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Closing Comments



Closing Comments


Feed grain prices benefit from follow-through buying from Tuesday’s solid close.

The Department of Energy reports that crude oil stocks slipped to 467.9 million barrels in the week ending June 12, down 2.7 million from the previous week. While down from the previous week, stocks remain near their highest level of the past 80 years for this time of year and the past week’s decrease was much smaller than the 6.8 million barrel decline the previous week.

Ethanol stocks rose to 20.7 million barrels in the week ending June 12, up from 20.2 million the previous week and up from 17.9 million barrels in the same week last year. Production of ethanol slipped to 980K barrels per day during the week, down from a record-tying 992K barrels the previous week, but still up from 972K barrels per day produced in the same week last year.

The data suggests that the ethanol industry processed 104.0 million bushels of corn during the week, down from a record-tying 105.3 million the previous week, but down from 104.7 million bushels used in the same week last year. That brings estimated corn usage to date to 4.117 billion bushels, up 127 million or 3% from the previous year. Corn use to date exceeds the seasonal pace needed to reach USDA’s target by August 31 by 14 million bushels, but that is down from 15 million bushels the previous week.

Corn demand remains strong, supported by relatively good ethanol margins. That’s helped support near-term basis, but farmers are beginning to sell rallies at a bit faster pace. Speculative traders were buyers again today following an impressive performance on the charts Tuesday, but the gains were met with a modest increase in farmer selling, limiting gains somewhat.

As such, corn futures still need to see a sustained move above $3.70 in the July and $3.86 in December to confirm to me that this is anything but a technical rally. A look back at the past 25 years found nine times when the December contract trended lower through the spring, with last year being one of them. As you recall, the contract continued to trend lower through September last year. However, the other eight years saw four June rallies and four July rallies averaging near 45 cents.

It’s still too soon to confirm whether we are at the beginning of such a rally, leaving downside price risk. Fundamentally, trade chatter is increasing about persistently wet areas creating problems for the crop, with ratings beginning to decline seasonally this week. We’ve also seen the confirmation of Goss’s wilt in corn in Minnesota and Nebraska. However, crop ratings are still above average, suggesting that a more sustainable rally based on fundamental concerns isn’t likely near-term.


Futures add to Tuesday’s gains, but find themselves at a pivotal point.

Monday’s performance impressed speculative traders enough to suggest that soybeans had some good rally potential near-term. Keep in mind that when a speculator says he is bullish soybeans, he may be talking the next day or two, or even the next few hours. Regardless, speculative traders were active buyers both on Tuesday and today, pushing prices to new five-month highs.

Now its decision time. A look back at the past 25 years finds eight times when November soybeans trended lower through the spring. Each of those years found a reason to bounce at some point ahead of harvest, although the patterns were not as defined as they were in corn. The average bounce was just over $1.

The charts need to show more confirming signals to convince me that this is the beginning of such a larger bounce. November soybeans pushed to $9.4275, probing through trend line resistance at $9.41 that had held this market for much of the past six months, but closing below it. The contract needs to quickly re-establish itself above that level over the next day or two. July faces similar resistance at $9.76, above today’s high of $9.72. The new-crop soybean/corn price ratio rebounded to 2.51 to 1 today.

As such, the next couple of days, and how we close this week, are critical to see if we can extend this rally into something with more substance. Cash selling increased on today’s rally, which can slow gains, but money flow will likely play a larger role. The dollar broke to new one-month lows after the Fed statement today seemed in no hurry to raise interest rates, raising the prospects for increased money into the grains if that weakness holds, but then again that may depend on news out of Greece tomorrow.


Futures fail to hold early gains as harvest expectations improve.

Wheat futures generally held above Monday’s lows on Tuesday, encouraging a decent bounce on short-covering and bargain buying early today. That buying was boosted by increased money flow from Wall Street into the broader commodity complex. However, that money flow reversed during the morning, allowing wheat traders to focus more on expectations for increased harvest pressure in the days ahead. It’s tough to sustain rallies in June.

As a result, Kansas City again presented the greatest weakness in the wheat complex, which is not a recipe for sustaining a rally. I remain cautiously optimistic that we should be able to see greater strength in the wheat market over the next couple of months based on expectations that prevailing weather patterns will start to raise production concerns in Australia and the Canadian Prairies, but that probably won’t be a story before July at the earliest.

Near-term, wheat will continue to be susceptible to big swings in the dollar. The Federal Reserve’s statement was initially interpreted as bearish for the dollar, which is good for U.S. wheat prices. We’ll now need to see good follow-through after the dollar slipped to one-month lows this afternoon.

The trade will also be watching Greece, with European Union leaders meeting Thursday to discuss Greece’s future. I don’t expect Greece to be booted out of the Eurozone this week, but currency and commodity traders will be listening closely to statements emerging from the meetings for signs of future actions by European leaders.


Live cattle futures slip lower on eroding cash trade hopes.

Live cattle futures plummeted late last week as the cash market broke lower. Futures contracts held above key support level, triggering a modest bounce on both Monday and Tuesday. However, trade enthusiasm for a sustained rally was muted by fears that the cash market would continue to slide, with the gap between futures and cash largely evaporating.

August futures tried to push higher once again this morning, but again were unable to sustain a meaningful rally. Product prices showed good strength on Tuesday, adding to those gains this morning, but fears remained that the cash market would continue to erode lower. Those fears weighed on prices today as packers offered $150 per cwt on a live basis in the Plains, while feeders countered with asking prices near $155 per cwt. That suggest that this week’s cash trade could be steady at best.

August cattle continue to find support above $150, with traders also respecting the 40-day moving average at $150.30. However, the lead June contract slipped to three-week lows, reflecting fears of cheaper cash trade over the next couple of weeks.

Feeder cattle responded to weaker fat cattle and stronger corn prices by moving lower as well. August feeders continue to hold above $222. In fact, they are respecting the 20-day moving average, currently at $222.61 per cwt. Futures have been riding the indicator higher for much of the past two months. Today’s latest CME 7-day cash index came in at $226.47 per cwt, down $0.22 on the day, but still up $1.44 on the week.

Today’s kill came in at 96,000 head as packers continue to slow the chain speed to support product prices, up 5,000 from the previous week, but down 20,000 head from the previous year. Week-to-date kill is put at 320,000 head, up 5,000 from the previous week, but down 25,000 from the same period last year.

Boxed beef movement on the spot daily market rose to 119 loads Tuesday, up from 114 loads the previous day, but down from 132 loads the previous week. Choice cuts firmed $2.14 to $249.47 per cwt, while Select cuts rose $2.10 to $242.56 per cwt. There’s a sense that we could take Choice cuts back up to the $250 to $255 range near-term.

The Choice/Select spread firmed to $6.91 per cwt, up from $6.87 the previous week and up from $6.45 the previous week. Movement on the spot negotiated market at mid-morning today was good at 99 loads. Choice cuts rose another $1.08 to $250.55 per cwt, while Select cuts rose $1.87 to $244.43.


Lean hog futures bounce on profit taking ahead of a couple of key USDA reports next week.

Today’s Midwest cash market was once again, steady to 50 cents weaker. As such, the latest CME 2-day lean hog index was again lower, coming in at $81.02 per cwt, down $0.38 on the day, down $1.28 on the week and down $1.45 over the past 8 consecutive trading days.

Recent weakness in the deferred futures contracts, which are already at a significant discount to the nearby contracts, suggests positioning for expectations that USDA’s June 26 quarterly hogs and pigs report will show expansion in farrowing and intentions. I’m also concerned that Monday’s USDA cold storage report will show a build of pork supplies in the freezer.

As a result, futures have been under pressure in recent weeks. July lean hogs posted a nice come-back on Monday, bouncing off two-month lows near $76 per cwt. Follow-through buying/short-covering fell short on Tuesday, but garnered a bit more energy in today’s trade. That suggests that we could see a bit more of a recovery near-term as traders take profits on their short positions amid some bargain-hunter buying. However, resistance would be expected to increase again near $80 per cwt.

Packer margins are estimated to be near $10 per head. Today’s kill is pegged at 425,000 head of hogs, up 4,000 on the week and up 58,000 from the previous year. Week-to-date kill is estimated at 1.273 million head of hogs, up 7,000 from the previous week and up 149,000 head from the same period last year.

Product movement rose to 375 loads on Tuesday, up from 210 loads the previous day and up from 322 loads the previous week. Demand for bellies continues to provide support as we move deeper into the BLT sandwich season. Tuesday’s composite pork product price came in at $86.03 per cwt, up $1.42 on the day, but down $0.71 on the week. Movement at midday today was good at 254 loads, with the composite price up another $0.43 to $86.46 per cwt, once again on good strength in the bellies.

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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