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Closing Comments

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Closing Comments

Corn

Exporters shipped 21.5 million bushels of corn in the week ending December 11, up slightly from 21.0 million the previous week, but still down from the five-year average for the week of 30.5 million bushels. The week’s total included just over 16K bushels of corn to China, which is non-consequential.

Marketing year shipments total 400 million bushels, up 13 million or 3% from the previous year. However, shipments to date fall short of the seasonal pace needed to hit USDA’s target by May 31 by 73 million bushels, versus 61 million the previous week, as exporters prioritize soybean shipments ahead of Brazil’s harvest.

Exporters shipped 8.6 million bushels of U.S. grain sorghum in the week ending December 11, up from 8.2 million the previous week and above the five-year average for the week of 1.8 million bushels. Shipments to China again accounted for most of the shipments, totaling 8.4 million bushels.

Marketing year shipments total 99.3 million bushels, up 63 million or 172% from the previous year. Exporters typically ship 30% of final grain sorghum shipments by this point in the marketing year, whereas they had shipped 17% by this point last year. However, they’ve already shipped 43% of USDA’s target for the current year. That may rapidly change if China approves MIR162 soon as Syngenta suggests, opening the door again for corn shipments, but that’s what the market is waiting to find out.

March corn traded to a fresh five-month high today on strong technical signals. Traders are talking about a possible reopening of Chinese markets to U.S. corn and a possible USDA reduction in acreage next month as fundamental reasons to justify the move.

The most bullish reasonable scenario I can draw up would drop ending stocks 500 million to 1.5 billion bushels, but historically the trade doesn’t turn friendly as long as stocks are above 1 billion. Yet, corn continues to grind higher, supported by strength in wheat. We need to respect the move, but be prepared to respond if breaking soybean prices pull corn lower.

Meanwhile, ethanol prices were down another 5-6 cents today, with margins expected to break significantly in the first quarter of 2015. Furthermore, first crop corn yields in South America look good, adding to supplies.

Soybeans

Exporters shipped 66.9 million bushels of soybeans in the week ending December 11, down from 81.1 million the previous week and an 8-week low. Yet, shipments exceeded the five-year average for the week of 50.1 million bushels. Shipments to China accounted for 47.9 million bushels of the past week’s total.

Marketing year shipments total 939 million bushels, up 172 million or 22% from the previous year. Exporters typically ship 40% of final soybean shipments by this point in the marketing year, whereas they had shipped 47% by this point last year. However, they have already shipped 53% of USDA’s target for the current year. Shipments to date exceed the seasonal pace needed to hit USDA’s target by August 31 by 229 million bushels, up from 214 million the previous week.

The National Oilseed Processors Association reports that its members crushed 161.2 million bushels in November, up from 158 million the previous month and up from 160.1 million bushels crushed in the same month last year. In fact, the total was a record for the month of November, even though the month had one less day to work this year. My pre-report estimate was 162.4 million bushels crushed. The record NOPA crush for any month of the year is 165.4 million bushels.

NOPA crush for the soybean marketing year to date totals 419 million bushels, down 7 million from the previous year due to the slow start this fall. NOPA crush to date falls short of the seasonal pace needed to hit USDA’s target by August 31 by 16 million bushels, but that’s an improvement from the previous month when the pace was short by 23 million bushels.

Upfront soymeal and soybean supplies remain snug amid strong demand and slow farmer selling. We’re starting to see cracks in the armor suggesting that this market is beginning to tip over with a greater focus on the massive approaching South American harvest, but we can’t confirm such a move yet. That would take a break below the support level of $9.95 to $10.00 basis the January contract. It’s very difficult to be friendly the soybean market longer-term as long as the South American crop looks so good.

Wheat

Exporters shipped 14.2 million bushels of wheat in the week ending December 11, up from 9.9 million the previous week, but down from the five-year average for the week of 16.7 million bushels. No wheat was destined for Brazil or China during the week. Marketing year shipments to all destinations total 470 million bushels, down 226 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 59 million bushels, versus falling short by 58 million the previous week.

Russia’s ag minister reportedly stated that they need to look at restricting exports through companies registered overseas. That would be seen as a method of restricting exports. U.S. wheat fundamentals are not bullish, but that doesn’t matter when the headlines are flowing. For example, Chicago wheat futures nearly doubled in five weeks during the summer of 2010 as drought headlines from Russia were seen on a daily basis, even though we were swimming in more than enough surplus wheat to meet the lost production and still have plenty left over.

Yet, that’s the reality in the wheat market. It frequently trades headlines more than fundamentals, so the move needs to be respected. However, it would be expected to collapse once the headlines stop flowing.

Chicago March wheat pushed through the 200-day moving average to new five-month highs without any problem, with the next objective at $6.28. The Kansas City/Chicago spread is bouncing off long-time support near 25 cents, giving it a periodic edge over Chicago now as spread traders take profits.

Beef

Last week’s kill is estimated at 566K head, up 4K head on the week, but down 42K or 6.9% from the same week last year. Carcass weights are estimated at 829 pounds, up 1 pound on the week and up 25 pounds on the year. Total beef production during the week was estimated at 468.2 million pounds, up 3.9 million pounds on the week, but down 19.1 million or 3.9% on the year.

Product movement rose to 847 loads over the past week, up from 796 loads the previous week and a four-week high. However, it took much lower prices to stimulate that demand, keeping estimated packer margins at losses of more than $115 per head.

Choice cuts ended the week at $245.03 per cwt, down $7.51 on the week, adding to packer woes. Select cuts ended the week at $234.10 per cwt, down $2.59 on the week. As such, the Choice/Select spread narrowed seasonally to $10.93 per cwt, down $4.92 on the week.

Estimated packer margins grew to losses of more than $139 per head today. Boxed beef movement at mid-morning was routine at best at 75 loads on firmer prices. Choice cuts were up $0.86 to $245.89 per cwt, while Select cuts were up $1.40 to $235.50, which dropped the Choice/Select spread to $10.39 per cwt.

Previous strength in northern regions of the Plains feedlot belt is evaporating as the fat cattle market weakens and corn prices move to new five-month highs. That’s allowing the cash index to drop rapidly. The latest CME cash index came in at $236.90 per cwt, down $2.87 on the day. It was the fifth consecutive day with a lower index, with losses over that period totaling $7.92 per cwt and gaining momentum to the down side.

Feeder cattle futures are total collapsing, down the $3 daily limit once again for most of today’s trading session, even though the lead January contract is more than $14 below the cash index. Traders are caught in their positions, unable to exit long (bought) positions. The January contract gapped below the 100-day moving average, with the charts suggesting that we could eventually see $204 on this move lower.

Live cattle futures were pulled lower by weakness in the feeder cattle market. February live cattle are still in a consolidation mode above $160, although the lead contract is establishing itself below the 100-day moving average, suggesting that it is vulnerable to additional weakness. The market continues to be haunted by trade chatter that packers have aggressively bought their needs into February, along with reports of 1700 pound cattle waiting for delivery until after the new tax year starts.

Packers are expected to slow the chains over much of the rest of the month, with Christmas week slaughter possibly a record low. That should provide some support for the product market, while removing the need for packers to fight over a small number of cattle in the negotiated market.

Pork

Last week’s estimated hog slaughter came in at 2.254 million head, up 18K from the previous week and up 214K or 10.5% from mid-September. The trade had expected a hole in supplies over that period, based on previous USDA quarterly hogs and pigs reports, but instead saw a significant increase in slaughter numbers. USDA will update its quarterly hogs and pigs report next week on December 23.

Product movement rose to 1,740 loads over the past week, up from 1,562 loads the previous week and a three-week high. The composite pork product price rose $1.62 on Friday to $92.55 on more than a $14 surge in picnic cuts, but that just put window-dressing on the composite price dropping to 10-month lows on Thursday. Friday’s composite price was down another $0.14 on the week, marking the fourth consecutive week of slowly eroding product prices, just as the cash market continues to slowly leak lower.

Movement at midday today was slow at 123 loads, but at firmer prices. Picnic cuts were down $4.08 per cwt, but all other cuts were firmer, with hams up $3.96 per cwt. Overall, the composite pork product price at midday was at $93.79, up $1.24 on the day.

Today’s Midwest cash hog market remained under weakness. In fact, weakness was greater than we’ve seen in recent days, with most terminals $1 lower. The CME 2-day lean hog index came in at $88.05 per cwt, down $0.39 on the day and down $0.47 on the week.

February lean hogs traded to their lowest level since March on weak fundamentals. Product prices bounced this morning, but still have not confirmed a seasonal low. Meanwhile, the cash market remains soft, with slaughter supplies more than adequate to meet current demand. Next support is at $82, followed by $80 for the February contract.

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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