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Closing Comments

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Closing Comments

Corn

Prices recover after coming under broad selling pressure overnight.

Exporters shipped 23.4 million bushels of corn in the week ending July 2, up from 19.6 million the previous week and up from the five-year average for the week of 14.8 million bushels. The past week’s total included another 2.6 million bushels of U.S. corn destined for China.

Marketing year shipments to all destinations total 1.798 billion bushels, down 61 million or down 3% from the previous year. Exporters typically ship 96% of final corn shipments by this point in the year, whereas they had shipped 97% by this point last year. This year they have already shipped 98% 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 39 million bushels, although that is down from 42 million the previous week.

Exporters shipped just 0.014 million bushels of grain sorghum in the week ending July 2, down from 4.1 million the previous week and down from the five-year average for the week of 1.2 million bushels. The past week’s total included just 0.006 million bushels destined for Chinese end users.

Marketing year shipments to all destinations total 296 million bushels, up 153 million or 107% from the previous year. Exporters typically ship 79% of final grain shipments by this point in the year, whereas they had shipped 68% by this point last year. However, this year they have already shipped 85% 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 21 million bushels, but that is down from 25 million the previous week.

USDA is scheduled to release its weekly crop progress report at 3 p.m. CDT this afternoon. A Reuters’ survey of trade participants revealed expectations that the agency will the corn crop at 67% Good to Excellent, down 1 point from the previous week and matching our submitted estimate. A separate Bloomberg poll revealed expectations that 12% of the corn crop is pollinating, up from 4% the previous week. My submitted estimate is 17% pollinated as of July 5.

Today’s market action provided further evidence of the big connection between grain prices and money flow in and out of the broader commodity sector as influenced by the dollar and developments in the equities. Global traders worried about the results of the Greek election and fear of a greater collapse of China’s economy turned into broad-based sellers of the commodity and equity sectors, even as the dollar rallied.

Grain and oilseed prices probably would have been lower anyway overnight, absorbing weekend cash sales, but also correcting lower after reaching major chart objectives on Thursday following big gains that encourage profit taking. However, the flow of money out of the broader commodity sector amid worries about a slowing global economy and a stronger dollar amplified the losses. However, prices pulled well off their lows in today’s session as the dollar erased its losses and money flow out of the broader commodity sector slowed.

Additional support comes from expectations that this afternoon’s crop ratings will show more decline, along with forecasts for another 2” to 5” across much of the southern Midwest over the next several days on already saturated soils. That said, I still must refer to the historical pattern of prices setting back in July from mid-summer rallies in wet years, as the trade grows skeptical of severe yield damage from excessive rainfall until hard evidence is seen at the end in August/September.

This afternoon’s numbers will matter, but then the trade will be focused on whether USDA will make a change in its yield estimate on Friday. It’s only done so in the July crop report in 8 of the past 22 years; lowering the yield 5 times and raising it 3 times. It’s primary driver is the crop ratings for the July report, which to this point have been near average for the U.S. crop. At this point I’m looking for USDA to be conservative, with an outside chance that perhaps we get a reduction down to 165 bushels per acre.

December corn spent the entire session in negative territory, but finished within 2 cents of its session high. Now traders look for additional support from USDA’s crop progress report. Today’s action suggests that traders see good support from the market as long as crop ratings are in decline, but the focus increasingly shifts to Friday’s crop report. I still want to emphasize that history suggests a high risk of a more significant setback into August, when traders will know more about the actual losses incurred from the excessive rains.

Soybeans

Double-digit losses plague soybeans as traders believe that the oilseed can still recover losses with a favorable August weather pattern.

Exporters shipped 7.3 million bushels of soybeans in the week ending July 2, down from 10.9 million the previous week, but up from the five-year average for the week of 6.8 million bushels. The past week’s shipments again included zero bushels destined for China.

Marketing year shipments to all destinations total 1.767 billion bushels, up 198 million or 13% from the previous year. Exporters typically ship 92% of final soybean shipments by this point in the  year, whereas they had shipped 95% by this point last year. However, this year they have already shipped 98% of USDA’s target. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 102 million bushels, but that is down from 107 million the previous week.

The dynamics in the soybean market today were very similar as the corn market. They came under significant pressure overnight due to broad-based selling of the commodity sector. Prices came off their lows in today’s session supported by expectations of declining crop ratings as heavy rains return to the southern Midwest this week, but losses remained larger as traders see soybeans as less vulnerable in July.

A Reuters’ survey of trade participants reveals expectations that this afternoon’s crop progress report will show 97% of the U.S. soybean crop planted as of July 5, up 3 points from the previous week, but still down from the five-year average for the week of 99%. Our submitted estimate was 97% as well. The trade expects USDA to peg the crop at 61% Good to Excellent, down 2 points on the week, while my submission was for 62%.

November soybeans dropped to $10.0825 overnight on a broad commodity sell-off, but was unable to erase those losses like corn and wheat. Traders still believe that August is the month that matters for soybeans, and as such are bracing for a bearish balance sheet from USDA on Friday. Additional pressure came from a collapsing crude oil market. As such, this market remains vulnerable to a deeper correction near-term, pending this afternoon’s crop ratings and Friday’s USDA crop report.

Wheat

Wheat prices recover from big overnight losses as weather concerns mount.

Exporters shipped 13.6 million bushels of wheat in the week ending July 2, up slightly from 13.2 million bushels shipped the previous week, but down from the five-year average for the week of 21.1 million bushels. The past week’s shipments included 0.091 million bushels shipped to China and another 1.2 million bushels shipped to China off the Atlantic Coast.

Marketing year shipments to all destinations total 59.1 million bushels in this young marketing year, down 26.6 million or 31% from the previous year. Exporters typically ship 8% of final wheat shipments by this point in the year, whereas they had shipped 10% by this point last year. However, this year they have only shipped 6% of USDA’s target to this point. As such, shipments to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 16 million bushels, matching the previous week’s pace.

The trade expects USDA to peg winter wheat ratings at 41% Good to Excellent as of July 5, unchanged from the previous week and matching my submission. The spring wheat crop is expected to come in at 73% Good to Excellent, up 1 point on the week and also matching my submission. Winter wheat harvest is expected to come in at 51%, up from 38% the previous week, but short of my submission of 52%.

Wheat prices came under pressure overnight, falling to significant losses at one-week lows. However, prices came off their lows as the dollar began to come off its highs, with traders focused on a heat dome entrenched over Europe, along with escalating dryness concerns for Canada and Australia. Look for a dose of reality to hit Friday with a big increase in wheat stocks in USDA’s crop report, but it may not take long for support to return if weather concerns continue to mount.

U.S. wheat fundamentals are not bullish. However, they were at similar levels when continued focus on drought headlines in Russia continued to push wheat prices higher in 2010. Look for the roller coaster ride to continue in wheat, with the longer-term trend higher as long as weather concerns grab the headlines.

Beef

Cattle markets come under pressure in post-holiday sell-off.

The good news today was that packers were said to be unusually active for a Monday in the Plains, offering $1.50 over tops paid this week. That comes after a surprising week last week when packers paid $3 to $4 more than the previous week with roughly 94,000 head moving on the negotiated market. That combination would suggest that packers need more cattle and are willing to pay for them.

However, that wasn’t even enough to test Thursday’s session highs. The trade expected product prices to drop as demand slides after the Fourth of July holiday weekend. It received a dose of that expectation at mid-morning when USDA reported a sharp drop in product prices. The stronger dollar also facilitates an increase in imports.

The latest import data available is for the week ending June 27. Imports that week slipped to 23,190 metric tons, down from 24,471 tons the previous week. That’s the equivalent of 51.1 million pounds of beef imported in the week ending June 27 or nearly 63,000 head of cattle on a carcass weight basis.

Total beef movement in the holiday-shortened week ending July 3 totaled 5,191 loads, down from 6,167 loads the previous week. Product movement on the spot daily market totaled just 522 loads, down from 622 loads the previous week and down from 545 loads in the same week last year. Choice cuts finished the week at $250.12 per cwt, down $3.00 on the week, while Select cuts finished the week at $248.05 per cwt, down $0.10 on the week. That dropped the Choice/Select spread to a three-month low of $3.24 per cwt, down $2.90 from the previous week and down $10.56 per cwt over the past six weeks.

Movement at mid-morning today was a very routine 74 loads, but at lower prices. Choice cuts fell $2.16 to $247.96, while Select cuts were down $2.79 to $245.26 per cwt. This will begin to erode packer margins, which had been at more than $100 per head.

Last week’s slaughter came in at 521,000 head of cattle, down 34,000 head from the previous week, but up 28,000 head from the same holiday week last year. That brings estimated slaughter for the year-to-date to 14.261 million head, down 7.0% from the previous year’s pace.

August live cattle are now vulnerable to retesting support at the 100-day moving average, currently at $148.08 per cwt. I could see the contract trading $2 to $4 below that level if product prices continue to slide as some in the industry expect. Feeder cattle gave way to selling as well, with weaker chart support than we see in the fats. Furthermore, a weaker cash market leads to additional concerns. The latest cash index came in today at $221.81 per cwt, down $3.01 on the day, down $6.46 over the past two trading days and down $9.49 over the past six consecutive trading days.

Pork

Hogs consolidate following last week’s gains.

Today’s cash market showed increases stability, but that wasn’t enough to keep prices in the green. Midwest markets were mostly steady once again, although the closely watched Iowa/Southern Minnesota market was $1 higher. Even so, the latest cash index came in at $77.04 per cwt, down $0.11 on the day and down $5.43 over the past 20 consecutive trading session.

Pork imports in the week ending June 27 totaled 7,792 metric tons, up from 7,751 tons the previous week and up from 7,580 tons in the same week last year. This brings imports for the year to date to 213,980 metric tons, up 11% from the previous year, thanks to the strong dollar.

Product movement slowed to 1,330 loads for the holiday-shortened week, down from 1,492 loads the previous week, but up from 1,246 loads in the same week last year. The composite pork product price fell to nearly a three-month low of $80.99 per cwt, down $0.74 on the week and down $5.81 over the past five weeks. Movement at midday today was good at 213 loads, with the composite price up $1.61 to $82.60 per cwt on good demand for loins, butts and rib cuts.

Last week’s holiday-shortened slaughter was pegged at 1.857 million head, down 286,000 head from the previous week, but up 224,000 head from the same week last year. That brings estimated slaughter for the year-to-date to 57.206 million head, up 6.8% from the previous year.

August lean hogs turned modestly lower today when a test of Thursday’s session high failed. However, the market found modest support from good demand as packers embark on a full slaughter week following the holiday break. We’ve seen a nice bounce from USDA’s quarterly hogs and pigs report, but the trade now sees rallies as meant to be sold, at least until we begin to see stronger domestic demand.

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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