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Closing Comments

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Closing Comments

Corn

Crop concerns push prices to new highs for the move, aided by good demand.

Exporters shipped 41.6 million bushels of corn in the week ending July 9, up from 36.9 million the previous week and up from the five-year average for the week of 29.9 million bushels. The past week’s total included another cargo of 2.4 million bushels of corn destined for China.

Marketing year shipments to all destinations total 1.493 billion bushels, down 85 million or 5% from the previous year. Exporters typically ship 82% of final corn shipments by this point in the year, whereas they had shipped 82% by this point last year as well. This year they have shipped 81% according to USDA data.

However, official Census Bureau data, which is delayed, suggests that USDA is under-reporting shipments. Taking that into account, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 39 million bushels, up from 27 million the previous week.

Exporters shipped 3.9 million bushels of grain sorghum in the week ending July 9, up from 0.014 million the previous week and up from the five-year average for the week of 2.5 million bushels. The past week’s total included 3.0 million bushels destined for Chinese end users.

Marketing year shipments to all destinations total 300 million bushels, which is nearly twice the 151 million shipped at this point last year. Exporters typically ship 80% of final grain sorghum shipments by this point in the year, whereas they had shipped just 71% by this point last year. However, this year they have already shipped 86% 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 20 million bushels, down from 21 million the previous year.

USDA is scheduled to release it weekly crop progress report at 3 p.m. this afternoon. The trade expects it to lower the portion of the crop rated Good to Excellent to 68%, down 1 point on the week. That would be a seasonal decline that would be expected in any year.

Doing a state-by-state assessment, I think it is reasonable at this point to suggest that the national average  yield is probably closer to 160 than to USDA’s trend 166.8 bushel. Ironically, USDA bumped its yield to an above trend 165.0 bushels per acre in its August 2010 crop report, up 1.5 bushels on the month. The final yield that year came in at 152.8 bushels per acre. It would be presumptuous at this point to say that we are going that low, but a 160 bushel yield suggests that higher prices would be expected, if in fact that verifies.

The primary question is timing. Previous wet years tended to see prices set back in July and early August before firming in the fall. Thus far we have not seen that setback. The market acts tired at this point, but it has still not broken, and it’s possible that it will not.

Soybeans

Corn drags soybeans higher on crop concerns.

Exporters shipped 4.9 million bushels of soybeans in the week ending July 9, down from 8.2 million the previous week and down from the five-year average for the week of 7.3 million bushels. The past week’s total saw just 0.054 million bushels destined for China.

Marketing year shipments to all destinations total 1.773 billion bushels, up 200 million or 13% from the previous year. Exporters typically ship 93% of final soybean shipments by this point in the year, whereas they had shipped 96% by this point last year. Thus far this year they have shipped 97% of USDA’s target. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 83 million bushels, although that is down from 88 million the previous year.

The trade expects USDA to peg the crop at 62% Good to Excellent this afternoon, down 1 point on the week. That would be a seasonal decline. The trade expected a 2-point drop last week and got steady. However, I would agree that at least a modest decline should be expected.

Soybean prices pushed lower today, but selling dried up near Friday’s session lows. Prices firmed again as corn challenged Friday’s highs. Soybeans remain vulnerable as long as November is below the July 1 high of $10.40 per bushel, but corn is doing all it can to drag the market higher to test that level.

Soybean yields are more difficult to estimate than corn, but the crop is at a significant disadvantage from Kansas to Ohio. The crop has been slow to canopy to maximize sunlight and has been sitting in saturated soils in much of that area. The state is set for a serious disease problem, but actual disease development is never guaranteed.

Regardless, I would argue that the national crop is probably closer to 44 bushels than to 46 bushels, and perhaps lower than that, depending on potential disease development. That would suggest prices above current levels, perhaps much higher, depending on how the crop performs in the weeks ahead. That doesn’t rule out a set-back in the near-term, but corn may put such a set-back at risk.

Wheat

Slow demand and a stronger dollar weighs on wheat prices.

Exporters shipped 9.2 million bushels of wheat in the week ending July 9, down from 13.6 million the previous week and down from the five-year average for the week of 17.9 million bushels. The past week’s total included another 1.2 million bushels destined for Brazil from the Gulf, along with 0.093 million destined for China.

Marketing year shipments to all destinations total 68.3 million bushels, down 31.6 million or 32% from the previous year’s pace. Exporters typically ship 10% of final wheat shipments by this point in the new marketing year, whereas they had shipped 12% by this point last year. Thus far this year they have only shipped 7%. As such, shipments to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 24 million bushels, compared to being short by 18 million the previous week.

Slow export demand combined with a strong dollar to weigh on wheat prices today. Losses were limited by strength in corn and soybeans, but weak charts combined with the above to cap gains for the bulk of the day in the wheat market. Wheat continues to be vulnerable to a larger set-back, even though yield losses continue to mount due to heat and dryness in the southwestern half of the Canadian Prairies, as well as portions of Australia. Those areas may create more price-supporting headlines down the road, but for now the focus is on an abundance of over-priced wheat.

Beef

Slide in product prices continues to weigh on cattle outlook.

Cattle futures gave way to follow-through selling today on expectations that this week’s cash trade will come under pressure. That will likely be the subject of debate all week, as cattle numbers remain tight, with reports that weekend heat may have claimed several hundred head in Nebraska. However, packer margins are dropping well into red ink territory as product prices continue to tumble, giving them plenty of incentive to do all they can to press the cash market lower.

Product movement on the spot daily market accounts for about 10% of total movement, but sets the tone on price. Prices continue to tumble, but the drop is stimulating demand. Boxed beef movement on the spot daily market surged to an eight-month high of 910 loads over the past week, up from 522 loads in the holiday-shortened week and up from 662 loads in the same week last year. Choice cuts finished the week at $236.98 per cwt, down $2.74 on the day, down $13.14 over the past week and down $16.24 over the past eight consecutive trading days. In doing so, prices broke through significant support near $238, with eyes on possible support near $233 per cwt.

Select cuts finished the week at $233.99 per cwt, down $2.59 on the day, down $14.06 over the past week and down $15.36 over the past seven consecutive trading days. The Choice/Select spread finished the week at $2.99 per cwt, down $0.15 on the day, but up $0.92 on the week. Movement at mid-morning today was good for a Monday at 89 loads, with Choice cuts down another $0.89 and Select down $1.31 per cwt.

Feeder cattle were approaching oversold territory and sitting at a double-digit discount to the cash index. As such, futures bounced today to correct the oversold condition, but the charts still look worrisome. Feeders may be at the greatest risk if corn prices rise later this year as I anticipate. Today’s cash index came in at $221.51 per cwt, up $0.07 on the day, but down $1.78 from the previous week.

Today’s kill is pegged at 110,000 head of cattle, up 6,000 from the previous week, but down 6,000 from the previous year.

Pork

Selling pressure dries up after early collapse to new lows.

Midwest cash hog prices have largely been steady to even a bit firmer for much of this month as supply and demand come into balance, at least temporarily. As such, we’ve seen the cash index start to move higher, with the latest one coming in today at $79.24 per cwt, up $0.58 on the day and up $2.20 over the past five-trading days.

The charts have been bearish, suggesting lower prices ahead as product prices slide and packer margins decline. However, today’s action suggests that traders aren’t quite ready to break the market just yet. Prices spiked to new lows early today after the open, but then firmed back into positive territory on short-covering when selling interest dried up at that point.

Product movement over the past week surged to 1,749 loads, up from 1,330 loads the previous week and a 12-week high. A year ago, movement was 1,415 loads. The composite pork product price slipped to a two-month low of $80.79 per cwt, down $0.20 on the week and down $6.01 over the past six weeks. The composite price one year ago was $135.33 per cwt. Movement at midday today was slow at 156 loads, with the composite price up $0.85 to $81.64 on strong rib demand.

Today’s kill is pegged at 423,000 head of hogs, up 31,000 from the previous week and up 58,000 from the previous year.

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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