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Closing Comments



Closing Comments


Feed grain prices prove resilient against a wave of farmer selling.

The Department of Energy reports that crude oil stocks fell 4.9 million barrels in the week ending June 19, after falling 2.7 million barrels the previous week. Yet, supplies at 463.0 million barrels are near 80-year highs for this time of year. Gasoline stocks rose 0.7 million barrels and remain in the upper half of the average range for this time of year, while distillate stocks rose 1.8 million barrels and are in the middle of the average range.

Ethanol stocks fell more than 4% in the week ending June 19 to 19.8 million barrels, down from 20.7 million the previous week, but still above the five-year average for the week of 18.2 million barrels. They did so in a week when production pushed up to a record 994K barrels per day, up from 980K the previous week and up from 938K barrels per day in the same week last year.

The data suggests that the ethanol industry used a record 105.5 million bushels of corn in the week ending June 19, up from 104 million the previous week and up from 101 million bushels in the same week last year. That brings estimated corn usage to date for the marketing year to 4.223 billion bushels, up 131 million or 3% from the previous year. Corn usage to date exceeds the seasonal pace needed to reach USDA’s target by August 31 by 16 million bushels, up from 14 million the previous week.

There’s been some chatter in the country comparing this year to 1993, and with reason. While the pattern is shifted a bit, rainfall totals thus far for the Midwest are very similar to June of 1993. However, the greater problems that year came from very heavy July rainfall. Commodity Weather Group expects rains to continue well into July, but at this point does not expect excessive amounts like were seen in 1993.

Nevertheless, roots are shallow, limiting access to nutrients, and are turning up searching for oxygen in some cases. Damage is being done to the crop in at least 30% of the Corn Belt focused on some concentrated areas of production. That’s why I believe a repeat of last year is no longer on the table, with a below-trend yield anticipated. However, July and August weather will go a long ways toward determining where we go from here.

Even so, the problems are significant enough to make speculative hedge fund managers holding large short positions nervous, leading them to take profits until more is known. Of course, USDA could hit the reset button with its quarterly grain stocks and acreage reports next Tuesday.

Cash corn movement increased dramatically late on Tuesday, accounting for weakness in corn prices in overnight trade. In fact, one major Midwest grain company indicated that it was one of their largest days for farmer sales since harvest. Yet, the market absorbed the cash sales very well and proved resilient for much of the day, pushing to new one-month highs for the lead July contract. However, sales returned again ahead of the close, pulling prices back into the red, yet without notable chart damage.


Soybeans consolidate following recent sharp gains.

July soybeans posted a low of $9.205 on May 26, but have looked impressive since that point, rising to a high of $9.96 on Tuesday. The contract ran into the 200-day moving average at that point, triggering profit taking by speculators and a flood of increased cash sales in the country. Prices pulled back the past two sessions since hitting those highs, but still remain poised just below that area of resistance.

Strength in the old-crop is based on a premise that last year’s crop was smaller than reported by USDA and that demand has been stronger. The numbers would appear to bear that out. It’s unclear yet whether USDA will acknowledge such yet in the June 30th report or kick the can down the road once again. Regardless, it appears that old-crop stocks should eventually have a “2” in front of them rather than a “3.” We’re not going to run out of soybeans, but it does have a significant impact on market sentiment to support a seasonal mid-summer rally.

New-crop soybeans have seen a similar rally this month, with planting delays and excessive rains threatening this year’s crop. Declining crop ratings provide additional cover for speculative traders wanting to own soybeans. Global supplies are still expected to rise in the coming year, with some legitimate concerns about Chinese demand. However, the above has been good for a seasonal rally ahead of the June 30 acreage report.

Cash sales are up significantly this week, weighing primarily on river market basis. Crush margins remain good, allowing processors to absorb much of the increased cash soybeans to this point. This is contingent on the soymeal export market remaining strong, as Chinese cancellations of DDGS shipments are providing cheaper competition in the domestic market.


Harvest pressure catches up to the wheat market amid ample global supplies.

It’s been quite a ride for the wheat market in recent weeks, with big price swings becoming common. It’s not a surprise then that traders and farmers alike would start getting nervous when prices have posted an impressive rally, battling the temptation to sell before the market crashes lower again.

The market continues to get support from harvest delays in the Midwest, along with quality concerns. Additional support comes from chatter about dryness in Russia and much of Europe, as well as the U.S. Pacific Northwest and two-thirds of the Canadian Prairies.

However, nothing is easy in the wheat market, particularly when supplies remain large. Selling returned to the market today after Chicago probed more than 6 cents above the 200-day moving average, dropping the lead July contract back below the indicator ahead of the close. Losses were even greater in the Kansas City market, where the weather is drying out and harvest pressure is greater. Declining open interest on recent rally days suggests that strength has largely been from short-covering. That’s hardly a recipe for a bull market, although there is increased confidence that the harvest low may be behind us.


Cattle futures turn lower on demand concerns as we head into July.

The pattern in recent months has been for live cattle futures to spike higher, but then start to pull back the next day. Those spikes were frequently taking out the previous highs from February to early June, but not this time. It couldn’t come close. The question now is whether the resulting low on the pullback will take out the previous low, which for the August contract came in at $149.25 per cwt.

Feeders are offering cattle at $152 to $153 per cwt, compared to last week’s trade at mostly $150 per cwt on a live basis. Packers largely remain silent, holding their cards close to their vest. Product prices showed good strength early today with decent movement, but the trade believes that demand will drop off seasonally once we get past the Fourth of July three-day holiday weekend.

Packer margins are considered to be near $100 per head, but this week’s slaughter is expected to rise no more than to about 560,000 head, up from 549,000 the previous week. Packers see the seasonal decline in demand coming and do not want to dump a bunch of meat on the market just ahead of the drop in demand, so therefore are not expected to use the profitable margins to get aggressive seeking more cattle.

Today’s slaughter is pegged at 104,000 head of cattle, up 8,000 from the previous week, but down 13,000 from the previous year. Week-to-date kill is pegged at 325,000 head, up 5,000 from the previous week, but down 22,000 from the previous year.

Product movement on the spot daily market slipped to 125 loads Tuesday, down from 127 loads the previous day, but up from 119 loads the previous week. Choice cuts rose $1.09 to $254.13 per cwt, while Select cuts lost $0.07 to $247.99 per cwt. That pushed the Choice/Select spread up to $6.14 per cwt, up from $4.98 the previous day, but down from $6.91 the previous week. Movement was good at mid-morning today at 100 loads, with Choice cuts up $2.08 to $256.21 and Select cuts up $2.37 to $250.36 per cwt.

August live cattle sliced through support at the 40-day moving average and now sit just above the 50- and 200-day moving averages, both of which are just above last week’s low of $149.25 per cwt. Feeder cattle came under pressure from the weaker fat cattle market, with added pressure from firm corn prices. August feeder cattle are back below the 20-day moving average, which they’ve done very little of the past couple of months. First support is at $222. The latest 7-day cash index is at $227.88 per cwt, up $0.22 on the day and up $1.41 on the week.


Lean hog futures trade both sides of unchanged as they consolidate ahead of Friday’s big USDA quarterly hogs and pigs report.

Lean hog futures traded both sides of unchanged today, but largely continue to trade primarily within the range established on Monday. The market is consolidating with a bearish bias ahead of Friday’s USDA quarterly hogs and pigs report. That report is expected to show significant expansion of the herd. Packer margins are modestly positive, weights are down from the previous year, but slaughter numbers remain more than adequate, allowing packers to ratchet down prices.

Today’s Midwest cash market was mostly steady to 50 cents weaker (sound familiar?). The latest 2-day lean hog index came in at $79.13 per cwt, down $0.30 on the day, down $1.89 on the week and down $3.34 per cwt over the past 13 consecutive trading days.

Today’s kill is pegged at 418,000 head of hogs, down 7,000 from the previous week, but up 23,000 from the previous year. Week-to-date kill is pegged at 1.257 million head, down 16,000 from the previous week, but up 85,000 from the same period last week.

Product movement rose to 360 loads Tuesday, up from 216 loads the previous day, but down from 375 loads the previous week. The composite pork product price dropped to $82.87 per cwt, down $1.83 on the day and down $3.16 on the week. Movement at midday today was good at 285 loads, with a bounce in product prices. The composite price rose $0.70 to $83.57 per cwt on renewed demand for ribs.

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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