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Closing Comments

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Closing Comments

Corn

Feed grain prices lack bullish fodder needed to sustain a rally.

Exporters sold 32.6 million bushels of corn in the week ending June 11, including 24.7 million old-crop bushels. The old-crop sales were up from 19.5 million bushels sold the previous week and were above the five-year average for the week of 14.2 million bushels. Virtually no sales to China were made during the week, while “unknown destinations” saw a reduction of 9.6 million bushels, largely as previous purchases were shifted to other buyers, primarily Mexico and South Korea.

Marketing year sales total 1.755 billion bushels of corn, down 82 million or 4% from the previous year. Exporters typically sell 94% of final corn shipments by this point in the year, whereas they had sold 96% by this point last year. Thus far this year they have sold 96% of USDA’s target as well. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 46 million bushels, up from 42 million the previous week.

Exporters sold 2.4 million bushels of grain sorghum in the week ending June 11, with all of it being old-crop sales. The past week’s sales were up from virtually zero the previous week and were above the five-year average for the week of 1.1 million bushels. Once again, nearly all of the sales went to end users in China.

Marketing year sales total 330 million bushels, up 160 million or 94% from the previous year. Exporters typically sell 79% of final grain sorghum shipments by this point in the year, whereas they had sold 80% by this point last year. However, this year they have already sold 94% of USDA’s lofty target for the year. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 52 million bushels, although that is down from 53 million the previous week.

Declining open interest suggests that recent strength in the corn market has had more to do with speculative short-covering than with genuine bullish conviction. Prices turned lower when they failed to take out the previous day’s highs. They firmed again when it looked like soybeans might be poised for a run, but then quickly dropped back in the red when strength in soybeans waned. Cash sales are increasing on rallies, with those rallies becoming increasingly difficult to sustain without outside help.

Soybeans

Soybeans were the leader to the upside today, but could not confirm a move above major chart resistance.

Exporters sold 24.4 million bushels of soybeans in the week ending June 11, including just 4.9 million old-crop bushels. The old-crop sales were down from 6.0 million bushels sold the previous week, but were up from the five-year average for the week of just 2.6 million bushels, as the bulk of the marketing year’s business has usually been done by now. China bought 0.5 million bushels  of old-crop soybeans during the week, while also buying 6.6 million bushels of new-crop soybeans. Meanwhile, “unknown destinations” bought 11 million new-crop bushels, while reducing old-crop purchases mostly due to transfers to other buyers of 8.8 million bushels.

Marketing year sales total 1.852 billion bushels of soybeans, up 192 million or 12% from the previous year. Exporters typically sell 98% of final soybean shipments by this point in the year, whereas they had sold 101% by this point last year. This year they have already sold 102% of USDA’s target for the year. Sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 74 million bushels, but that is down from 77 million the previous week.

Strong soymeal demand this year has boosted crush margins, keeping processors aggressive in seeking cash soybean supplies to push through the plant. However, new export sales of soymeal slipped to 96.1K metric tons in the week ending June 11, down from 129.8K the previous week, but still above the five-year average for the week of 82K metric tons. Actual shipments during the week totaled 169.5K metric tons as exporters shipped previous purchases, up from 167.8K the previous week, but down significantly from 262K tons the week prior to that. The five-year average shipment pace for the week is 134K metric tons.

Soymeal basis was mostly steady across the Midwest today. However, grain brokers noted that it had weaker undertones to it.

Argentina’s Ag Minister raised the estimate for that country’s soybean crop to 61 million metric tons today, up from 60 mmt previously, making more soybeans and soymeal available to the global market. USDA’s latest estimate for Argentina is 59.5 mmt. One mmt is equal to 36.7 million bushels of soybeans.

Soybeans were the leader today. Corn and wheat prices firmed when soybeans were strong, but then slipped negative again when soybeans pulled back from their highs. Declining open interest suggests that much of the recent strength is short-covering by speculative hedge funds, with traders longer-term worried about rising supplies. Yet, this market has room to run if it can establish itself above trend line resistance that has held a lid on it for the past six months. Prices today probed above that resistance, but then pulled back to settle very near it, leaving Friday’s session to settle the score.

Wheat

Harvest pressure weighs on wheat prices.

Exporters sold 11.6 million bushels of wheat in the week ending June 11, with virtually all of it for the current new-crop. The week’s total was down from 13.8 million bushels sold the previous week and was down from the five-year average for the week of 19.5 million bushels. China was largely absent from the U.S. wheat market during the week, but Brazil took another million bushels of hard red winter wheat.

Marketing year sales for the year that began June 1 total 186 million bushels, down 68 million or 27% from the previous year. Exporters typically have sold 21% of final wheat shipments by this early date, whereas they had sold 30% by this point last year. However, this year they have only sold 20% of USDA’s target to this point. As such, sales to date fall short of the seasonal pace needed to reach USDA’s target by 8 million bushels, versus being short by 3 million the previous week.

Wheat harvest is expected to pick up significant momentum in the Southern Plains in the days ahead, as the remnants of Tropical Storm Bill drift north and east to hamper Midwest and Delta harvest plans. The Plains are expected to dry out significantly over the next week to 10 days, adding to harvest pressure on the market. As a result, Kansas City wheat acted as an anchor to the wheat complex today, holding it down due to increased sales.

Wheat prices followed a similar path as corn today; rallying early, but turning lower when unable to take out the previous day’s highs. Kansas City acted as an anchor to the wheat complex, with drier weather expected to boost harvest momentum in the Plains over the next week to 10 days, even as soft red winter wheat areas turn wetter thanks to the remnants of tropical storm Bill.

There are plenty of dry areas of the world to be concerned about, including Europe, the Black Sea region and the Canadian Prairies, with dryness expected to be a problem in Australia in July and beyond, but that’s not a concern for traders currently focused on high U.S. prices and poor export demand with newly harvested bushels beginning to flow into the pipeline.

Beef

Cattle futures break lower on weakening cash prospects.

Exporters sold just 8.1K metric tons of beef in the week ending June 11, down from 16.3K the previous week and down from 16.1K tons sold in the same week last year. Actual shipments of previous sales though were at a 2015 high of 14.2K metric tons, up from 14.0K the previous week, but down from 14.4K in the same week last year.

There’s no doubt that cattle supplies are tight this year, aggravated by the holding back of heifers to try to rebuild the cowherd that fell to six decade lows over the past couple of years due to drought. However, the drop in supplies also coincided with a surge in the value of the dollar to 12-year highs, hampering exports of beef while making imports of beef profitable. Beef imports from primarily Australia and New Zealand surged in 2014, but they are up another 35% year-to-date this year.

This has particularly played out to hurt beef prices in recent weeks. Packers have slowed the chains to drop slaughter to the 540,000 to 550,000 head per week rate the past several weeks, down 10 to 11% from the previous year. That stabilized beef product prices, but didn’t support the anticipated rebound over the past week or two. The latest import data explains why.

Beef imports in the week ending June 6 totaled 25,867 loads or roughly 56 million pounds of beef, equivalent to roughly 70,000 head of cattle. The weekly total was up 34% from the previous week. A weaker dollar would be expected to slow imports, should the dollar continue to slide, which would increase demand for U.S. cattle, but that’s not yet the case.

USDA’s cattle-on-feed report is scheduled for release at 2 p.m. CDT tomorrow. It’s expected to show on-feed numbers up slightly from year ago levels, but May placements and marketings are expected to be down 7% and 8% respectively as cattlemen take advantage of plush green pasture to put weight on cattle this year.

That means that the available supply of cattle is expected to remain relatively tight, with the industry hoping that the dollar stays strong so that it can continue large imports to fill the need. Product prices are firming currently, but a breakdown of the prices suggests a drop in demand for the higher priced middle cuts, and maybe an easing of demand for ground beef as well.

Product movement on the spot daily market Wednesday rose to 170 loads, up from 119 loads the previous day, but down from 192 loads the previous week. Choice cuts were up $0.93 to $250.40 per cwt, while Select cuts were up $1.82 to $244.38 per cwt, that dropped the Choice/Select spread to $6.02 per cwt, down from $6.91 the previous day and down from $6.93 the previous week. Movement at mid-morning today was sluggish at 66 loads, but Choice cuts were up $0.48, while Select cuts were up $0.43 per cwt.

Today’s kill is pegged at 113,000 head of cattle, up 1,000 from the previous week, but down 4,000 head from the previous year. Week-to-date kill is pegged at 433,000 head of cattle, up 6,000 from the previous week, but down 29,000 from the previous year.

August live cattle turned lower today as the bears gained an edge on this week’s cash cattle expectations. The contract broke below several layers of moving average support, but held above support at $149 while waiting for this week’s cash trade to provide further direction. It’s generally expected that this week’s cash trade will likely be in the $150 to $152 range, down from $152 to $155 the previous week.

Feeder cattle turned lower on the weakness in fat, combined within a weakening of demand at the sale barn as well. August feeder cattle fell below the 20-day moving average for the first time in four weeks, suggesting that additional weakness is possible. The latest CME 7-day cash index came in at $225.73, down $0.74 on the day and down $0.01 on the week.

Pork

Hogs turn lower on weak cash and product prices as traders position for next week’s USDA reports.

Exporters sold 22.7K metric tons of pork in the week ending June 11, down from a robust 26.0K tons the previous week, but more than triple the 6.5K tons sold in the same week last year. Actual shipments during the week totaled 19.2K metric tons, down from a strong 26.3K the previous week, but more than double the 9.8K tons sold in the same week last year.

Today’s Midwest cash hog market was again steady to 50 cents weaker, similar to what it’s been all month long. The latest CME 2-day cash index came in at $80.57 per cwt, down $0.45 on the day, down $1.59 on the week and down $1.90 over the past nine consecutive trading days.

Estimated packer margins remain near $10 per head. Today’s kill is estimated at 420,000 head of hogs, down 2,000 from the previous week, but up 50,000 from the previous year. Week-to-date kill is pegged at 1.693 million head, up 5,000 on the week and up 199,000 from the same period last year.

Product movement on Wednesday rose to 376 loads, up from 375 loads the previous day, but down from 400 loads the previous week. The composite pork product price slipped to $85.51 per cwt, down $0.52 on the day and down $1.57 on the week. Movement at midday today was sluggish at 150 loads, with the composite price down another $0.31 to $85.20 per cwt.

August lean hogs pushed above Wednesday’s high, but buying interest dried up at that point, turning the market lower. Prices held above the previous day’s low in the traditional day session, but the charts are looking like a bear flag forming as the market consolidates ahead of Monday’s USDA cold storage report that I expect to show a build in supplies. That will be followed by the USDA quarterly hogs and pigs report the following Friday on June 26.

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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