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Closing Comments

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Closing Comments

Corn

Corn futures continue to confuse producers, traders and end users with choppy trade.

Exporters sold 31.8 million bushels of corn in the week ending July 23, including 14.4 million old-crop bushels. The old-crop sales were up from 8.8 million bushels sold the previous week and up from the five-year average for the week of 9.8 million bushels.

The week’s total 14.3 million old-crop bushels sold to Japan, along with another 2.4 million new-crop bushels. Mexico bought 0.6 million old-crop bushels, but also 11 million new-crop bushels amid fears that El Nino will stress its crop during the pollination period in another month. China was largely absent from the market amid rumors there that the government is considering steps to shut down imports.

Marketing year sales to all destinations total 1.855 billion bushels, down 58 million or 3% from the previous year. Exporters typically sell 100% of final corn shipments by this time of year, which is what they did last year as well. Sales thus far this year have also reached 100% of USDA’s target. As such, sales to date are on target for reaching USDA’s target by August 31.

Exporters sold 8.5 million bushels of grain sorghum in the week ending July 23, which was fairly evenly split between old-crop and new-crop sales. The old-crop sales were up from just 0.2 million bushels the previous week and up from the five-year average for the week of 1.6 million bushels.

The past week’s sales included 4.1 million old-crop bushels sold to Chinese end users, along with another 2 million bushels of new-crop. “Unknown destinations,” presumed to be Chinese end users, bought 0.1 million old-crop and another 2.3 million new-crop bushels.

Marketing year sales to all destinations total 335 million bushels, up 144 million or 76% from the previous year. Exporters typically sell 85% of final grain sorghum shipments by this point in the year, whereas they had sold 90% by this point last year. However, they have already sold 96% of USDA’s target this year. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 38 million bushels, up from 37 million the previous week.

Export, feed and ethanol demand for corn are solid. As such, future price direction really hinges primarily on the size of this year’s crop. Yes, prices rallies will likely invite periodic cargoes of Brazilian corn into the Southeast. Yes, U.S. exports will likely remain below historical levels due to abundant supplies in Brazil and Ukraine. However, the bulk of the demand side of the balance sheet should remain solid.

We continue to believe that problems in the southern half of the Midwest will more than offset record yields in northwestern areas. That suggests good opportunities for prices to work higher, but probably not until the  trade realizes the imbalance, which may not be for several weeks yet. December corn has still not confirmed a bottom, which leaves us vulnerable in the near-term.

Soybeans

Strong demand lifts the soybean complex.

Reuters released a report that U.S. soybean export demand will suffer in the months ahead. The story pointed toward large supplies in Argentina and Brazil that will likely keep China supplied, leading it to shun U.S. supplies amid a strong dollar that makes our supplies expensive.

Yet, USDA reported hours later that exporters sold a strong 48.3 million bushels of soybeans in the week ending July 23, including a three-month high of 15.3 million bushels. The old-crop sales were up from 3.0 million bushels sold the previous week and above the five-year average for the week of 6.0 million bushels.

The past week’s old-crop sales included an impressive 11 million bushels sold to China, along with another 12.7 million new-crop bushels. Furthermore, “unknown destinations” bought another 1.5 million old-crop bushels, along with 14.9 million new-crop bushels during the week. These sales will also be presumed to be to China.

Marketing year sales to all destinations total 1.877 billion bushels, up 186 million or 11% from the previous year. Sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 28 million bushels, up from 22 million the previous week.

USDA’s daily export reporting system today included more demand that is likely going to China. The agency reported that “unknown destinations” bought another 5.1 million bushels of U.S. new-crop soybeans to be delivered after September 1.

Crush margins remain at profitable levels, leading to active bidding by processors to pull soybeans through their plants. Soymeal export sales slipped to just 71.5K metric tons in the week ending July 23, down from the five-year average for the week of 93.8K tons, but up from 65.8K the previous week. However, actual shipments of previous sales remained strong at 195.5K metric tons during the week, up from 138.5K the previous week and up from the five-year average for the week of 138.7K tons.

Additional support came from huge soyoil sales. Exporters sold 74.8K metric tons of soyoil in the week ending July 23, up from 18.1K the previous week and up from the five-year average for the week of 11.1K tons. Venezuela was responsible for 55K tons of the week’s total. The demand adds to crush margins supporting further demand for soybeans.

August soybeans are about to lose their lead role, with the September contract trading at roughly a 26-cent discount. Even so, up front demand remains unseasonably strong for both soybeans and the products. That keeps crush margins strong and suggests tightening old-crop stocks. These factors are grabbing the attention away from a focus on “favorable” weather, allowing the oilseed complex to bounce.

The primary question that will have significant implications for the soybean balance sheet going forward will be the scope of disease problems in a season when the table appears to be set for a potential significant outbreak. As such, the next several weeks will be pivotal. A national average yield of 46 bushels per acre is bearish, while a 43-bushel yield is bullish. We’ll probably end up somewhere in-between, but that would suggest opportunities to sell at prices higher than where we are today.

Wheat

Strong dollar weighs on wheat complex as hard red spring prospects rise, despite bullish export sales report.

Exporters sold an impressive 25.7 million bushels in the week ending July 23, up from 18.5 million the previous week and up from the five-year average for the week of 23.2 million bushels. It was encouraging to see anemic hard red winter wheat sales finally surge to 9.0 million bushels, including a million bushels sold to Brazil. Soft red winter sales also improved up to 4.8 million bushels, including 2.2 million sold to “unknown destinations.” Hard red spring wheat sales remained strong at 9.6 million bushels, including 3.7 million bushels to “unknown destinations.”

Marketing year sales to all destinations total 282 million bushels, down 75 million or 21% from the previous year. Exporters typically sell 33% of final wheat shipments by this point in the year, whereas they had sold 42% by this point last year. However, this year they have only sold 30% of USDA’s target. 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 being short by 33 million the previous week.

Day Two of the spring wheat tour produced a yield estimate of 47.3 bushels per acre, down from 48.4 million the previous week, but up from the three-year average for the week of 45.5 million bushels. That follows a record Day One estimate of 51.1 million bushels.

Today’s export sales pace was very encouraging, but not strong enough to change the minds of traders unless they see a string of similar weeks. The strength of today’s dollar in light of expectations of higher interest rates squelched any ideas that we might be able to see sustained strong export sales. As such, wheat will likely need help from somewhere else to sustain a rally.

Beef

Live cattle futures still can’t sustain a rally after Tuesday’s big short-covering day.

Retailers here at home continue to step up to buy product after the recent break in prices, keeping to a seasonal tendency for the market to bottom at this time of year, before firming into the Labor Day weekend. However, the market hasn’t shown an ability to sustain a rally yet, with exports struggling.

Boxed beef movement on the spot daily market rose to 179 loads Wednesday, up from 150 loads the previous day, but down from 188 loads the previous week. Choice cuts were up $0.47 to $232.62 per cwt, while Select cuts were up $0.20 to $229.07. That pushed the Choice/Select spread to $3.55 per cwt, up from $3.28 from the previous day, but down from $4.57 the previous week. Movement at mid-morning today was slow at 62 loads, with Choice cuts up another $1.07 and Select cuts up $0.23 per cwt.

The strong dollar continues to encourage beef imports while limiting our ability to compete with exports on the global market. Exporters sold just 6.2K metric tons of beef in the week ending July 23, the second lowest total of the year. The total was down from 10.1K metric tons the previous week and down from 17.4K metric tons in the same week last year. Actual shipments during the week slipped to 11.7K metric tons, down from 12.8K the previous week and down from 14.4K metric tons shipped in the same week last year.

Live cattle futures tried to push higher today, but once again the market struggled to sustain gains above the sharp short-covering rally seen earlier this week. There was plenty of interest in covering short (sold) positions, but not much interest thus far in building long (bought) positions. Conviction is lacking that beef supplies will be tight enough to support a seasonal rally, even though slaughter-ready supplies are tight. Packers continue to maintain a slow chain speed, which is starting to back up cattle in the feed yard, leading to heavier carcass weights.

Today’s kill is pegged at 107,000 head of cattle, down 2,000 head from the previous week and down 7,000 from the previous year. Week-to-date slaughter is pegged at 427,000 head of cattle, down 9,000 from the same period last week and down 24,000 head from the same period last year.

The soft fat cattle market combined with early signs of strength in corn added pressure to the feeder cattle market as well. As such, August feeder continue to be capped by the 20-day moving average. August feeders continue to trade several dollars below the cash index, which has garnered a bit more support in recent days from cheap corn prices. Today’s cash index came in at $215.78 per cwt, up $0.89 on the day, up $0.95 over the past two days, but still down $1.03 over the past week.

Pork

Cash hogs firm, but bullish conviction is still lacking for futures.

Exporters sold 22.1K metric tons of pork in the week ending July 23, up from 12.1K the previous week and up from 6.9K tons in the same week last year. The surge in sales was quite encouraging considering the strength of the dollar and firming product prices, but it came as prices were beginning to turn higher once again, suggesting that buyers may have wanted to extend coverage fearing higher prices down the road. Actual shipments during the week totaled 23.0K metric tons, up from 15.8K tons the previous week and up from 8.2K tons in the same week last year.

Seasonal heat and humidity in the Midwest is slowing hog gains in the region, reducing the number of slaughter-ready hogs at a time when packer margins are near $14 per head. As such, today’s cash hog market was mostly steady to up to $1 higher in the Midwest. Today’s cash index came in at $78.33 per cwt, down $0.03 on the day, down $0.93 on the week and down $2.26 over the past 10 consecutive trading days.

Product movement rose to 486 loads on Wednesday, up from 324 loads the previous day and up from 368 loads the previous week. The composite pork product price slipped to $85.97 per cwt, down $0.24 on the day and down $1.98 over the past week. Movement at midday today was slow at 155 loads, but the composite price was down $0.99 to $84.98 per cwt.

Today’s kill is pegged at 425,000 head of hogs, up 7,000 from the previous week and up 26,000 from the previous year. Week-to-date kill is estimated at 1.687 million head of hogs, up 42,000 from the previous week and up 83,000 head from the same period last year.

October lean hogs probed briefly above the 50-day moving average for the second day in a row and for the second day in a row turned lower, taking out Wednesday’s low and finished near the session low back below the pivotal $66 per cwt level. This suggests that this market remains vulnerable near-term.

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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