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Closing Comments



Closing Comments


Bargain hunters lift corn prices on good demand data, but gains are limited by this week’s gain in crop ratings.

The Department of Energy reports that crude oil stocks rose 0.4 million to 465.8 million barrels in the week ending July 3. It was the second week of gains, keeping supplies near 80-year highs for this time of year. The report comes on the heels of data showing an increase in rig counts, leading some to think that the breakeven level for shale oil producers may be lower than previously believed.

The Energy Department also reported that ethanol stocks rose to 19.8 million barrels in the week ending July 3, up from 19.5 million the previous week and up from 18.3 million barrels in the same week last year. Ethanol production rose to 987K barrels per day during the week, up from 968K barrels the previous week, up from 927K barrels in the same week last year, but just below the all-time record of 994K barrels per day set two weeks ago.

The data suggests that the ethanol grind totaled 104.8 million bushels of corn in the week ending July 3, up from 102.7 million the previous week and up from 99.8 million bushels of corn ground in the same week last year. That brings estimated corn use for ethanol to date for the marketing year to 4.430 billion bushels, up 136 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 20 million bushels, up from 17 million the previous week.

December corn found bargain-hunter buying today after the December contract fell more than 15 cents off last week’s six-month high. Support came from the ethanol data showing good end user demand. However, gains were limited by fears that global supplies will remain ample and a weight to the market.

Evidence of that came from reports that Cargill is preparing to load a cargo of Brazilian corn for transport to the U.S. Southeast. It is the first of at least three cargoes of corn expected to come north from South America in the months ahead, with more possible after favorable weather blessed Brazil with a bumper crop.

December corn traded both sides of unchanged in roughly a dime trading range, settling near the middle of that trading range with fractional gains. It was encouraging to see corn trade in positive territory. In fact, today’s rally brought December corn within 1-1/4 cents of the six-month highs posted on July 2. In essence this market continues to consolidate after reaching those highs and ahead of reaching USDA’s crop report on Friday. There are still those in the trade that believe we will continue higher from this point, but history argues for a more significant setback followed by choppy sideways action until traders see actual yield results in 45 to 60 days.


Bargain hunters lift soybeans, but other traders were ready to sell the rally.

USDA’s daily export reporting service today reported the sale of 8.8 million bushels of U.S. new-crop soybeans to “unknown destinations” in the past 24 hours. That told traders that the recent price break stimulated demand, likely to China. The recent break nearly retraced 50% of the recent sharp rally, providing a good place for both end users and speculators to consider some bargain buying.

The announced sale encouraged traders, providing support, but the rally wasn’t robust either. Traders still believe that August is the bigger month for U.S. soybeans in the field and are wary of USDA’s crop report coming out on Friday morning.

A 50% retracement of the recent rally in November soybeans would drop us to $9.68 per bushels. The contract traded within 11 cents of that level today, settling up a penny on the day and in the middle of the session’s trading range. Today’s action suggests that we’ll likely see more consolidation ahead of Friday’s USDA crop report, where traders will be watching closely to see if USDA reduces its yield estimate. It’s adjusted its yield estimate just five times in the past 22 years in the July crop report, but traders expect this to be another year in which it does so.

Soybeans have seen a more significant setback than corn as traders see August as the critical weather month for the oilseed. This market likely has greater upside potential long-term if this year’s weather problems continue to mount, but it may have greater downside risk near-term if we continue to see the collapse of China’s markets, leading to fund selling of those commodities sold to China.


Egyptian tender reminds traders that U.S. prices are not competitive.

Wheat prices dropped sharply in recent days, but did little chart damage. Egypt, known for its buying of price breaks, stepped in to release yet another snap tender to buy wheat for mid-August delivery. A plethora of offers were made from a number of sources including the Black Sea, Europe and the United States. Those offers illustrated more than a $1.30 per bushel disparity in prices between U.S. and Black Sea sources. In the end, Egypt bought 4.4 million bushels of Russian and 2.2 million bushels of wheat from Ukraine.

Egypt purchased the Russian wheat despite a great deal of confusion over its new export tariff formula. Exporters expected the tariff to be $0.90 per ton, based on the current formula, but complain that custom officials are charging between $7 and $30 per ton. Regardless, Russian wheat is still well-priced on the global market, but the confusion has the potential to keep exporters reluctant from offering wheat.

Even so, the deal emphasized to traders once again the lack of competitiveness of U.S. wheat. That weighed on wheat prices once again today on a day when corn and soybeans were supported by bargain-hunter buying. Of course, part of the reason was also that wheat is in the middle of harvest season, which tends to increase the supply available to the market.

The good news is that Chicago September wheat held above Monday’s low of $5.7225, while Kansas City September held above Monday’s low at $5.7275. That gives chart-watchers something to build on if we can hold that low going through the week. I expect USDA’s crop report on Friday to emphasize the large size of U.S. supplies and the poor demand for those supplies. That keeps the fundamentals bearish. However, we should see increased headlines focused on drought-related crop stress in Canada and Australia as we get into the last half of the month if the current weather pattern holds.


Cattle futures slide on weaker product and equity markets.

Live cattle futures remained under pressure today, largely due to a sharp break in product prices. Feeders are asking mostly $152 to $153 per cwt on a live basis, suggesting that we could see even money this week. Packers are quiet on the negotiated market thus far, but are said to be aggressively trying to line up cattle with contract offers above this week’s top in the negotiated market. That would suggest that they came into July with a smaller captive supply.

However, sentiment is against the feeders this month, with product prices falling sharply. The drop was anticipated, but the recent surge in the dollar may have precipitated another spike in imports, adding more pressure to the market. The question now is, how far will they fall. Choice cuts are down roughly $10 since the end of June. Major sell-offs over the past year generally held near $238 per cwt for the Choice cuts, making that a significant area of support.

As such, the market is roughly $5 away from that area. However, the weakness weighed on market sentiment, pulling futures lower. Additional pressure comes from weakness in the global equity markets on fears of a global economic slowdown. August live cattle fell below support at the 200-day moving average at $149.68 today, hitting additional sell-stops that accelerated losses. That sets up a test of the 100-day moving average at $148.22 per cwt, but the bigger factor is that it largely erases what appeared to be a possible bull flag, although I lacked confidence in it.

Product movement rose to 172 loads on a price drop Tuesday, up from 139 loads the previous day and up from 134 loads the previous week. Choice cuts on the spot daily market traded at $244.67 per cwt, down $2.98 on the day and down $8.55 over the past five trading days. Select cuts were at $241.09 per cwt, down $2.83 on the day and down $8.26 over the past four trading days. That puts the Choice/Select spread at $3.58 per cwt, down from $3.73 the previous day, but up from $3.38 the previous week.

Movement at mid-morning today was routine at 88 loads. Choice cuts were down another $1.67 to $2.43 per cwt, while Select cuts were down $0.66 to $240.43 per cwt.

Today’s kill is pegged at 109,000 head of cattle, down 2,000 on the week and down 5,000 head from the previous year. Week-to-date kill is pegged at 323,000 head of cattle, down 15,000 head on the week and down 18,000 head from the same period last year as packers slow the chains down once again to underpin product prices.

Feeder cattle turned sharply lower today as corn prices firmed and fat cattle fell. Additional pressure comes from the recent free-fall in cash prices for lighter-weight cattle amid the margin compression seen for feeding cattle. August feeder cattle fell to their lowest level since April 30, breaking below the 100-day moving average in the process and trading to just above $213. The latest CME 7-day cash index came in at $$220.39 per cwt, up $0.17 on the day, but down $7.88 over the past week.


Hog futures sink on worries about over-supply.

Midwest cash hogs were steady to mostly 50 cents higher today, arguing that at least a temporary low has been reached in the cash market. The latest CME 2-day lean hog index came in at $77.43 per cwt, up $0.30 on the day and up $0.39 over the past two days.

However, that provided little support for futures traders. The market is worried about supply overwhelming demand. Illinois is expected to slaughter a record number of hogs this week, with industry representatives questions whether USDA counted all of the hogs in its latest quarterly hogs and pigs report. Exports have been strong, but domestic demand remains somewhat soft, raising concerns about the upside potential of this market.

August lean hogs slipped to their lowest level in a week today, falling below the 20-day moving average in the process. Prices came well off their lows, leaving the door open for higher values. However, today’s trade showed the market’s vulnerability to excessive supply.

Estimated packer margins dropped to just $2.50 per head. Today’s kill is pegged at 418,000 head of hogs, down 5,000 from the previous week, but up 20,000 from the previous year. Week-to-date kill is estimated at 1.233 million head, down 39,000 from the previous week, but up 49,000 head from the same period last year.

Product movement rose to 365 loads Tuesday, up from 324 loads the previous day, but down from 380 loads the previous week. The composite pork product price was $81.60 per cwt, down $0.66 on the day, but up $0.16 on the week. Movement at midday today was good at 299 loads, with the composite price down $0.09 to $81.51 per cwt.

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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