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Closing Comments



Closing Comments


Row crops remain under pressure from “ideal” growing conditions.

The Department of Energy reports that crude oil stocks rose by 2.5 million to 463.9 million barrels in the week ending July 17. That keeps stocks very near the highest level seen at this time of year in the past 80 years. Gasoline inventories dropped by 1.7 million barrels during the week, but keeps those supplies in the upper half of the average range for this time of year. Distillate stocks (including diesel) increased 0.2 million barrels during the week and remain in the middle of the typical range for this time of year.

The Department of Energy reports that ethanol stocks slipped to 19.6 million barrels in the week ending July 17, down from 19.7 million barrels in the previous week, but up from 17.9 million barrels in the same week last year. Ethanol production during the week fell to 973K barrels per day during the week, down from 984K barrels the previous week and down from the record 994K barrels per day four weeks earlier. Production in the same week last year was pegged at 959K barrels per day.

The data suggests that the ethanol industry processed 103.3 million bushels of corn in the week ending July 17, down from 104.4 million the previous week, but matching the usage seen in the same week last year. Estimated corn usage to date total 4.638 billion bushels, up 139 million or 3% from the previous year. Corn usage to date exceeds the seasonal pace needed to reach USDA’s target by August 31 by 6 million bushels, up from 2 million the previous week.

Trade sources noted this morning that 10,000 September $4.30 call options were purchased in early trade. The purchase appeared to coincide with a drop in December corn to $4.10, which is close to the 50% retracement of the mid-summer rally at $4.08. In other words, bottom-pickers are entering the market on the possibility that the seasonal low is near.

No two years are alike, but there have been a lot of comparisons to 2010, when USDA pegged the corn crop at 165 bushels per acre in its August report before dropping the yield to 152.8 bushels by the January report. The lead corn contract settled at $3.25 on June 28 that year, before rallying to settle at $3.95 on July 17. It pulled back 32 cents over the next 9 days, before rallying into the fall to close at $5.90 by early November.

We don’t know yet how this year is going to play out. We do see substantial risk of low yields in the South more than offsetting very impressive yields in the east, with increased disease problems adding to the yield compression. That suggests that we will see USDA lower its yield estimates as combines roll in the Southern Midwest, providing fundamental support for higher prices this fall.


Strong demand buoys August soybean prices, while the improved weather weighs on the deferred contracts.

Demand for soymeal remains unseasonably strong, keeping soymeal prices more than $5 higher in the lead August contract at the end of the day. That continues to yield profitable crush margins that provide an incentive for processors to pull soybeans out of the tight-fisted hands of producers as old-crop stocks tighten. We’re not going to run out of soybeans ahead of this year’s harvest, but the tighter supplies shrink the beginning balance for the 2015-16 marketing year, with the size of this year’s crop still in the air.

Even so, the deferred contracts remained under pressure today amid talk of “ideal” growing conditions. Traders still believe that soybeans could produce a bumper crop if August weather is favorable. That can’t be ruled out, especially considering the condition of the crop in the western Midwest. However, the real key to this year’s crop will likely be the scope of disease problems that begin to pop up over the next couple of weeks.

November soybeans have next support at $9.88, with a possible move to $9.70. This market is however showing signs of trying to carve out a near-term low. Doing so near-term may necessitate a bottom in the broader commodity indices to encourage increased money flow.


Wheat remains under pressure due to large supplies and poor demand.

The first day of the Canadian crop tour uncovered worse problems with the Alberta wheat crop than expected. That provided support for Minneapolis wheat. However, today’s tour moved through areas that saw very good wheat conditions, which resulted in selling pressure returning to the Minneapolis market.

Elsewhere, we saw spread trading favor Kansas City over Chicago soft wheat at times today on signs of a possible near-term low in the wheat market. Demand for both has been very poor in recent weeks, although we expect to see demand for hard wheat improve in the months ahead. Unfortunately, demand for soft wheat will likely remain poor well into the winter.

Fund managers continue to sell the down-trending wheat market. Trends are easy for them to trade so they like to sustain them as long as possible. Unfortunately, it’s difficult to prove them wrong when USDA projects nearly a half-year surplus this year, with demand failing even poor expectations.


Beef supplies continue to exceed demand thanks to strong imports.

The slide in the value of cattle futures, cash cattle and product prices continues, with the market now back to trading levels last seen just ahead of the big bull market of the summer of 2014. The cattle market frequently posts its lows in the summer, but the search for that bottom continues. Supplies of cattle are certainly tight, but the supply of meat is not tight, due to large imports on a strong dollar that are up one-third on the year.

As such, packers don’t have to pay up for a tight supply of slaughter-ready cattle because they don’t need as many cattle. That allows cash cattle prices to this point to continue to slide. There were reports yesterday of a few cash cattle moving in the Plains at $147. Packers are generally offering $144 per cwt on a live basis, with feeders asking $150. This market may be near a bottom via the calendar, but we haven’t seen it in reality, with the cash market continuing to erode lower.

Today’s kill was pegged at 104,000 head, matching the previous week, but down 10,000 from the previous year. Week-to-date kill is estimated at 327,000 head, up 5,000 from the previous week, but down 15,000 head from the same period last year.

Feeders were under pressure again today as the cash index had fallen $5.41 per cwt in the previous two days. August feeder futures are still trading at a discount to the cash market, but the cash market is rapidly falling toward the contract. Today’s cash index came in at $217.14 per cwt, down $0.48 on the day, down $5.89 over the past three days and down $6.98 over the past week.

Boxed beef movement rose to 139 loads Tuesday, up from 102 loads the previous day and up from 122 loads the previous week. Choice cuts slipped $0.51 to $233.32 per cwt, while Select cuts were down $0.21 to $230.01. That pulled the Choice/Select spread down to $3.31 per cwt, down 30 cents on the day, but up $1.24 over the past week. Movement at mid-morning today was good at 101 loads, but Choice cuts were down another $0.46 and Select cuts were down $1.27 per cwt.

USDA released its monthly cold storage report this afternoon. It revealed that beef supplies in the freezer on June 30 at 467.1 million pounds were down 2% on the month, but up 30% from last year’s tight levels. The big increase is largely credited to easing demand due to cheaper pork and poultry prices, but also to big imports. Beef imports are up 33% year on year due to the strong dollar.


Hog futures soar on firming product prices and chart buy signals.

Today’s cash hog market was again mostly steady to 50 cents weaker, which has been the trend for much of the past week. As such, the latest CME 2-day lean hog index came in at $79.66 per cwt, down $0.24 on the day and down $0.93 over the past four consecutive trading days.

Yet, product prices have shown renewed strength over the past week to 10 days, pushing packer margins to double-digit levels once again. Product movement rose to 372 loads Tuesday, up from 256 loads the previous day and up from 349 loads the previous week. The composite pork product price rose to a one-month high of $85.07, up $2.10 on the day and up $3.24 on the week.

That pushed today’s futures back above the recent high on the August lean hog futures chart, executing a bull flag on the chart that was nearly negated on Monday. Buy stops were tripped and buyers rushed to cover short positions. Chart strength then trumped renewed weakness in the product market, with the composite price down $1.56 to $83.51 at midday today on good movement of 229 loads.

Today’s kill is pegged at 421,000 head of hogs, up 1,000 head from the previous week and up 25,000 from the same period last year. Week-to-date kill is pegged at 1.227 million head of hogs, down 26,000 head from the previous week, but up 63,000 head from the same period last year when the PED virus was ravaging the hog herd.

Today’s USDA monthly cold storage report revealed that pork supplies in the freezer on June 30 at 632.2 million pounds were down 3% from the previous month, although still up 18% from the previous year. However, ham supplies were large at 180.7 million pounds, up 14% on the month and up 43% over the previous year. Perhaps more worrisome were poultry supplies amid slowing exports due to avian flu, creating more competition for pork. Frozen broilers were up 16% on the month and up 151% from the previous year.

August lean hogs executed a bull flag on the chart, with the October contract locking the $3.00 daily limit higher. The lead August contract ran into resistance that it will likely test on Thursday at the 100-day moving average at $78.65 per cwt. Unfortunately the renewed strength along with cheaper corn prices simply encourage expansion plans to resume.

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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