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Closing Comments

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Closing Comments

Corn

Exporters shipped 21 million bushels of corn in the week ending December 4, down from 29.7 million the previous week and down from the five-year average for the week of 28.5 million bushels. Marketing year corn shipments total 378 million bushels, up 17 million or 5% from the previous year. Yet, shipments to date fall short of the seasonal pace needed to hit USDA’s target by August 31 by 61 million bushels, versus being short of the pace by 50 million the previous week.

However, it’s a different story with grain sorghum, which is currently being allowed into Chinese ports. Exporters shipped 8.2 million bushels of grain sorghum in the week ending December 4, up from 6.4 million the previous week and above the five-year average for the week of 2.5 million bushels. Spain took 1.7 million bushels of the past week’s total shipments, while the remainder of the shipments went to Chinese end users.

Marketing year shipments of grain sorghum total 90.7 million bushels, up 54.7 million or 152% from the previous year, largely due to China. Shipments to date exceed the seasonal pace needed to hit USDA’s target by August 31 by 27 million bushels, versus 23 million the previous week. Chinese official detest these large grain sorghum shipments, but haven’t been able to find a loop hole in the WTO agreements yet to be able to stop them, like they’ve done by using GMO traits to stop corn shipments. They may find that loop hole at any time, but if not, cash grain sorghum basis may get very hot by next summer as supplies simply disappear.

Demand has been strong this fall and the farmer has resisted selling, with many pointing to $4.00 as their target. Ethanol has been the demand driver, but now ethanol prices are above gasoline. That’s not sustainable. Supplies are expected to build, with processors pulling back early next year. Possible renewed DDGS exports to China can boost grind margins, but ethanol producers are already working at capacity, with ethanol supplies building. Corn exports surged briefly to customers with which we had a freight advantage in recent weeks, but otherwise will struggle at these prices with a strong dollar.

Follow-through buying failed to touch $4.00 in March corn today, triggering farmer and speculative selling. Exports are weak again and ethanol demand appears to have a short life. March corn settled near its session low following a bearish reversal lower, leaving a bearish double top on the charts. We haven’t confirmed that top yet, and soymeal can still pull corn higher, but a big red flag was again posted today for corn prices. A break below $3.78 would add another red flag.

Soybeans

Exporters shipped 81 million bushels of soybeans in the week ending December 4, up from 75.3 million the previous week and above the five-year average for the week of 49.8 million bushels. Shipments to China accounted for 48.8 million bushels of the total, so non-China shipments were relatively strong as well.

Marketing year shipments total 872 million bushels, up 169 million or 24% from the previous year. Exporters typically ship 37% of the year’s total shipments by the first week of December, whereas they had shipped 43% by this point last year. However, this year they’ve already shipped 51% of USDA’s target for the year ending August 31. Shipments to date exceed the seasonal pace needed to hit USDA’s target by August 31 by 229 million bushels, up from 198 million the previous week. However, that will likely start to fall off dramatically once China becomes comfortable with the availability of new-crop supplies from Brazil.

Renewed talk of DDGS shipments to China added energy to the soymeal market Friday, with follow-through buying today. Soymeal basis is jumping, merely because bids are being rolled to the lower-priced January contract. January soymeal strength fell short today of testing trend line resistance at $374.70 per ton. Soymeal supplies are still tight near-term, but the February and beyond market is already showing signs of softening, leading traders to become wary of pushing the board too high near-term.

It’s still early enough in the growing season that we can’t rule out a South American weather problem that could support the next round of strength in soybeans, but that threat does not yet appear on the horizon. Today’s updated seasonal outlook from Commodity Weather Group again favored good growing conditions for the bulk of the major soybean production areas of Argentina and Brazil. The bottom line is that the longer-term fundamentals remain quite bearish, but today’s close still leaves us vulnerable to higher prices near-term due to tight upfront protein supplies.

Wheat

Exporters shipped just 9.9 million bushels of wheat in the week ending December 4, again with no shipments to Brazil. The total was down from 10.1 million bushels shipped the previous week and down from the five-year average for the week of 16.8 million bushels. Marketing year shipments to all destinations total 456 million bushels, down 223 million or 33% from the previous year. Shipments to date fall short of the seasonal pace needed to hit USDA’s target by May 31 by 58 million bushels, versus falling short of the pace by 51 million the previous week.

Chicago wheat posted 4-cent gains today, but the Kansas City/Chicago spread lost another 4 cents. That continues to suggest that near-term strength may be a selling opportunity. U.S. wheat continues to be over-priced on the global market, with sales limited primarily to those customers where we have a freight advantage. There are potential threats to the 2015 crop, but none that I would expect to sustain a rally at this time of year given the strength of the dollar and existing supplies.

Beef

The latest CME cash feeder cattle index came in at $244.82 per cwt, driven by strong sale barn demand for seven-weight cattle immediately following the Thanksgiving break. The index lacked just 17 cents of the recent record high on bullish feeder enthusiasm.

However, futures traders are betting that enthusiasm will soon be doused with cold water, as corn prices remain firmer than anticipated and fat cattle prices tumble, led by last week’s $4 to $6 drop in fats. As a result, fund managers are rushing to exit long (bought) futures positions in the fat cattle, resuming their leadership position once again. Feeder futures tumbled the $3 daily limit as traders tried to exit all at once.

Fat cattle futures dropped sharply as well, with the bears emboldened by last week’s poor performance in the fat cattle market, combined with seasonal weakness in the product as well. The biggest break came in the cash, but the product market is believed to have plenty of weakness ahead of it as well as demand wanes.

Last week’s product movement rose to 796 loads, up from 539 loads over the Thanksgiving week and a three-week high. However, it took lower prices to stimulate that buying interest. Choice cuts finished the week at $252.54 per cwt, down $4.86 on the week, while Select cuts finished Friday at $236.69, down $9.16 per cwt. Packer margins finished the week at estimated losses of $132.00 per head, versus losses of $99.80 the previous week.

Movement at mid-morning today was sluggish at 66 loads, even with weaker prices. Choice cuts were down another $0.16, while Select cuts were down another $0.62 per cwt.

February live cattle are flirting with support at the 100-day moving average of $161.824. Sell stops may be hiding below that level. Speculative money is moving out of the meat complex, with the product market expected to follow during this seasonally slow period. The market is oversold and due for a bounce, but the bull is badly wounded after the past couple trading session. Packer bids were said to be $1 over the February contract, which would be another sharp discount to last week’s trade.

Pork

The cash market continues to slowly leak lower. Today’s Midwest cash market was mostly steady in the west, while some central and eastern markets were steady to 50 cents lower. The latest CME 2-day lean hog index $88.52 per cwt, down 20 cents on the day and down 27 cents from the previous week.

Product prices also have a weaker bias, leading to a bearish bias for futures traders as well. Product movement rose to 1,562 loads over the past week. That’s up from 1,465 loads during the holiday shortened week, but is otherwise an eight-week low.

Product prices are also slipping. The composite pork product price finished last week at $92.69 per cwt, down $0.45 on the week. The week’s low was posted on Wednesday at $91.96, which was a 10-month low. Part of the soft demand was a product of slow export demand. Movement improved at midday today, with 201 loads moving, and at firmer prices. The composite pork product price came in at $93.31 per cwt at midday, up $0.62 on the day.

February lean hogs posted a low of $83.30 in August, which is now looking increasingly attractive to speculative traders. The product market appears to be responding to lower prices, but the retail customer appears to have the upper-hand near-term amid an ample supply.

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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