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Closing Comments



Closing Comments


Exporters sold 46.1 million bushels of corn in the week ending November 27, up from 37.2 million the previous week and up from the five-year average for the week of 21.7 million bushels. The biggest buyers during the week were Mexico and Japan, which have a freight advantage buying U.S. corn.

Marketing year sales to all destinations total 896 million bushels, down 97 million or 10% from the previous year. Exporters typically sell 49% of final corn shipments by the end of November, whereas they had sold 52% by this point last year. This year’ they’ve sold 51% of USDA’s target by November 27. As such, sales to date exceed the seasonal pace needed to hit USDA’s target by 43 million bushels, up from 18 million the previous week.

The weekly corn sales were the strongest of the marketing year to date, but grain sorghum sales were even more impressive. Exporters sold 15.5 million bushels of U.S. grain sorghum in the week ending November 27, down from 18.2 million the previous week, but nearly ten-fold the five-year average for the week of 1.6 million bushels. Sales to China again accounted for the biggest portion of the movement at 10.9 million bushels.

The USDA attaché in China commented in its recently released report that "Feed mills are responding to high domestic corn prices by importing Ukrainian corn, Australian feed barley, U.S. sorghum and Thai cassava. Domestic corn prices are expected to remain high due to government procurement programs. Imports of alternative feed ingredients are forecast to continue to grow in MY2014/15."

Marketing year sales of U.S. grain sorghum to all destinations total 182 million bushels, up 99 million or 119% from the previous year, largely due to China. Exporters typically sell 38% of final grain sorghum shipments by the end of the first quarter of the marketing year, whereas they had sold 39% by this point last year. However, they have already sold 79% of USDA’s target for the current year, suggesting that the grain sorghum balance sheet is likely to get much tighter in the months ahead. Sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 88 million bushels, versus 75 million bushels the previous week.

Corn futures pushed higher today on a combination of factors. First, yesterday’s critical bounce off the neckline of a bearish head and shoulders formation was supportive from a technical standpoint. Second, today’s export sales data was supportive from a fundamental standpoint.

However, it should be noted that gains were limited by trend line resistance off the head and right shoulder of that same bearish formation. This also creates a tightening wedge formation on the charts, which often times precedes a major move in the market, but doesn’t provide direction. My bias is to the downside due to the longer-term bearish outlook for soybeans as long as weather remains favorable in South America. I fear that a breaking soybean market could pull corn through support, tripping sell stops that accelerate losses.


Exporters sold 43.4 million bushels of soybeans in the week ending November 27, down from 54.6 million the previous week, but still above the five-year average for the week of 35.2 million bushels. Sales to China accounted for 28.2 million bushels of the week’s total, although that was partially offset by reductions of previous sales to “unknown destinations” of 12 million bushels. Brazil doesn’t anticipate port problems this year, but shipment delays are expected due to late planting of the crop. As such, China is front-loading its needs with U.S. supplies.

Marketing year sales to all destinations total 1.457 billion bushels, up 78 million or 6% from the previous year. Exporters typically sell 63% of final soybean shipments by the end of November, whereas they had sold 84% by this point last year. Thus far this year they have sold 85% of USDA’s target for the year. Sales to date exceed the seasonal pace needed to hit USDA’s target by August 31 by 373 million bushels, unchanged on the week. Look for this gap to begin shrinking in the weeks ahead.

More significantly perhaps is what we’ve been seeing in the soymeal market this fall. Processors faced huge export orders after Argentina defaulted on its debt and farmers quit selling soybeans this summer. Recent weekly USDA export sales reports have had sizeable cancellations as the U.S. market prices itself too high and we see increased supplies available in Argentina. More on that later.

Exporters sold a surprising 229.8K metric tons of soymeal in the week ending November 27, up from net cancellations of 22.3K tons the previous week and up from the five-year average for the week of 182.4K tons. The strong sales provided an unexpected boost to the soymeal market, but not enough to reverse bearish chart signals.

I’ve talked about this before, but now we have hard evidence that it is occurring. Argentina is using its state bank to try to force farmers to sell soybeans. Reuters reports that the government-controlled Banco Nacion told its branches to stop lending to farmers who are “hoarding” soybeans. The government needs these soybeans to be sold and exported so that it can collect the 35% export tax for funding its massive social programs, as well as providing greenbacks for paying interest on government bonds held by foreign investors.

The nation’s largest farm group estimates that farmers are still holding onto nearly 475 million bushels of last year’s soybeans as this year’s harvest approaches. It expects farmers to use nearly 300 million bushels of that total to barter with supplies for seed, fertilizer and other inputs. Banco Nacion finances about 40% of production in Argentina.

Strength in soymeal and soybean export sales caught traders off-guard today, causing them to cover short (sold) positions and push prices higher. Soymeal remains the key in this complex and its charts still suggest that the market is vulnerable. I’ve warned that strong demand amid tight supplies should be expected to provide periodic rallies in this market, but that the longer-term outlook remains quite bearish as long as prospects for a big crop continue south of the equator.


Exporters sold 11.7 million bushels of wheat in the week ending November 27, down from 15.9 million the previous week and down from the five-year average for the week of 15.2 million bushels. However, hard red winter wheat sales saw net reductions of 0.7 million bushels due to cancellations by Brazil and “unknown destinations” of 2.4 and 0.9 million bushels respectively. Strong demand for hard red winter wheat is needed to underpin the wheat complex. The Brazilian cancellations particularly fly in the face of market rumors that harvest delays in Argentina could increase Brazil interest in U.S. hard red wheat.

Marketing year sales to all destinations total 622 million bushels, down 208 million or 25% from the previous year. Sales to date still exceed the seasonal pace needed to reach USDA’s target by May 31 by 5 million bushels, unchanged from the previous week.

Stats Canada pegged its all-wheat crop at 29.281 million metric tons or 1.076 billion bushels. That’s down from 1.379 billion bushels the previous year, but still up 54 million bushels from the average trade expectations going into the report. It simply means that U.S. hard red wheat has more competition than expected at a time when we’re struggling with export demand already. We need to export 50% of our hard red spring and 60% of our hard red winter wheat production in the current marketing year to hit USDA’s targets.

Wheat traders woke up mid-week to the realization that they had priced U.S. wheat out of the world market on likely Russian attempts to manipulate its domestic markets. Today’s bearish export sales report added to the negative tone, although we’ve already removed quite a bit of the Russian premium. Chicago was able to erase its early-session losses, but Kansas City again finished the day with losses.

In reality, wheat is likely trying to set up a broad sideways pattern for the winter. We’ll head into the spring with some possible problems with the Northern Hemisphere crop, but those are typically difficult to trade until February/March.


Export demand plummeted in the latest week reported as the dollar surged in value, making our meat more expensive on the global market. USDA reports that big cancellations resulted in net sales for the week ending November 27 of 7.6K metric tons, down from 11.3K the previous week and a four-week low. Actual shipments were stronger at 11.3K tons.

Live cattle futures posted modest losses in choppy trade today that saw it trade both sides of unchanged. February live cattle traded inside the previous day’s session in consolidation trade. The cash market is softer, but that’s already built into futures prices. Next significant support for February is at $165.55 per cwt.

The bears were emboldened by trade at $168 per cwt on a live basis in Iowa yesterday, down $2 to $2.50 per cwt from the previous week. However, packer offers in Kansas have risen from $166 earlier this week to $168 currently, providing some support for the market. However, traders are also worried about lost export demand due to the strong dollar.

Estimated packer margins remain at losses of more than $120 per head on relatively soft product prices relative to packer expenses for fat cattle. Boxed beef movement surged to 204 loads Wednesday on weaker Select cuts. Choice cuts were up $0.05 to $256.41 per cwt, while Select cuts dropped $1.88 to $241.78. This pushed the Choice/Select spread to a nearly six-week high of $14.63 per cwt. Movement at mid-morning today was routine at 86 loads, with Choice cuts down $1.46 and Select cuts down $0.81 per cwt.

Feeder cattle rallied in the upfront contracts on a surge in the cash market on good sale-barn demand. The latest cash index rallied another $1.05 to a record high $244.99 per cwt, putting it at nearly a $10 premium to the January futures contract ahead of today’s rally. Traders are still counting on seasonal weakness in the fat cattle market to pour water on bullish fires at the sale barns for feeder cattle, so a test of the wills appears to be at hand.


Today’s cash market as again mostly steady to $0.50 lower. Yet, the latest cash index was $0.19 higher to $88.64 per cwt. Longer-term, the cash index is steady, with a weaker bias as the product market slowly erodes lower.

Product movement jumped to 428 loads yesterday, but that’s not all that impressive for a Wednesday. The composite pork product price dropped $0.20 to $91.96 per cwt; its lowest level since February 6. Movement at midday today was routine at 194 loads on steady prices. The composite pork product price was up 2 cents at $91.98 per cwt. One big concern though is the stronger dollar, which is a threat to export demand.

Export demand dropped sharply as the dollar rallied in late November. USDA reports that net export sales of pork totaled just 2.0K metric tons in the week ending November 27, down from 18.9K the previous week and a calendar year low. Actual shipments were still strong at 18.7K tons, although that was down a bit from 19.4K tons the previous week.

February lean hogs bounced off chart support at $86, which has generally held this market over the past couple of months. However, support for a rally minus a greater threat from the PED virus may be difficult to find. Traders don’t make money in a stagnant market, so my concern is to the downside if we can’t find more demand for the product.

Last week’s slaughter dropped to 1.991 million head on the Thanksgiving shortened week, down 3.2% from the previous year. However, the slower slaughter doesn’t appear to have done anything at this point to firm the product market, thanks largely to lower export demand.

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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