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Closing Comments

Corn

Soybeans finally succeed in dragging corn higher late in the session.

USDA’s weekly crop progress report indicated that 97% of the nation’s corn crop had emerged as of June 14, up from 91% the previous week and above the five-year average for the week of 95%. Lagging states were those with excessive rain problems in the Plains and southwestern Midwest, with Kansas and Missouri both at 89%, Texas at 94% and Missouri at 89% emerged. A deeper look at these states found that unplanted corn in the region is near 0.4 million acres. Many of those acres could end up planted to grain sorghum. Add in some other peripheral states and unplanted corn rises to 0.52 million acres.

The crop rates a condition index score of 381 (500=perfect crop), down from 382 the previous week, down from 388 the previous year, but up from the 10-year average for the week of 373. Significant declines were seen in Illinois down 4 to 390, Iowa down 3 to 383, Michigan down 6 to 387, Missouri down 3 to 339, North Carolina down 10 to 374 and Ohio down 11 points to 398. Ratings were stable in North Dakota at 374 and higher in every other state.

The state with the highest crop score was Wisconsin at 404, followed closely by Iowa at 402. The state with the lowest score was Missouri at 339. My yield model puts the crop at 168.1 bushels per acre, still above USDA’s estimate of initial 166.8 bushels per acre, but down from 168.5 bushels the previous week and down from 169.0 bushels two weeks prior. In other words, the trend is lower. Crop ratings typically trend lower from their initial high readings, but my yield model is seasonally adjusted already to take that into account.

Corn very reluctantly traded with modest gains for much of the day’s session. Traders see high yield potential from this year’s crop to go along with significant competition from South American and Black Sea supplies. However, strength in soybeans finally gained enough upward momentum to drag corn into buy-stops late in the day, pushing both the July and December contracts above the previous session’s high at the end of the day. That suggests that we should see follow-through short-covering and bargain buying in Wednesday’s session as long as the outside markets remain neutral.

Soybeans

USDA provides fundamental support following good technical action on Monday.

USDA reports that 87% of the nation’s soybean crop was planted as of June 14, up from 79% the previous week, but down from the five-year average for the week of 90%. Big delays are in Kansas, still at 57% and Missouri at 42%, but modest delays can also still be seen in Illinois, Kentucky, Mississippi, Nebraska and Tennessee. In the end, traders will focus on the fact that 11 million acres remain unplanted, with 5.37 million of those acres in Kansas, Missouri and southeastern Nebraska, where excessive rains have been a problem.

Soybeans could still lose acres if the wheat harvest is delayed to the point where double-crop soybeans can’t be planted. USDA’s June 30th acreage report will be based off a survey done in early June when producers were still optimistic that the soybeans would be planted. As such, we will likely see a disputed number reported by USDA on June 30.

Soybean emergence on June 14 was at 75%, up 11 points on the week, but still down 2 points from the five-year average for the week. Emergence in Kansas was just 30%, while Missouri came in at 28%, down from the five-year average for those states of 70 and 65% respectively.

The crop rates a condition index score of 371, down from 374 the previous week and down from 381 in the same week last year. Yet, the current score remains above the 10-year average for the week of 366. Illinois dropped 8 points to 375, Indiana lost 4 points to 378, Kentucky was down 3 points to 388, Louisiana lost 2 points to 342, Michigan dropped 5 points to 380, Missouri slipped 3 points to 319, Nebraska was down 1 point to 370, North Carolina dropped 12 points to 369, Ohio also lost 12 points to 375 and South Dakota slipped 1 point to 380. The biggest gain was 14 points to 373 in Tennessee. The high score was 408 in Wisconsin, up 2 points from the previous week. The lowest score was 319 in Missouri, down 3 points on the week.

My seasonally adjusted yield model puts the crop at 45.0 bushels per acre, down from 45.1 bushels the previous week. USDA’s initial yield estimate is at 46.0 bushels per acre.

Soymeal basis on the rail market pushed mostly $2, and up to $5, higher today. That provided added support for the soybean complex. Today’s strength in soybeans goes back to a positive performance late in the day Monday, combined with planting delays and declining crop ratings that were highlighted after the markets closed on Monday. Bottom-pickers who liked Monday’s finish had a fundamental reason to justify buying soybeans near-term.

Upward momentum gained steam late in the session, suggesting follow-through buying in Wednesday’s session. The market will likely though have to overcome increased farmer selling, and of course will be vulnerable to big swings in the currency market. However, the charts are encouraging near-term as July soybeans rise to four-week highs, as long as the outside markets remain neutral.

The new-crop soybean/corn price ratio finished the day at 2.51 to 1, rising from 2.42 to 1 in recent days. History suggests that we will eventually see this ratio move closer to 2 to 1 later this year, but for now soybeans are again the favored “grain” for fund managers.

Wheat

Wheat struggles to keep its head above water, despite an inflow of outside money into the broader commodity sector.

The winter wheat crop was 96% headed as of June 14, up from 91% the previous week and p from the five-year average for the week of 89%. Harvest progress reached 11% as of June 14, up from 4% the previous week, but still down from the five-year average for the week of 20%. Significant delays are seen in Arkansas, Illinois, Indiana, Kansas, Missouri, North Carolina and Oklahoma.

The crop rates a condition index score of 322, versus 325 the previous week, 269 the previous year and the 10-year average for the week of 311. The portion of the crop rated Good to Excellent was unchanged at 43%, but some wheat dropped from the Fair category into the Poor and Very Poor categories. The biggest drop was 15 points to a score of 303 in Oregon, while the biggest gain was 6 points to 346 in Colorado. Kansas was unchanged on the week, while other Plains’ states saw declines. The high score was in California at 450, while South Dakota had the low score at 280.

The spring wheat crop rates a condition index score of 376, up from 373 the previous week, but down from 377 in the same week last year and down from the 10-year average for the week of 382. Scores of individual states were 397 for Idaho, 379 for Minnesota, 359 for Montana, 386 for North Dakota, 354 for South Dakota and 348 for Washington.

Money flowed into the broader commodity complex today, of which wheat is a part. As such, the wheat markets had outside money flowing in, but struggled to keep their head above water. That is not a good sign for wheat near-term as harvest gains momentum. Minneapolis saw a bit more strength, despite higher crop ratings, on stronger cash basis at Pacific Northwest Ports for hard spring wheat. Minneapolis traders are also a bit more in tune with the overall warm dry pattern over much of the Canadian Prairies.

From a technical standpoint, Chicago July wheat settled near its session low, but that low held above Monday’s low, as well as above key chart support. Kansas City failed to do as well and continued to lose ground to the soft wheat market.

Beef

Live cattle futures consolidate higher after holding chart support in recent days, while waiting for direction from the cash market.

Live cattle futures saw follow-through buying today in what appeared to be more of a technical bounce that real fundamental conviction. Monday’s trade failed to test Friday’s lows, which were just above several layers of chart support stacked between $149.50 and $150 on the August chart. The bottom line is that Friday’s collapse took prices back toward the bottom of the past month’s predominant trading range for August cattle, where it uncovered modest buying interest until we see where this week’s trade develops.

Feeder cattle futures again fed on the strength in the fat cattle market, following the August contract’s bounce off support at $222 per cwt. The contract is trading at a modest discount to the cash index, but the index showed a few signs of weakness in recent days, which may limit the near-term upside potential for the futures market. However, that may have been pushed to the back burner late today when the latest 7-day cash index came in at $226.69 per cwt, up $0.83 on the day and up $1.64 on the week.

Today’s kill is estimated at 113,000 head, up 1,000 from the previous week, but down 3,000 from the previous year. Week-to-date kill is estimated at 224,00 head of cattle, matching the previous week’s pace, but down 5,000 head from the same period last year.

Last week’s total beef movement totaled 6,603 loads, down modestly from 6,894 loads the previous week. While lower, it wasn’t as big a break as suggested by last week’s drop in movement for the spot daily negotiated market that fell 22% to 704 loads, down from 903 loads the previous week.

Movement on the spot daily market Monday slipped to 114 loads, down from 140 loads on Friday, but up from 107 loads the previous week. Choice cuts rose to $247.33 per cwt, up $1.61 on the day, while Select cuts were up $0.04 to $240.46 per cwt. This strengthened the Choice/Select spread to $6.87 per cwt, up from $5.30 the previous day, but down $7.80 the previous week. Movement at mid-morning today was sluggish at 63 loads, but Choice cuts were up another $2.38 and Select cuts were up $1.55 per cwt.

Pork

Lean hog futures trade both sides of unchanged, although the deferred contracts remain weak.

The theme for this month has been cash hogs trading steady to 50 cents weaker in the Midwest. We saw yet another verse in that song play out today. The cash market continues to leak lower and the product market is showing cracks in the foundation after holding near 2015 highs for several weeks. Today’s CME 2-day lean hog index came in at $81.40 per cwt, down $0.27 on the day, down $0.97 on the week and down $1.07 over the past seven consecutive trading days.

Product movement totaled 210 loads Monday, down slightly from 211 loads on Friday and down from 264 loads the previous week. Demand for ribs has been strong in recent days, but the composite pork product price on Monday slipped to $84.61 per cwt, down $0.25 on the day and down $0.63 on the week. Movement at midday today was good at 214 loads, with ribs and bellies pulling the composite price up to $85.66 per cwt, up $1.05 from the previous day.

Today’s kill is pegged at 424,000 head, up 1,000 from the previous week and up 45,000 from the previous year. Week-to-date slaughter is pegged at 848,000 head of hogs, up 3,000 head from the previous week and up 91,000 head of hogs from the same period last year.

July lean hogs impressively bounced off new lows Monday. The contract tried to bounce today, but could not even test the previous session’s high. As such, today’s action comes across as a technical consolidation in an oversold market. Greater weakness was seen in the deferred contracts as traders build in bearish expectations that USDA’s June 26 quarterly hogs and pigs report will show greater expansion than suggested by the agency’s March report. I’m also fearful that Monday’s cold storage report will show a build of supplies in the freezer.

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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