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Closing Comments

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Closing Comments

Corn

Corn futures show resiliency at chart support levels as bottom-pickers continue to buy breaks.

Exporters sold 21.1 million bushels of corn in the week ending July 16, including just 8.8 million old-crop bushels. The old-crop sales were down from 13 million bushels sold the previous week and below the five-year average for the week of 10.2 million bushels. In fact, they were a marketing-year low. China bought just 0.1 million bushels of U.S. corn during the week, while “unknown destinations” reduced previous purchases, largely by shifting them to other buyers, by 12.7 million bushels.

Marketing year sales to all destinations total 1.841 billion bushels, down 66 million or 4% from the previous year. Exporters typically sell 99.5% of final corn shipments by this point in the year and that is exactly where we are this year. As such, sales to date match the seasonal pace needed to reach USDA’s target by August 31, although that is down from exceeding the pace by 6 million bushels the previous week.

Exporters sold 4.4 million bushels of grain sorghum in the week ending July 16, including 0.2 million old-crop bushels. The old-crop sales were up from 0.004 million bushels sold the previous week, but down from the five-year average for the week of 1.7 million bushels. The past week’s total included new old-crop sales to “unknown destinations” totaling 2.3 million bushels, but those were nearly offset by reductions of previous purchases by Chinese end users totaling 2.0 million bushels. Chinese end users did purchase 4.1 million new-crop bushels during the week.

Marketing year sales to all destinations total 331 million bushels, up 140 million or 74% from the previous year. Exporters typically sell 84% of final grain sorghum shipments by this point in the year, whereas they had sold 90% by this point last year. However, this year they have sold 95% of USDA’s target already. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 37 million bushels, although that is down from 40 million bushels the previous week.

The trade believes that an improving weather pattern is helping the corn crop recover some of its lost yield in the southern Midwest, but it also sees dryness in the northwestern Midwest taking some of the frosting off the cake. Overall, there’s still an expectations that the crop will come in 4 to 5 bushels below USDA’s current estimate.

As such, this week’s test of chart support as December tested the 50% retracement of the mid-summer rally triggered some bottom-picking buying. It’s  yet to be seen whether that buying will be able to hold against the slew of broader commodity selling to confirm a seasonal low in the corn market.

Soybeans

Traders refocus on improving crop prospects as demand eases.

Exporters sold 11.9 million bushels of soybeans in the week ending July 16, including just 3 million bushels of old-crop soybeans. The old-crop sales were up from 1.7 million bushels sold the previous week, but were less than half of the five-year average for the week of 6.7 million bushels. “Unknown destinations” reduced previous purchases of old-crop soybeans by 3.6 million bushels, largely due to shifts to other buyers, while buying 2 million new-crop bushels. China bought 2.3 million new-crop bushels, while largely being absent from the old-crop market in the week reported.

Marketing year sales to all destinations total 1.862 billion bushels, up 178 million or 10% from the previous year. Exporters typically sell 101% of final soybean shipments this time of year, whereas they had sold 102% by this point last year. Thus far this year sales to date total 102% of USDA’s target for the year. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 22 million bushels, but that is down from 29 million bushels the previous week.

One of the factors we’ve been watching for signs of old-crop soybean usage and price movement has been soymeal sales. New old-crop sales for the week ending July 16 totaled 65.8K metric tons, up from 33K tons the previous week, but still half the five-year average for the week of 112.7K metric tons. Actual shipments of previous sales during the week remained strong at 138.5K metric tons. The total was down from 177.6K tons the previous week, but was still above the five-year average for the week of 103.8K metric tons.

However, the trade interpreted the soymeal data as an indication of declining demand. It’s a futures market and the data told traders that crush margins will likely be declining in the weeks ahead, possibly resulting in slowing demand for old-crop soybeans. Furthermore, trade sources indicated that Ecuador and the Philippines both just purchased soymeal from Argentina for November and December delivery, rejecting U.S. meal. Soymeal prices broke sharply, pulling soybeans under water as well.

USDA’s daily export reporting service today noted that China was back in the market for new-crop soybeans in the past 24 hours. China reportedly bought another 6.6 million bushels of soybeans to be delivered after September 1, while Venezuela also bought 40,000 metric tons of old-crop soyoil.

Easing demand for soymeal triggered a sharp sell-off in the product market this morning, dragging soybeans lower as well on expectations that crush margins will be shrinking. August soybeans ended the day with better than a dime of losses, while November soybeans lost more than 16 cents. Next support for the November contract is at $9.70, representing a 50% retracement of the mid-summer rally. Look for this market to remain choppy as traders try to get a grasp on the actual size of this year’s crop.

Wheat

Wheat prices consolidate higher, largely ignoring the Canadian crop tour.

Exporters sold a marketing-year high of 18.5 million bushels of wheat, up from 10.7 million the previous week and above the five-year average for the week of 17.8 million bushels. New sales of hard red winter and soft red winter remained slow at 3.0 and 4.8 million bushels respectively, while hard red spring wheat sales remained good at 7.8 million bushels. Buyers of interest included Brazil, which bought 0.8 million bushels of hard red winter wheat, and a sale of 2.1 million bushels of soft red winter wheat to China. Furthermore, “unknown destinations” bought 2.1 million bushels of hard red spring wheat.

Marketing year wheat sales to all destinations total 257 million bushels, down 71 million or 22% from the previous year. Exporters typically sell 30% of final wheat shipments by this point, whereas they had sold 38% by this point last year. However, this year they have sold just 27% of USDA’s target by this point, with sales of hard red winter and soft red winter wheat struggling the most. As such, sales of all wheat to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 33 million bushels, compared to a deficit of 32 million bushels the previous week.

Wheat prices tried to bounce early today following recent sharp losses, but gains disappeared again as broad-based selling of the larger commodity sector picked up momentum. However, that selling eased late in the trading session and bottom-pickers emerged once again to buy wheat after observing that the lead contracts of all three markets found little interest in probing below the previous session’s low.

As such, today was all about consolidating trade within the previous session’s trading range, with some speculation that the selling is growing tired following recent losses. An industry tour of the Canadian Prairies continued to find decreased yield potential due to the worst drought in decades, but the market seemed rather unfazed due to large U.S. supplies. Gains should have been led by Minneapolis if traders were truly concerned about Canada’s problems.

Beef

Weaker cash trade weighs on cattle futures.

Exporters sold just 10.1K metric tons of beef in the week ending July 16, down from 11.5K tons the previous week and down from 10.4K tons sold in the same week last year. Actual shipments rose to 12.8K metric tons, up from 11.8K tons the previous week, but down from 14.6K tons in the same week last year. Overall, the pace remains anemic with new sales hurting due to high U.S. prices and a strong U.S. dollar that makes them even more expensive.

Cash cattle trade began emerging in Kansas at $145 per cwt on a live basis late this morning, down $3 from the previous week. Trade in Nebraska emerged at $232 per cwt on a dressed basis. The supply of slaughter-ready cattle remains tight and will likely remain that way for quite some time as heifers are held back to rebuild the cowherd. However, the supply of beef is not tight, as was illustrated by Wednesday’s cold storage report. Some demand has been rationed over to cheaper pork and poultry due to high prices over the past year, while high beef continue to fill the hole created by tight domestic supplies. Beef imports to date are up 33% year-on-year.

Weaker cash trade dragged on futures, pulling the lead August contract to new four-month lows just above $143 per cwt on expectations of even weaker cash trade in the weeks ahead. The product market shows signs of trying to carve out a bottom, but has not yet been able to confirm such.

Movement on the spot daily market rose to 188 loads Wednesday, up from 139 loads on Tuesday, but down from a robust 246 loads the previous week. Choice cuts slipped $0.40 to $232.92 per cwt, while Select cuts dropped $1.66 to $228.35 per cwt. That pushed the Choice/Select spread upward to a three-week high of $4.57 per cwt, up from $3.31 the previous day and up from $1.23 the previous week. Movement at mid-morning today was routine at 90 loads, with Choice cuts up $0.49, while Select cuts are up $0.20 per cwt.

Today’s kill is pegged at 109,000 head of cattle, down 2,000 from the previous week and down 6,000 from the previous year. Week-to-date kill is pegged at 436,000 head of cattle, up 3,000 from the previous week, but down 21,000 head from the same period last year.

Feeder cattle futures remain under pressure from fears of tighter margins as fats leak lower and problems with the corn crop raise fears of higher feed prices down the road. As such, August feeders slide to three-month lows today on expectations that demand at the sale barn will remain soft. The latest 7-day cash index came in at $216.81 per cwt, down $0.33 on the day and down $6.22 over the past five consecutive trading sessions.

Pork

Hog futures consolidate after hitting technical roadblock.

Exporters sold a nine-week low of 12.1K metric tons of pork in the week ending July 16, down from 14.4K tons the previous week, but up from the anemic 4.2K tons sold in the same week last year. Sale are slowing as product prices rebound once again, but more significantly as the dollar trades near three-month highs. Actual shipments during the week totaled 15.8K tons, up from 14.7K tons the previous week and 10.1K tons in the same week last year, but well-below the strong pace we saw in the first half of this year.

Cash hogs were steady to $1 higher in the closely watched Iowa/Southern Minnesota market, while mostly steady across much of the rest of the Midwest. The CME 2-day lean hog index today was $79.29 per cwt, down $0.40 on the day and down $1.33 over the past five consecutive trading days.

Packer margins are estimated to be near $10 per head, down from $13.80 per head the previous day after product prices slid on Wednesday. Today’s kill is pegged at 424,000 head of hogs, up 2,000 head from the previous week and up 30,000 from the previous year. Week-to-date kill is pegged at 1.651 million head, down 24,000 head from the previous week, but up 93,000 head from the same period last year.

Product movement slipped to 368 loads on Wednesday, down from 372 loads the previous day and down from 422 loads the previous week. In fact, it was a very low total for a Wednesday. The composite pork product price slipped to $83.99 per cwt, down $1.08 on the day, but still up $1.44 on the week. Movement at midday today was slow at 145 loads, up $0.25 to $84.24 per cwt from the previous day.

August lean hogs surged sharply higher on chart-buying Wednesday, but stopped short at the 100-day moving average, which is currently at $78.62 per cwt. That leaves the market consolidating just below the indicator while traders assess future potential recovery in the cash market.

The December contract is trading at a $17 to $18 discount to the cash market, pricing in a lot of supply worries. That contract could garner good support if corn carves out a bottom here and begins to price in expectations of a shorter crop, but it could face even greater pressure if the corn market begins to price in expectations for a trend or better yield.

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

Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK involved in trading futures and or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL. This information is provided freely and is NOT in the capacity of a trading advisor. NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. Information provided is not to be construed as an offer to sell or solicitation to buy any commodity or security named herein.

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