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Closing Comments

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Closing Comments

Corn

Exporters shipped 29.3 million bushels of corn in the week ending November 27, up from 20.9 million the previous week and just below the five-year average for the week of 29.7 million bushels. The past week’s total was a seven-week high, but still fell short of levels needed to reach this year’s USDA target.

Marketing year shipments total 357 million bushels, up 36 million or 11% from the previous year. Yet, shipments to date fall short of the seasonal pace needed to reach USDA’s target by August 31 by 50 million bushels, versus falling short by 47 million the previous week. As such, we’re still losing ground with export demand.

Exporters shipped 6.4 million bushels of grain sorghum in the week ending November 27, up from 5.1 million the previous week and up from the five-year average for the week of 1.3 million bushels. All of the past week’s shipments went to Chinese end users trying to avoid paying high prices for domestic corn supplies.

Marketing year shipments to all destinations total 82.5 million bushels, up 49.4 million or 149% from the previous year, largely due to the aforementioned demand from Chinese end users. Exporters typically have shipped 26% of final grain sorghum shipments by the end of November, whereas they had shipped 16% by this point last year. However, they have already shipped 36% of USDA’s target by this point this year. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 23 million bushels or 10% of USDA’s target, versus 20 million the previous week.

Today’s USDA daily export reporting system reflected additional demand for corn. The agency reported that “unknown destinations” bought another 5 million bushels of U.S. current-year corn. The sale could be to any number of a half-dozen potential buyers, which likely won’t be revealed until it is shipped.

Corn prices were weaker for much of the session, before firming late. They found support just above Friday’s low of $3.8275, basis the March contract, before firming with the rest of the commodity world after the dollar broke hard from new 4-1/2 year highs on profit taking.

Crude oil and gold posted impressive gains after early weakness, but all corn could muster was a 1-cent gain on the day as the dollar dropped. The charts still have not confirmed a bearish head and shoulders formation, but rallies are becoming increasingly difficult to sustain at these levels as traders focus on a 2-billion bushel carryout and good rains in South America. Key support for March currently sits at $3.65.

Soybeans

Exporters shipped 67.9 million bushels of soybeans in the week ending November 27, down from 104.6 million the previous week, but still above the five-year average for the week of 50.4 million bushels. Even so, the past week’s total was as seven-week low as momentum begins to wane. Shipments to China accounted for 45.5 million bushels of the week’s total shipments.

Marketing year shipments to all destinations total 783 million bushels, up 141 million or 22% from the previous year. Exporters typically have shipped 34% of final soybean shipments by the end of November, whereas they had shipped 39% by this point last year. However, they have already shipped 46% of USDA’s target this year. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 198 million bushels, versus 182 million the previous week.

Soybeans managed 1 to 2-cent gains on the day, firming with the rest of the commodity complex. However, soybean charts are weaker than corn, with strength in soymeal waning. January soymeal broke below Friday’s low of $362.50, settling at $362 after posting a low of $360. Selling would be expected to accelerate below $354, with January soybeans vulnerable below $9.95. Traders are increasingly looking at nearly ideal growing conditions for South American soybeans, which could boost global supplies even more in the months ahead as ports congest in China.

Wheat

Exporters shipped 10.0 million bushels of wheat in the week ending November 27, down from 16.6 million the previous week and down from the five-year average for the week of 17.2 million bushels. No fresh shipments to Brazil were included in the total, even though some of the recent price strength was attributed to ideas that Brazil would return for U.S. hard red wheat due to harvest delays in Argentina.

Marketing year shipments to all destinations total 446 million bushels, down 213 million or 32% from the previous year. Shipments to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 51 million bushels, versus falling short by 47 million the previous week.

A representative of respected SovEcon, a Russian analysis firm, stated that it is unlikely that we will see Russia curtail wheat exports. It likely wants to show that it can, but there are a number of reasons why it would be detrimental to do so. Yet, the mere possibility led to a sharp short-covering rally late last week, tripping chart buy signals to attract fresh buying from speculators. That chart buying continued today, sending prices to new four-month highs.

Additional support comes from harvest delays in Argentina that could bring Brazil back for more U.S. hard wheat. However, this morning’s weekly export inspection report showed no shipments to Brazil in the week ending November 27. Obviously, Brazil is not panicked at this point.

Chicago March wheat traded within 2-cents of its early August high of $6.0975 today, with significant resistance at $6.10. Kansas City faces more significant resistance in the $6.80-$6.85 range. Kansas City led this rally initially, but now Chicago is taking over. That’s generally not a recipe for a sustained rally. Wheat does have factors that could create sufficient headlines to sustain a rally, but the timing doesn’t feel right and this market is over-bought and due for a correction lower. Rallies are tough to sustain in December.

Beef

Feeder cattle were the leaders to the downside last week and they were the leaders to the upside on a bounce today. In fact, many contracts traded to the $3 daily limit higher on weaker corn prices and ideas that last week’s break may have been overdone. The latest CME feeder cattle index came in at $240.71 per cwt, down $0.01 on the day and still just over $3 off the record high. Today’s move increases support in the $230 area for the lead January contract, while resistance remains strong just below $240.

Live cattle futures tried to move lower this morning in follow-through weakness, but then firmed when feeder cattle buying gained momentum late morning. The lead contracts continue to trade at a discount to the cash market, with negotiated trade last week in the Plains at mostly $170 to $173 per cwt on a live basis. There’s been talk in the trade of significant numbers contracted for winter delivery at up to $3 above the February contract, suggesting that packers expect supplies to remain tight for some time. The February contract reinforced support today at $168, although traders start getting cold feet above $172 for the February contract.

Last week’s kill is estimated to be 496K head, down from 567K the previous week and just above the slow Fourth of July week slaughter. This week’s kill is expected to rebound back to the 565K area, but packers should have more formula cattle to lean on the next couple of weeks. As such, this week’s cash market is expected to be steady to a bit weaker, fitting with the seasonal pattern.

Last week’s slow kill provides support for the product market, although seasonal weakness will likely return in the last half of December. Last week’s holiday-shortened week saw just 539 loads of boxed beef move out the door, down from 746 loads the previous week and the lowest total since early January, although it was close to the total seen during the first week of July.

Choice cuts finished last week at $257.40 per cwt, up $2.18 on the week, while Select cuts finished at $245.85, up $3.92 on the week. This narrowed the Choice/Select spread to $11.55 per cwt, down $1.74 on the week. Packer margins were estimated at losses of $106.15 per head today, down from losses of $84.80 the previous week. Boxed beef movement at mid-morning today was very slow at just 26 loads, although at higher prices. Choice cuts were up $1.15, while Select cuts were up $0.68 per cwt.

Pork

Cash hogs were mostly steady in the Midwest today, although a few spots in Illinois and Indiana were up to 50 cents weaker. A stagnant hog market has been the story for much of the past month, providing some near-term stability, but not supporting a sustained rally. The latest CME 2-day lean hog index came in at $88.79 per cwt, down $0.06 on the day and down $0.07 over the past week.

Last week’s product movement dropped to 1,465 loads, down from 1,773 loads the previous week and a two-month low. The composite pork product price finished the week at $93.14 per cwt, down $0.25 on the week. Movement at midday today was very slow at 85 loads, although the composite price was up $1.39 to $94.53 per cwt on good demand for butts, ribs and hams.

The lead December lean hog futures contract was generally weaker today, as it remains at a premium to the cash index. However, the deferred contracts posted modest gains, reversing higher from early weakness. February lean hogs found support just below $87 per cwt with more significant support at $86. The bottom line is that product demand needs to strengthen relative to supply and we haven’t seen that yet. The recent cold storage report showed a decline in supplies, but certainly no shortages.

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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