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Closing Comments

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Closing Comments

Corn

Resilient corn finally succumbs to broader commodity selling at the end of the day.

Exporters sold 25.8 million bushels of corn, including a marketing-year low of 13 million bushels of old-crop corn. The old-crop sales were down from 21.1 million bushels sold in the previous week and below the five-year average for the week of 15.1 million bushels. The past week’s sales included another cargo of 2.4 million bushels of old-crop corn sold to China.

Marketing year sales to all destinations total 1.832 billion bushels, down 63 million or 3% from the previous year. Exporters typically sell 99% of final corn shipments by this point in the year, which is what it did last year at this time as well. Thus far this year exporters have also sold 99% of USDA’s target for the year. Sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 6 million bushels, but that is down from 12 million the previous week.

Exporters sold just 4,000 bushels of old-crop grain sorghum in the week ending July 9, making the second week in a row of essentially no new demand. The five-year average for the week is 2.7 million bushels. Marketing year sales total 331 million bushels, up 144 million or 77% from the previous year.

Exporters typically sell 83% of final grain sorghum shipments by this point in the year, whereas they had sold 88% by this point last year. This year’s sales to date total 94% of USDA’s target. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 40 million bushels, but that is down from 45 million bushels the previous week.

The progress and condition of the corn crop is playing out pretty much as expected at this point. Heavy rains created saturated soils that seriously damaged corn through the first half of the growing season in the southern half of the belt, while the northwestern third of the region sees greenhouse-like conditions. The trade began to recognize the problem last month, unwinding their massive short (sold) positions and pushing December corn to one-year highs.

Historically, this is where the corn market has broken. Weather patterns begin to moderate, which they are in the process of doing. Crop ratings overall tend to be above average, which again they have been. Fund managers lose focus on the problems and price break lower until late in the season when actual yield checks can be done to determine the scope of the problem.

That break in prices for corn has been much more difficult to accomplish this year. It could still happen, but thus far the market has been reluctant to sustain moves lower as long as farmers are posting drone pictures of ugly corn fields on Twitter and other social media. We will likely see this type of choppy trade over the next several weeks until we get later in the season and get harder data on the crop.

Soybeans

Overnight gains reverse lower amid broader fund selling.

Exporters sold 20.3 million bushels of soybeans in the week ending July 9, but just 1.7 million bushels of those sales were for old-crop supplies. The old-crop sales were actually up slightly from 1.5 million bushels sold the previous week, but were down from the five-year average for the week of 7.0 million bushels. China bought just 66,000 bushels of old-crop soybeans during the week, while “unknown destinations” bought 14.8 million bushels of new-crop soybeans, which will be presumed to be China.

Marketing year sales to all destinations total 1.859 billion bushels of soybeans, up 183 million or 11% from the previous year. Exporters typically sell 100% of final soybean shipments by this point in the marketing year, whereas they had sold 102% by this point last year. That also matches the 102% of USDA’s target that has already been sold this year. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 29 million bushels, but that is down from 36 million bushels the previous week.

Another indicator that we’ve been following has been soymeal demand, which has been quite strong this year due to problems in Argentina. Sales in the week ending July 9 totaled just 33.0K metric tons of old-crop and 39.2K metric tons of new-crop soymeal. The five-year average for old-crop sales in the week is 92.8K metric tons. However, a lot of previous soymeal orders remain on the books, supporting crush margins. Actual shipments during the week totaled 177.6K metric tons, down from a robust 225.5K tons the previous week, but up from the five-year average for the week of 145.4K tons.

Strength in soymeal export shipments, along with trade reports that California dairy farmers are switching to soymeal away from canola meal. As such, strength in soymeal combined with concerns about the crop to support gains early in the session at a time when broad-based buying of the commodities provided additional buying. However, that money flow in the broader commodities reversed mid-morning, letting the air out of the soybean complex.

Prices tried to hold, but the timing wasn’t right. It’s difficult to keep fund managers focused on problems in the soybean crop in mid-July. Farmers are primarily posting corn field pictures at this time and the trade believes that August weather is all that really matters for soybean production.

November soybeans settled near their session low and just 5-1/2 cents above Wednesday’s low of $10.055. Soybean prices have found it easier to correct lower than have corn prices, leaving them more vulnerable now as well. I remain friendly the soybean market longer-term based on our assessment of the overall balance sheet, but prices remain vulnerable near-term.

Wheat

There’s too much “high-priced” wheat in the United States.

Exporters sold a marketing year low 10.7 million bushels of wheat in the week ending July 9, down from 12.7 million sold the previous week and down from the five-year average for the week of 18.1 million bushels. Half of the week’s sales were for hard red spring wheat, with hard red winter sales accounting for just 0.7 million following a negligible total the previous week as well.

Marketing year sales total 238 million bushels, down 74 million or 24% from the previous year. Exporters typically sell 28% of final wheat shipments by this point in the marketing year, whereas they had sold 36% by this point last year. However, they have only sold 25% of USDA’s target thus far this year. As such, sales to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 32 million bushels, versus falling short by 27 million the previous week.

European wheat rallied to a one-week high today as the euro fell, while U.S. wheat prices fell as the dollar rallied to its highest level since late May. U.S. wheat supplies are large. Hard red winter wheat supplies are estimated to be a 165-day supply, with soft red winter supplies just below that at a 163-day supply. Much of the latter has vomitoxin and is undesirable by the market. Elevators are full and taking steps to reject additional deliveries.

The strong dollar and relative high price of U.S. wheat makes it difficult to turn that picture around. It’s so bad that reports indicate that Mexico just bought European wheat rather than higher-priced U.S. wheat from its next door neighbor. The trade is now watching for when European wheat will pencil out for delivery to U.S. shores, even though we have a glut here.

Either weather needs to threaten competitive supplies or prices need to drop to stimulate demand. The greatest opportunity for a weather story presently is Canada and Australia and showers are currently providing near-term relief in both areas. That leaves prices vulnerable to additional weakness.

Beef

Worries of higher corn prices pressure feeder cattle.

Feeder cattle felt the pain of higher corn prices early in the session to set the tone today. Feeder futures posted a technical bounce on Tuesday and Wednesday, but could not extend those gains above the 100-day moving average and turned lower today. That fits with what we’re seeing in the cash market, where the spread in prices is growing, with the lower end of the price range at auction houses dropping much more sharply than the tops, suggesting more weakness.

Technically, the feeder cattle market looks weak. Longer-term, I’m quite concerned that this market could collapse if we see the strength in corn that I am anticipating based on crop expectations. That’s particularly true if the fats remain under pressure as well. The latest 7-day cash index came in today at $222.92 per cwt, down $1.20 on the day, but still up $2.53 on the week.

August live cattle came under pressure once again today as well on expectations of weaker cash trade later this week. Packers are said to be offering $146 to $147 per cwt on a live basis, while feeders ask $153 per cwt. The weaker board gives an edge to the packer.

Product movement on the spot daily market surged to a nine-month high of 246 loads on cheaper prices Wednesday, up from 122 loads the previous day and up from 180 loads the previous week. Choice cuts were down $1.10 to $234.94 per cwt, while Select cuts were down $0.25 to $233.71 per cwt. That drove the Choice/Select spread to nearly a four-month low of $1.23 per cwt, down from $2.08 the previous day and down from $2.79 the previous week. Movement at mid-morning today was again good at 110 loads, with Choice cuts down another $0.72 and Select cuts down $0.95 per cwt.

A strong dollar continues to hurt beef exports. Sales in the week ending July 9 totaled just 11.5K metric tons, down from 18.1K the previous week, but still above 8.9K tons sold in the same week last year. Actual shipments during the week totaled 11.8K metric tons, up from 11.3K tons the previous week and up from 11.4K tons in the same week last year.

Today’s kill is pegged at 104,000 head of cattle, down 5,000 from the previous week and down 13,000 from the same period last year. Week-to-date kill is estimated at 322,000 head, down 1,000 from the previous week and down 26,000 from the same period last year.

Pork

Hog traders continue to worry about larger supplies for this fall and winter.

The cash hog market has been mostly steady to firm this month, propping up the cash index over the past eight straight trading days. The latest cash index came in at $80.59 per cwt, up $0.33 on the day, up $2.52 over the past week and up $3.55 over that eight-day period.

That strength continues to provide support for the lead August contract, now that July is off the board. However, the deferred contracts continue to trade at a significant discount on expectations that supply is going to remain large versus questionable demand. In fact, some in the industry believe that USDA may have under-counted hogs in its quarterly hogs and pigs report, with supplies larger than indicated.

Meanwhile, product prices are slowly firming on decent demand, pulling packer margins back to modest gains after being negative last week. Product movement rose to 422 loads Wednesday, up from 349 loads the previous week, but down from 450 loads the previous week. The composite pork product price rose to $82.55 per cwt, up $0.72 on the day and a two week high. Movement at midday today though was slow at 169 loads, with the composite price down $0.82 to $81.73 per cwt on a sharp break in ribs.

Export sales in the week ending July 9 slowed to 14.4K metric tons, down from 16.9K the previous week, but up from a sluggish 3.4K tons in the same week last year. Even so, the sales total was a six-week low. Actual shipments during the week slide to a calendar-year low of 14.7K metric tons, down from 24.7K the previous week, but up from 6.9K in the same week last year.

Today’s kill is pegged at 420,000 head of hogs, up 2,000 from the previous week and up 23,000 from the previous year. Week-to-date kill is pegged at 1.253 million head, up 20,000 head from the previous week and up 94,000 from the same period last 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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