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Closing Comments



Closing Comments


Futures correct seasonally lower as focus shifts to improving weather forecasts amid good crop ratings.

Corn futures rallied to one-year highs early in the week, before coming under pressure late in the week. Ethanol demand is strong and export and feed demand is solid. That continues to absorb increased farmer selling, although basis is weakening as anticipated as those sales increase on rallies.

In the end, it comes down to the size of this year’s crop. We won’t run out of corn ahead of this year’s harvest, but we could run out before next year’s harvest if this year’s crop fails to live up to USDA’s current high crop ratings. From farmer drone picture posted on Twitter to satellite imagery showing poor photosynthetic activity, traders are afraid to be short (sold) corn until more is known. However, improving weather forecasts and those lingering strong crop ratings due to high yield potential in the northwestern third of the Midwest leave traders afraid to be long (bought) as well.

December corn lost another time to close out the week, bringing the week’s losses to 13-3/4 cents. The contract is poised for a possible test of support in the $4.20 area, with traders now looking ahead to Monday’s updated weather models and crop progress data from USDA.


Strong demand minimizes losses in soybeans, while improving weather forecasts add pressure.

It’s been a choppy week for soybean prices. In fact, it’s been a roller coaster month. November soybeans rallied to a seven-month high on July one as stocks tightened on strong demand and crop ratings dropped. Crop ratings have since stabilized, allowing prices to break more than 60 cents in a little more than a week. A renewed focus on those tightening stocks and crop problems saw prices soar more than 67 cents above those lows this week to eight-month highs, before pulling back 45 cents on improving weather forecasts.

The choppiness was anticipated coming into this month. It’s the period of time when it’s difficult to keep traders focused on crop problems. After all, August is the critical month and the correlation between yield losses and excessively wet conditions isn’t as strong for soybeans. Much of the losses we often see in wet years is a product of diseases such as white mold and sudden death syndrome. Conditions are prime for those diseases this year, but you never know if they will actually manifest themselves as a significant yield reducer until later in the season.

As such, a market that loves the volatility of the soybean market is enjoying big swings that are frustrating farmers. They’ve been selling rallies, but processors are snatching up the supplies. Added weakness in the deferred contracts suggest that the recent price strength has been encouraging Brazilian producers to lock in profits for the coming year’s crop as well, with another 3 to 4% expansion in area expected later this year when their crop is planted.

Estimating soybean yields in September is hard enough for the industry, let alone in July. However, I still believe that this year’s problems are severe enough in the southern half of the Midwest to pull close to two bushels off the national average, even with very good yields in the northwestern third of the belt. That would draw down new-crop stock projections considerably if that expectation verifies, suggesting higher prices down the road, but prices will remain susceptible to these big price swings in the meantime.


Strong dollar amplifies losses in wheat, but it has its own fundamental problems.

Wheat prices slid to three-week lows to close out the week on bearish chart signals. However, those chart signals are bearish primarily because the trade is increasingly focused the huge supply of wheat hear in the United States at a time when the rest of the world is priced well-below U.S. levels. USDA raised its U.S. wheat export target by 25 million bushels this month and we can’t even come close to sell it at a pace needed to reach the old target.

Supplies are excessive. That means we either need to see weather threaten the supply of our competitors or drop our prices to compete. Weather concerns in Australia and Canada eased in recent days, removing that possibility near-term from the front burner, leaving the focus on reducing prices to become competitive.


Beef complex comes under pressure as the dollar pushes higher.

August live cattle trended lower throughout the week on bearish chart signals the perception that cash cattle will be trending lower in the short-term. Cattle supplies are tight. There’s no debating that. It will take time to rebuild the cowherd and supplies will remain tight as cowmen hold back heifers to rebuild the herd. That will leave the market vulnerable to periodic volatility.

However, the strong dollar continues to be a factor as well. August live cattle traded to their lowest level since April 23 to close out the week. That coincides with the dollar index trading to its highest level since April 23. A strong dollar hurts U.S. beef exports, making it difficult for our supplies to compete on the global market.

Export 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.

However, the strong dollar also increases the financial incentive for the industry to import beef from Australia and New Zealand. Beef imports rose to 25,980 metric tons in the week ending July 11, the latest data available, up from 25,253 tons the previous week and up 20% from the same week last year. Year-to-date imports are up 33% from the previous year, reducing packer needs to bid up for cash cattle here in the United States. This leaves August live cattle vulnerable to see several more dollars of losses until we begin to see demand pick up again closer to late summer.

Overall total product movement in that same week totaled 7,385 loads, up from 5,191 loads the previous week. Movement on the spot daily market that week totaled 910 loads or 12% of the total, but it set the tone. Prices plummeted during the period, but those cheaper prices stimulated demand; something that was essential with all of the inflow of imported supplies crossing our border. A strong dollar indicates that we’ll need that demand to remain strong in the weeks ahead.

The real energy this past week has been in the feeder market, where prices have seen big swings, but overall have trended higher. This market has largely traded inverse of the corn market. Demand for lighter-weight cattle dropped off sharply as corn prices rose to one-year highs, but it is coming back as corn prices retrace seasonally as weather forecasts improve.

My concern is that this market is very vulnerable should the corn crop be hurt as bad as I believe it is this year. I’m not looking for a disaster crop, due to anticipated big yields in the northwestern third of the belt. However, I do believe that yields will pare back enough to suggest prices above $5, which could put significant pressure on feeder cattle prices later this year. As such, I would not be surprised by a move to sub-$200 feeders. The latest cash index came in at $$223.03 per cwt, up $0.11 on the day and up $1.59 on the week. However, the modest Friday gain comes after three-days of losses totaling $1.59 per cwt.

Cash cattle trade finally emerged on the Plains Friday afternoon. Cash cattle began moving in Kansas at $148 per cwt on a live basis, down $2 from the previous week. Movement developed in Nebraska at mostly $236 per cwt on a dressed basis, down $4 on the week.

The Friday kill is pegged at 102,000 head of cattle, down 6,000 from the previous week and down 11,000 from the previous year. The Saturday kill is estimated at 3,000 head, down 6,000 from the previous week and down 2,000 from the previous year. As such, the week’s slaughter is being pegged at a low 538,000 head of cattle, down 13,000 head from the previous week and down 46,000 head from the same period last year. That would put year-to-date slaughter at 15.355 million head of cattle, down 1.149 million head or 7% due to our large imports.

Product movement on the spot daily market Thursday totaled 186 loads, down from a nine-month high of 246 loads the previous day and down from a strong 229 loads the previous week. Choice cuts were down $0.99 to $233.95 per cwt, while Select cuts were down $2.89 to $230.82 per cwt. Choice cuts are now at an area where trade sources expected them to carve out a seasonal bottom. The Choice/Select spread rose to $3.13 per cwt, up from $1.23 the previous day, but near the $3.14 per cwt seen the previous week. Movement at mid-morning today was routine at 76 loads, with Choice cuts down another $0.64 and Select cuts down another $1.14 per cwt.


Lean hogs consolidate as the industry walks a fine line balancing supply and demand.

The strong dollar is also impacting the pork industry, making exports more difficult and imports more profitable for the industry. This comes at a time when supply and demand fundamentals were very finely balanced, helping to tip that balance toward too much supply.

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.

Meanwhile, imports are rising. Pork imports in the same week rose to 8,275 loads, up from 6,640 loads the previous week and up 11% from the previous year. In fact, year-to-date pork imports total 228,888 loads, up 11% from the previous year, thanks in part to the strong U.S. dollar. These increased supplies are added to domestic supplies, with weekly slaughter running 10 to 13% above year ago levels and year-to-date pork production running nearly 7% above last year’s pace.

The Friday kill is pegged at 383,000 head of hogs, down 5,000 head from the previous week, but up 100,000 head from the previous year. Saturday’s slaughter is estimated to be 32,000 head, down 4,000 from the previous week, but up 31,000 from the previous year. The week’s total kill is pegged at 2.090 million head of hogs, up 17,000 from the previous week and up 253,000 from the same period last year. That brings year-to-date slaughter to 61.367 million head, up 4.098 million or 7.2% from the previous year.

As such, pressure is beginning to return to the cash market, with Midwest prices generally steady to 50 cents weaker to close out the weak. The latest CME 2-day index came in at $80.55 per cwt, down $0.04 on the day. That ended a streak of eight straight trading days of a higher index, in which the price rose $3.55 per cwt. Packers are able to back off their bids as supplies exceed demand.

Product movement Thursday slowed to 270 loads, down from 422 loads the previous day and down from 350 loads the previous week. The composite pork product price firmed to a two-week high of $82.65 per cwt, up $0.10 on the day and up $1.38 on the week. Prices are poised to post their first weekly gain for product in the past seven weeks. However, the composite price was down nearly $1 at midday on weakness in belly prices, with movement sluggish at 122 loads.

August lean hogs spent most of the past week consolidating in a tightening triangle formation on the charts. That suggests that the contract building energy for a move in one direction or the other. Supply and demand is finely balanced. Movement in the dollar may be what tips the market in one direction or the other, but my concern is that we are vulnerable to moving lower.

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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