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Closing Comments

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Closing Comments

Corn

Trade consolidates ahead of big day on Tuesday.

Exporters shipped 41 million bushels of corn in the week ending June 25, down from 43.9 million the previous week, but up from the five-year average for the week of 28.6 million bushels. The past week’s total included 2.4 million bushels of U.S. corn destined for China.

Marketing year shipments to all destinations total 1.414 billion bushels, down 76 million or 5% from the previous year’s pace. Exporters typically ship 79% of final corn shipments by this point in the year, whereas they had shipped 78% by this point last year.

USDA data suggests that they have shipped 78% of the agency’s target thus far this year as well, but official Census Bureau data suggests that shipments have been larger than that. Adjusting for the differences, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 46 million bushels, up from 39 million the previous week.

Exporters shipped 4.1 million bushels of grain sorghum in the week ending June 25, up from 0.04 million the previous week and up from the five-year average for the week of 1.6 million bushels. The past week’s total included 2.3 million bushels destined for Chinese end users.

Marketing year shipments to all destinations total 296 million bushels, up 156 million or 111% from the previous year. Exporters typically ship 78% of final grain sorghum shipments by this point in the year, whereas they had shipped 66% by this point last year. However, they have already shipped 85% of USDA’s target for the current year. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 25 million bushels, down from 27 million the previous week.

Look for that USDA target for grain sorghum shipments to be pared down over the next couple of months. USDA is counting on new-crop grain sorghum grown in the Southern Plains to be harvested and shipped ahead of the end of the old-crop year on August 31 in order to meet that target. However, grain sorghum progress is delayed in the Southern Plains due to a very wet early part of the growing season that slowed planting progress. As such, it’s doubtful that we will be able to hit the current target.

We’ve talked a lot about production problems in the U.S. Midwest, where excessive moisture is a significant problem for one-third of the nation’s corn and soybean crops. However, traders are also keeping an eye on Europe, where a large high pressure system is stressing crops with heat and dryness. COCERAL, a grain trade group in Europe, lowered its European corn production estimate to 65.7 million metric tons, according to trade sources, down from its previous estimate of 73.8 mmt. USDA currently has the crop pegged at 68.14 mmt.

USDA is scheduled to release its weekly crop progress report at 3 p.m. CDT today. A Reuters’ survey of trade participants reveals expectations that the agency will peg the corn crop at 69% Good to Excellent, down 2 points from the previous week. I submitted an estimate for a 1-point drop. Traders will be particularly interest in the eastern Midwest states after they posted large losses last week.

Both the July and December corn contracts rallied to their highest level since April 8, but then turned soft as traders began to brace for tomorrow. The obvious reason is the uncertainty that normally surrounds USDA’s June 30th quarterly stocks and acreage reports known for their big surprises. However, traders also speak of the significance of the end of the month and end of the fiscal quarter. Those are significant to them as well.

In light of that, it was impressive that prices held as well as they did. Today’s prices have also built in expectations of another significant decline in crop ratings as I highlighted above. As such, this afternoon’s actual numbers from USDA will also help shape overnight trade.

The next two weeks look quite wet for the southern third of the Midwest. However, we are likely looking at a near-term high at some point over the next 10 days or so, with a sideways choppy trade then into August when we’ll know more about the crop. This afternoon’s crop ratings and tomorrow’s stocks and acreage numbers will likely help determine the timing of that near-term high.

Soybeans

Demand remains strong for old-crop soybeans, but August is the more critical month for soybeans in the eyes of traders.

Exporters shipped 10.9 million bushels of soybeans in the week ending June 25, up from 6.5 million the previous week and up from the five-year average for the week of 7.1 million bushels. The past week’s total included just 21K bushels of soybeans destined for China.

Marketing year shipments to all destinations total 1.760 billion bushels, up 194 million or 12% from the previous year. Exporters typically ship 92% of final soybean shipments by this point, whereas they had shipped 95% by this point last year. However, this year they have already shipped 97% of USDA’s target for the year. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 107 million bushels, down from 110 million the previous year.

A Reuters’ survey of trade participants reveals expectations that USDA will report 93% of the crop planted as of Sunday, up 3 points on the week, but still 3 points below the five-year average for the week. My submitted estimate matched the average trade guess. The trade is looking for the portion of the crop rated Good to Excellent to drop 2 points to 63%, while I submitted an estimate of a 1-point decline.

Demand for soymeal remains unseasonably strong on the export market, thus far more than offsetting the impact of a significant drop in DDGS prices. Export demand remains unseasonably strong as well, even with China absent from the market. The combination continues to suggest that old-crop stocks will drop below 300 million bushels. We won’t run out of soybeans ahead of the harvest, but that has a psychological impact on the market at these prices.

However, new-crop contracts came under modest profit taking pressure today. Traders are still concerned about conditions going into this afternoon’s report, but they’re bracing for a bearish surprise in USDA’s acreage estimate tomorrow, while also holding to the belief that August matters more for soybeans.

Unlike corn, soybeans did not even test the previous session’s highs today, in either old- or new-crop contracts. This afternoon’s crop ratings and tomorrow’s USDA stocks and acreage numbers now influence whether this is a near-term high.

Wheat

Wheat futures remain strong on global weather concerns.

Exporters shipped 11.6 million bushels of wheat in the week ending June 25, up from 11.4 million the previous week, but down from the five-year average for the week of 21.1 million bushels. The past week’s total included 0.06 million bushels destined for China, while no wheat was shipped to Brazil during the week.

Marketing year shipments to all destinations total 42.8 million bushels, down 25.2 million or 37% from the previous year. Exporters typically ship 6% of final wheat shipments by this point in the new marketing year, whereas they had shipped 8% by this point last year. However, this year they have shipped just 5% of USDA’s target for the year. As such, shipments to date fall short of the seasonal pace needed to hit USDA’s target by May 31 by 16 million bushels, versus falling short by 11 million the previous week.

Heavy rains in the southern Midwest have certainly caught the attention of the trade, delaying harvest of the soft red winter wheat crop, threatening yields and quality after similar problems in the Southern Plains in May. However, traders have also been watching a large high pressure over Europe and the Black Sea region that is bringing hot dry weather to that region. As a result, local trade group COCERAL reduced its estimate of European soft wheat production to 140.6 million metric tons, down from its previous estimate of 148.3 mmt.

The trade expects USDA to peg the winter wheat crop at 40% Good to Excellent in this afternoon’s crop progress report, down 1 point from the previous week. I submitted an estimate of unchanged ratings, as yields turn out to be pleasantly surprising in the Plains, offsetting problems in the Midwest.

The trade expects spring wheat conditions to be unchanged at 71% Good to Excellent, while I’m looking for a 1-point gain in conditions. However, much of that depends on how improved conditions in portions of the Northern Plains offset deteriorating conditions further west. The trade expects USDA to report that 30% of the winter wheat crop was harvested as of Sunday, while my submission was 32%.

Excessive wetness in the Midwest soft wheat belt at harvest provides the biggest portion of the support, but weather problems are erupting in Europe, the Black Sea region, Canada and now Australia. None of these are yet bad enough to turn the U.S. balance sheet bullish, but that doesn’t necessarily matter for wheat, which tends to be driven by headlines. That flow of headlines continues to be strong for now, based on these weather problems, although the volatility likely isn’t over.

Beef

Live cattle futures post impressive technical bounce.

Active cash cattle traded last week at $148 per cwt on a live basis, down $2 from the previous week, although some late trade took place at $149. Active movement is believed to have helped the industry get more current, which may help keep this week’s cash trade relatively unchanged from the previous week.

That allowed an impressive rally in the live cattle futures market this morning after a retest of underlying support held. That support is Thursday’s low of $147.85, which is just above the 100-day moving average of $147.80 per cwt. The rally was impressive, but probably doesn’t erase downside risk near-term until/unless the August contract can establish itself above last week’s high of $152.42 per cwt.

Packer margins are believed to be well above $100 per head. Today’s kill is pegged at 113,000 head of cattle, up 5,000 from the previous week, but down 5,000 from the same period last year.

Feeders felt the pressure of higher corn prices early in the session, but then firmed as corn backed off its highs and fat cattle prices pushed higher. Futures contracts continue to trade at a big discount to the cash market, leaving them some room to bounce, even though the charts suggest that downside risk remains quite real for now. The latest 7-day cash index came in at $230.18 per cwt, down $1.12 on the day, but still up $4.54 on the week and a $11 premium to the lead August contract.

Product movement over the past week on the spot daily market totaled 622 loads, up from 612 loads the previous week, but down from 650 loads the previous week. Choice cuts finished the week at $253.12 per cwt, down $2.04 on the day, but up $1.80 on the week and up $8.47 over the past three weeks. Select cuts finished the week at $248.15 per cwt, down $1.98 in the day, but up $1.92 on the week and up $10.58 over the past three weeks. As a result, The Choice/Select spread finished the week at a 2-1/2 month low of $4.97 per cwt, down $0.12 on the week and down $7.66 over the past five weeks.

Movement at mid-morning today was slow at 64 loads. Choice cuts were down $0.52 to $252.60 per cwt, while Select cuts were up $1.19 to $249.34 per cwt. That dropped the Choice/Select spread to $3.26 per cwt.

Pork

Lean hog futures trade USDA’s quarterly hogs and pigs report as expected.

Friday’s USDA quarterly hogs and pigs report set the tone for today’s trade in lean hog futures. The nearby contracts came under pressure, while the deferred contracts found buying interest. However, as expected, the downside pressure on the nearby contracts was fairly limited, as the nearby hog numbers were not really that big of a surprise for anyone watching this month’s slaughter numbers. Short-covering in the deferred contracts gave a larger boost to the deferred contracts.

Today’s Midwest cash market was mostly steady, although the closely watched Iowa/Southern Minnesota market was mostly steady to 50 cents weaker. Packer margins are estimated at just over $10 per head, providing incentive for packers to move hogs through the plants. However, some are complaining they don’t have room for any more hogs as producers keep the flow coming.

The latest 2-day lean hog index came in at $78.13 per cwt today, down $0.49 on the day, down $1.67 on the week and down $4.34 per cwt over the past 16 consecutive trading days. Today’s kill is pegged at 424,000 head, up 7,000 head from the previous week and up 19,000 head from the same period last year.

Product movement over the past week totaled 1,492 loads, down from 1,551 loads the previous week, but up from 1,228 loads in the same week last year. The composite pork product price finished the week at a seven-week low of $81.73 per cwt, down $0.92 on the week and down $5.07 per cwt over the past four weeks. Movement at midday today was sluggish at 151 loads. However, the composite pork product prices found support from demand for butt, picnic and belly cuts to trade at $82.21 per cwt, up $0.48 on the day.

The good news is that August lean hogs held above contract lows set one week ago at $71.175 per cwt. Holding that for another session or two would be expected to give confidence to the market, which could trigger some short-covering strength, although any rebound would be limited by the cash market, which continues to trend lower. However, the strength in the market overall will likely be in the deferred contracts following Friday’s USDA data release.

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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