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Closing Comments

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Closing Comments

Corn

Corn leaks lower amid ample supplies.

Exporters sold 24.1 million bushels of corn in the week ending June 4, including 19.5 million old-crop bushels. The old-crop sales were up from 18.3 million bushels sold the previous week and were above the five-year average for the week of 15.1 million bushels. There were no reported sales to China during the week.

Marketing year sales to all destinations total 1.730 billion bushels, down 102 million or 6% from the previous year. Exporters typically sell 92% of final corn shipments by this point in the year, whereas they had sold 96% by this point last year. However, this year they have sold 95% of USDA’s target for the year. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 42 million bushels, up from 41 million the previous week.

Grain sorghum export sales in the week ending June 4 were a net reduction of 0.02 million old-crop bushels, compared to sales of 1.0 million old-crop bushels the previous week and the five-year average for the week of 2.0 million. Chinese end users were responsible for the reduction in previous purchases, but were otherwise quiet during the week.

Marketing year sales to all destinations total 327 million bushels, up 160 million or 96% from the previous year. Exporters typically sell 78% of final grain sorghum shipments by this point in the year, whereas they had sold 79% by this point last year. However, this year they have already sold 94% of USDA’s target for the year. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 53 million bushels, but that is down from 57 million the previous week.

Commodity Weather Group notes that corn in the northern Midwest is expected to pollinate early this year, despite a recent cool shot, due to early planting. As such, the bulk of the U.S. crop is currently expected to pollinate in the last half of July, making that period the focus of forecasters in the days and weeks ahead. CWG currently calls for a cool month of July over much of the Midwest.

However, the concern near-term is excessive rain. Roughly 15% of the belt has seen significant problems due to excessive rains, but heavy rains over the coming week could expand that area. An active pattern is expected across the Midwest over the next two weeks, but rains are expected to be particularly heavy over central and southwestern areas the next five days.

Corn futures slipped reluctantly lower today. Cash sales dried up, but pressure largely came from selling of major commodity indices of which corn is a part. Yet, the damage continues to be done near-term. I’m growing increasingly less bearish as excessive rains cap the crop’s yield potential in many areas of the Midwest, but sustaining rallies will likely be difficult for a while.

Soybeans

Pressure mounts on soybean prices amid rising global stock expectations.

Exporters sold 20.3 million bushels of soybeans in the week ending June 4, including 6.0 million old-crop bushels. The old-crop sales were up from 4.8 million bushels sold the previous week, but were down from the five-year average for the week of 8.0 million bushels. China was largely absent from the market during the week.

Marketing year sales to all destinations total 1.847 billion bushels, up 191 million or 12% from the previous year. Exporters typically sell 98% of final soybean shipments by this point, whereas they had sold 100% by this point last year. This year’s sales have already reached 102% of USDA’s target for the year. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 77 million bushels, but that is down from 90 million the previous week.

As for the product market, exporters sold 129.8K metric tons of soymeal in the week ending June 4, up from 53.2K the previous week and above the five-year average for the week of 96.4K tons. Actual shipments during the week slowed to 167.8K metric tons, down from a robust 262K tons the previous week, but still above the five-year average for the week of 132.2K metric tons. This demand has been sufficient to maintain crush margins to this point and keep processors hunting for soybeans.

The National Oilseed Processors Association is scheduled to release its member soybean crush total for May on Monday at 11 a.m. CDT. A Reuters’ survey of trade participants reveals expectations that NOPA member crush in May will total 147.299 million bushels, down from 150.363 the previous month, but up from 128.824 million the previous year. My submitted estimate was 147.195 million bushels. The record NOPA crush for the month of May is 144.002 million bushels set in 2008. NOPA member crush typically runs about 95% of all crush.

November soybeans are targeting a possible test of $9.00. I still expect the new-crop soybean/corn price ratio to slip below 2 to 1 later this year, although that could happen several different ways.

Wheat

Wheat prices slip lower in follow-through selling on demand concerns.

USDA reports that exporters sold 34.7 million bushels of wheat in the week ending June 4, but that’s not exactly an accurate picture. Understanding the true picture means recognizing the change in the marketing year that took place June 1. In reality, USDA sold 13.8 million bushels of wheat during the week, but carried over 20.8 million bushels of previously sold undelivered wheat from the old-crop marketing year that ended May 31. The new wheat sales included a sale of 2.1 million bushels of U.S. hard red spring wheat to China.

We start the new marketing year with total sales already on the books, including the above-mentioned sales, of 174 million bushels, which is down 66 million or 28% from the previous year and the slowest start for the marketing year since 2010. Typically, exporters sell 19% of final wheat shipments by the first week of the new marketing year, whereas last year they had sold 28%. This year they have sold 19% of USDA’s target.

Egypt released another snap tender to buy wheat following Wednesday’s big price break. The tender for mid-July delivery invited a plethora of offers from a variety of sources. In the end, Egypt opened the offers today and bought 2.2 million bushels from Russia at an average reported price of $5.43 per bushel. The Egyptian purchase combined with sluggish U.S. weekly sales reminded the trade that U.S. wheat is still over-priced on the global market.

Recent heat moved wheat to maturity in portions of the Central Plains, with combines now beginning to roll in southern Kansas, as well as Oklahoma and Texas. However, heavy rains are expected from the Texas Panhandle and western Oklahoma northeast across much of Kansas and into eastern Nebraska in the coming days, bringing the harvest to a halt and once again threatening the mature wheat crop.

Egypt released another snap tender to buy more wheat for mid-July delivery this afternoon. Results are expected tomorrow, providing more fodder for traders to compare U.S. wheat prices with competing sources overseas.

Beef

Live cattle futures pull back while waiting for direction from the cash market.

Export data released this morning shows that packers saw a surge in demand for beef last week as buyers took advantage of a sharp break in the dollar. More customers have taken advantage of the roller coaster ride in the dollar over the past month, buying more U.S. meat when the dollar breaks, but then backing off when the dollar rallies once again.

Exporters sold 16.3K metric tons of beef in the week ending June 4, up from 11.7K the previous week as the dollar broke once again, and above the 6.7K tons sold in the same week last year. Actual shipments rose to a 2015 high of 14.0K metric tons, up from 12.2K the previous week, but down from 14.4K tons shipped in the same week last year.

The export demand further tightens supplies at a time when retailers are trying to stock up for grilling demand over the Father’s Day weekend, with the Fourth of July weekend demand coming just two weeks later. Furthermore, this demand comes at a time when slaughter rates are 50,000 to 60,000 per week below year ago levels. Imports are large, but still not large enough to ease tensions about tight beef supplies, which are expected to be smaller this year than they were last year.

Packers effectively dragged the cash market $4 to $5 lower last week, but the tightness of supplies is expected to keep prices steady at worst this week; at least that’s the current perception. This week’s rally of the board has essentially erased the deficit between the board and cash, leaving the board vulnerable.

A number of sharp breakout rallies over the past year resulted in prices collapsing lower again the next day. As such, traders returned today to nervously test the waters. They turned sellers again when the lead contracts failed to take out the previous day’s high, but August managed to hold above key support at $153 at the end of the traditional day session.

Feeder cattle turned lower when the fat cattle market broke, with added pressure from weakness in the cash market in recent days. August feeders traded an inside day, consolidating within the previous session’s trading range, but holding above $225. Today’s latest CME 7-day cash index came in at $225.74 per cwt, up $0.71 on the day, up $1.28 on the week and at its highest level since mid-January.

Today’s kill is estimated at 112,000 head of cattle, up 2,000 from the previous week, but down 4,000 from the previous year. Week-to-date kill is pegged at 427,000 head, down 18,000 from the previous week and down 32,000 from the same period last year.

Product movement on the spot daily market rose to 192 loads Wednesday, up from 132 loads the previous week, but down from 223 loads the previous week. Choice cuts were up $0.46 to $247.66 per cwt, while Select cuts were down $0.02 to $240.73 per cwt. That firmed the Choice/Select spread to $6.93 per cwt, up from $6.45 the previous day, but down from $9.48 the previous week. Movement at mid-morning today was decent at 87 loads, but with Choice cuts down $0.64 and Select cuts down $0.41 per cwt.

Pork

Lean hog futures continue to follow the cash market lower.

It’s no secret that pork production is up this year, with the nation’s hog herd expanding amid fewer problems with the PED virus and with help from cheap corn prices. In fact, Year-to-date pork production is running roughly 5.7% above year ago levels, even with carcass weights back below year ago levels. As such, supply hasn’t been a problem.

Demand was strong this winter, but it slowed dramatically as prices rose to five-month highs this spring. Exports were strong despite a strong dollar when product prices were near multi-year lows, but slowed dramatically when they rose to five-month highs. Product prices have flattened, leading to a modest rebound in domestic demand, but allowing export demand to better respond to breaks in the dollar.

Export sales surged again as the dollar broke in the week ending June 4. Exporters sold a 10-week high of 26.0K metric tons of pork during the week, up from 12.4K the previous week and well-above the 8.4K tons sold in the same week last year. Actual shipments during the week totaled a 2015 high of 26.3K tons, up from 17.1K tons the previous week and up from the 10.4K metric tons shipped in the same week last year.

Product movement firmed to 400 loads Wednesday, up from 322 loads the previous day and up from 375 loads the previous week. The composite pork product price firmed to $87.08 per cwt, up $0.34 on the day and up $1.84 over the past two days, bringing prices very close to those 2015 highs once again. However, demand slowed to 153 loads at midday today, with prices softening as well. The composite product price was down $1.12 at midday to $85.96 per cwt.

As such, the board continued to struggle. Yes, the June contract posted modest gains as it prepares to expire, but the deferred contracts slipped to new lows for the move as the cash market remains soft. Today’s Midwest cash market was again mostly steady to 50 cents weaker. The latest CME 2-day lean hog index came in at $82.16 per cwt, down $0.14 on the day and down $0.31 over the past four consecutive days.

Today’s kill is estimated to be 422,000 head of hogs, up 1,000 from the previous week and up 11,000 from the previous year. Week-to-date kill is estimated at 1.688 million head, up 7,000 head on the week and up 96,000 from the same period last year. Packer margins are estimated at $11.50 per head.

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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