farmers can get those bushels into the bin with heavy rains forecast over the next week in the region. USDA cut Oklahoma and Texas yields by 1 and 3 bushels respectively due to problems created by excessive rains last month. Illinois’ yield dropped by a bushel, while Ohio jumped 3 bushels to 73 bushels per acre.

The bottom line was that the hard red winter wheat crop rose 4 million bushels to 887 million, when the trade was looking for a drop to 856 million bushels. My submitted estimate was 873 million bushels. The soft red winter wheat crop slipped 2 million to 414 million bushels, matching trade expectations. The total winter wheat crop rose 33 million to 1.505 billion bushels, above trade expectations of 1.474 billion and just above my estimate of 1.501 billion. Total wheat production rose 34 million to 2.121 billion bushels, up 11 million from the average trade estimate and up 15 million from my estimate.

USDA only changed the old-crop carryout by 3 million, raising it to 712 million bushels, which became the new-crop beginning balance on June 1. The agency boosted its national average yield to 44.2 bushels per acre, up from 43.5 bushels in May. Feed usage rose 15 million to 195 million bushels due to quality problems in the Southern Plains. New-crop ending stocks rose 21 million to 814 million bushels, which matched my submitted estimate exactly.

Globally, USDA boosted Russia’s crop by 1.5 mmt, while adding 1 mmt to Ukraine and adding 0.39 mmt to the European Union, all areas talking about dry weather. Argentina’s crop was cut by 0.5 mmt. New-crop global stocks are pegged at 202.4 mmt, down 0.92 mmt from the previous month, but up from the previous year’s ending stocks of 200.41 mmt and still a 103-day supply.

Wheat prices were breaking ahead of the report, but the USDA data added more fuel to the selling frenzy, with buyers stepping aside. Failure to take out the previous day’s high hurt the market before USDA released its report. This market needs a quick shot in the arm to refocus the trade. A weak dollar and renewed headlines of adverse weather is needed to re-energize the wheat market. Otherwise, this market is vulnerable.


Tight supplies push product prices higher, lifting futures through areas of chart support that triggered additional buying.

Product prices were supposed to break in June, with cash cattle right behind, leading to lower futures prices on the board. Product prices broke sharply as expected, but that’s when traditional expectations began to break down. Supplies of slaughter-ready cattle did not increase as much as anticipated, with packers slowing chain speed in response.

They were very effective in locking in the supplies they needed in a way that allowed the negotiated market to essentially be a non-event last week. What few cattle did move on the negotiated market were generally $4 to $5 lower, but so few moved at that level that futures traders focused on the tightening of supplies.

Slow slaughter tightened supplies of product, leading retailers to become more aggressive in paying up to get their needs filled for the Father’s Day and Independence Day grilling weekends. Boxed beef prices surged, leading to strength on the board that eventually pushed contracts above the May highs where traders holding short positions had to exit, accelerating gains. The big discount to the cash gave the market room to move.

August live cattle pushed to levels not seen since early January, when it hit a high of $156.30. August feeder cattle surged on the strength combined with weakness in corn, pushing to $227.80, which is a six-month high. The question now is, will we hold these levels or collapse leaving a spike high as the market has done so many other times over the past year. This week’s cash trade will have a lot to say about that. Meanwhile, the latest CME 7-day cash index is at $225.03 per cwt, down 2 cents on the day, down 90 cents over the past two days, but still up $1.42 over the past week.

Today’s slaughter is pegged at just 91,000 head of cattle, down 20,000 from the previous week and down 23,000 from the previous year. Week-to-date slaughter is estimated at 315,000 head, down 20,000 from the previous week and down 28,000 from the previous year.

Movement on the spot daily market Tuesday rose to 132 loads of beef, up from 107 loads the previous day, but down from 196 loads the previous week. Choice cuts rose $3.09 to $247.20, while Select cuts rose $4.44 per cwt. The Choice/Select spread dropped to $6.45 per cwt, down from $7.80 the previous day and down from $10.24 the previous week. Movement at mid-morning today was good at 124 loads, with Choice cuts up another 33 cents and Select cuts up another 7 cents.


Lean hog futures simply are unable to hold early-session gains amid soft cash and product prices.

July lean hog futures lost $4.65 from May 28 to Jun 9, falling to their lowest level since April 24. A bounce was in order, as the board had fallen to a discount to the cash. As such, the board tried to bounce early today, but the cash market remains soft, as does the product market, with the July contract unable to re-establish itself above the 100-day moving average. Ultimately, that resulted in renewed weakness, although the market held above Tuesday’s low, putting in an inside day as compared to the previous session.

The closely watched Iowa/Southern Minnesota cash market was mostly steady today, as were most Ohio markets. However, Illinois and Indiana markets were mostly steady to 50 cents weaker. The latest CME 2-day lean hog index came in at $82.30 per cwt, down $0.07 on the day, down $0.17 over the past three consecutive days with losses, but still up $0.15 over the previous week.

Today’s kill is estimated at 421,000 head, up 3,000 from the previous week and up 12,000 from the previous year. Week-to-date kill is pegged at 1.266 million head, up 6,000 from the previous week and up 85,000 from the previous year.

Product movement rose to 322 loads Tuesday, up from 264 loads the previous day, but down from 423 loads the previous week. The composite pork product price rose to $86.74 per cwt, up $1.50 on the day, but down $0.63 on the week. Movement at midday today was good at 217 loads, although not that impressive for a Wednesday. The composite price was again down $0.48 to $86.26 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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