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Closing Comments

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Closing Comments

Corn

Exporters sold a net 26.1 million bushels of corn in the week ending August 21, with most of that being new-crop sales. The 2013-14 marketing year ends on August 31, leaving little time for loading out any old-crop purchases. As such, we’re seeing some rolling of previous sales, with old-crop corn sales down a net 1.3 million bushels. Most notably, “unknown destinations” reduced 6.8 million bushels of old-crop purchases, while buying 2.8 million bushels of new-crop corn.

Old-crop corn sales for the marketing year total 1.916 billion bushels, up 1.164 billion bushels or 155% from the previous year, but still down slightly from USDA’s target of 1.920 billion. The total likely doesn’t include some USDA donations that could push us over the target, but exporters typically oversell the target by a fair amount, with the surplus bushels then rolled over to the new-crop.

 Grain sorghum sales during the week totaled a net 8.3 million bushels, which is the sum of net cancellations of 0.4 million bushels of old-crop and purchases of new-crop of 8.6 million bushels. China bought 1.8 million bushels of old-crop and 8.5 million bushels of new-crop grain sorghum during the week ending August 21, while “unknown destinations” reduced previous purchases of old-crop by 2.2 million bushels. Actual shipments during the week totaled 6.4 million bushels, all destined for China.

Marketing year grain sorghum sales for the year ending August 31 totaled 197 million bushels with 10 days left in the year, up 134 million or 210% from the previous year. The total falls about 8 million below USDA’s target of 205 million with a week and a half to go. Actual shipment data is very similar. End users in China are aggressively buying U.S. grain sorghum that doesn’t have problems passing inspections at the port, even as officials search for a way to block these imports. U.S. grain sorghum is much cheaper than the expensive reserve corn that officials there would prefer end users use.

News reports indicate that several thousand Russian troops, along with tanks, crossed the border into Ukraine, taking control of areas in southeastern Ukraine. That lifted grain prices on the slim chance that things could escalate to the point of impacting exports from the region over the approaching three-day holiday weekend.

December corn continued to fail attempts to rally through the 20-day average at $3.69 throughout the day, but finally achieved the objective in the final minutes of trade. That, along with the increased Ukraine risk, could provide more support going into the three-day weekend amid a lack of harvest results from the Midwest yet. However, there’s little sense that market sentiment has changed.

Soybeans

Exporters sold 45.1 million bushels of soybeans in the week ending August 21. The total included net cancellations of 2.3 million bushels of old-crop soybeans and net sales of 47.4 million bushels of new-crop soybeans. China reduced previous purchases of old-crop sales by 2.0 million bushels, while buying 24.1 million new-crop bushels.

Marketing year sales for the year ending August 31 total 1.691 billion bushels, up 325 million or 24% from the previous year. The total is 51 million bushels above USDA’s target for the year, with 10 days of potential sales and/or cancellations to go. That’s a big above the normal pace of carryover, with new-crop sales already on a record pace. The data currently suggests that we will come in close to USDA’s target of 1.640 billion bushels, but USDA will once again likely have to push its new-crop export target higher, with shipments stretching port capacity through the fall into early winter; mostly going to China.

Soymeal sales are slowing, with the latest week’s net sales of just 1.1K tons, while new-crop sales were at a modest 76.1K tons. There were net reductions of 11.3K tons of old-crop soyoil during the week, with no new-crop sales.

September soymeal rallied more than $20 at one point today, with September soybeans up nearly 40 cents at one point. However, these contracts are thinly traded ahead of the delivery period and it didn’t take much of a shift in dynamics to pull prices off their highs. In fact, the September soybean contract ended up nearly 50 cents off its session high with losses of 12 cents on the day.

November bounced off recent lows, garnering strength from strong export demand, moving 5 cents higher on the day. However, the overall tone remains bearish, with traders sensing that Sudden Death Syndrome will not be a big enough problem to offset the large supplies coming.

Wheat

Exporters sold 14.8 million bushels of wheat in the week ending August 21, up from 7.7 million the previous week, but down from the five-year average for the week of 22.8 million. Brazil bought another 3.5 million bushels of U.S. hard red winter wheat in the week, while taking shipment of 1.2 million of the same. Millers there continue to buy U.S. wheat, mostly hard red winter, even though they now have to pay a 10% import tariff.

Marketing year sales to all destinations total 414 million bushels, down 143 million or 26% from the previous year. Sales to date exceed the seasonal pace needed to reach USDA’s target by May 31 by 34 million bushels, down from 40 million the previous week.

Wheat quickly rallied to double-digit gains this morning on escalation of the war in Ukraine as Russian troops and tanks pour across the border. The risk of exports being significantly impacted for a long period of time remains low, but traders still wanted to add risk premium ahead of a three-day holiday weekend just in case.

Chicago and Kansas City managed to rally to three-week highs, but then prices pulled well off those highs late in the session as day traders took profits. This suggests a lack of conviction at this time of the Ukraine story being a long-term bullish factor for the wheat market.

Beef

Beef export sales improved to 11.7K metric tons in the week ending August 21, up from 7.3K the previous week, but closer to the middle of this year’s range of sales. Actual shipments totaled 14.0K tons, which was closer to the high end of the range for the year.

Live cattle futures firmed today as traders started to believe that this week’s cash could build on last week’s late strength. Supplies of cattle remain tight. The trade believes that they will increase next month. Demand for ground beef remains quite resilient and packer margins remain solid, near $60 per head. Yet, the chart signals would continue to argue that this is a correction in an otherwise down-trending market as we head into the fall.

Boxed beef movement increased to 232 loads on Wednesday, up from 184 loads the previous day and up from 215 loads the previous week. Choice cuts were down another $1.07 to $247.41 per cwt and have been down every day for nearly three weeks. Select cuts were down $0.88 to $237.60 per cwt. The Choice/Select spread dropped to $9.81 per cwt, down from $10 the previous day, but up from $8.48 the previous week.

Product movement at mid-morning today was again good at 110 loads. Choice cuts were down another $0.34, while Select cuts were down $2.02 per cwt, pushing the Choice/Select spread to $11.50 per cwt. If that holds, it would be the strongest spread since May 8.

October live cattle surged to their highest level in more than two weeks today. The rally managed to top the 20-day moving average at $149.75, but fell short of the 40- and 50-day moving averages, at 152.67 and $152.72 respectively. Traders need to see resurgent strength in the cash market into next month to change current sentiment that believes that current strength is merely temporary until larger supplies hit the market next month.

Feeder cattle futures followed the fat cattle market higher today, although firmer corn prices limited gains. The latest CME cash index dropped to $217.35, down $0.33 on the day and still slightly below the expiring August contract.

Pork

Pork export sales dropped to 7.6K metric tons in the week ending August 21, down from 24.4K tons the previous week and a total more typical for this year. Actual shipments remained near the high end of this year’s range at 16.2K tons, up from 15.6K tons the previous week.

Midwest terminals were mostly $0.50 to $1.00 lower today, which should help to keep packer margins profitable. Estimated packer margins were at $6.45 per head, down from $11.00 the previous day and down from $11.80 the previous week.

The latest CME 2-day lean hog index came in at $100.34 per cwt, down $1.57 on the day. It was the 29th straight trading day with a lower index since the market hit a record high of $134.17 in mid-July, with losses over that period totaling $33.83 per cwt.

Carcass weights are at 212.16 pounds, up from 211.02 the previous day, but up 9.2 pounds or 4.5% from the previous year. Weights had been running 5 to 6% above year ago levels, but have now narrowed to mostly 4 to 5%, sometimes up to 5.5% above year ago levels. However, slaughter numbers have been strong enough to make up the difference, with producers pulling hogs forward, fearing lower prices.

Product movement jumped to 432 loads Wednesday, up from 359 loads the previous day, but down from 440 loads the previous week. The composite pork product price was down $2.98 to $100.18 per cwt. This is a drop of $37.38 per cwt from the record high set last month. Movement at midday today was routine at 195 loads, with the composite price down another $0.21 to $99.97 per cwt.

October lean hogs traded largely within the previous day’s trading range, with traders not willing to push above the 200-day moving average, currently at $97.24. The cash market has nearly closed the gap with the October contract, removing reasons for pushing the contract higher at a time when the cash index continues to slide 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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