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Closing Comments

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Closing Comments

Corn

Exporters sold 27.5 million bushels of corn in the week ending December 11, including 27.3 million of this year’s crop. The current-year sales were down from 37.9 million sold the previous week and down from the five-year average for the week of 29.1 million bushels. The past week’s total included no new sales to China, but 10.6 million bushels were listed to “unknown destinations.”

Marketing year sales to all destinations total 961 million bushels, down 82 million or 8% from the previous year. Sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 51 million bushels, down from 54 million the previous week. However, actual shipments are trailing the pace as exporters concentrate on getting soybeans shipped.

Exporters sold 5.8 million bushels of grain sorghum in the week ending December 11, down from 12.5 million the previous week, but up from the five-year average for the week of 2.4 million bushels. The past week’s total included 5.7 million bushels sold to Chinese feed mills. We’ll be watching to see if this business drops off with the apparent approval of Viptera corn for import once again.

Marketing year sales to all destinations total 200 million bushels, up 103 million or 106% from the previous year. Exporters typically sell 43% of the year’s final shipments by this point in the marketing year, whereas they had sold 46% by this point last year. However, this year they have already sold 87% of USDA’s target for the year ending August 31. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by 98 million bushels, up from 97 million the previous week.

USDA’s daily export reporting system today showed more business done in the past 24 hours. “Unknown destinations” bought another 5 million bushels of this year’s corn. We probably won’t know who the buyer until it is shipped, but it could be Mexico, Japan, South Korea, or possibly even China.

Growing conditions have been very good across the bulk of Brazil, but an area of dryness is beginning to impact crop production in Argentina; namely in Cordoba. Most of the dryness is in the southern half of Cordoba, impacting 20% of the nation’s corn and 15% of its soybeans.

USDA released some of its 10-year baseline projections early this year, giving us a peak into what their economists foresee for the years to come. Keep in mind that their estimates are purely economic analysis without talking to farmers. That said, the agency projects farmers planting 88.0 million acres of corn in 2015, down from 90.9 million in 2014. As such, ending stocks for the 2015-16 marketing year are expected to fall to 1.733 billion bushels, although that’s still not bullish.

March corn added to recent gains today, rising from a bull-flag on the charts. However, the market didn’t exactly end the day with a great deal of conviction. The 200-day moving average is at $4.22, with chart gap resistance at $4.23 to $4.26. Otherwise, a break below $4.00 would be expected to increase the sales pace.

Soybeans

Exporters sold 38.4 million bushels of soybeans in the week ending December 11, but just 25.6 million of the total was for this year’s crop. The current-year sales were down from 29.8 million sold the previous week, but were still above the five-year average for the week of 19.9 million bushels.

The past week’s total included 14.8 million bushels sold to China, but that was partially offset by reductions for “unknown destinations” of 10.9 million. Unknown destinations did buy 8.1 million bushels of new-crop soybeans.

Marketing year sales to all destinations total 1.512 billion bushels, up 81 million or 6% from the previous year. Exporters typically sell 67% of final soybean shipments by this point in the marketing year, whereas they had sold 87% by this point last year. However, this year they have sold 86% of USDA’s target for the year. As such, it would appear that we should expect old-crop sales to China to slow dramatically in the weeks ahead, although a late spurt in mid- to late January often occurs. Sales to date for all destinations exceed the seasonal pace needed to reach USDA’s target by August 31 by 326 million bushels, but that is down from 335 million the previous week.

Soymeal sales totaled 146.8K metric tons in the week ending December 11, up from 88.8K tons the previous week and very close to the five-year average for the week of 145.7K tons. However, the total included more cancellations for “unknown destinations” totaling 127.9K tons.

Actual shipments to all destinations during the week remained strong at 298K tons as processors fill existing orders. The weekly shipment total was down from 307.1K the previous week, but still above the five-year average for the week of 168.4K tons. This continues to support snug soymeal supplies, particularly with DDGS starting to flow to China once again.

USDA’s daily export reporting system today reflected business done when a Chinese delegation was in Chicago earlier this week, with a ceremonial signing of a purchase agreement. We were told at that time that China agreed to purchase 36.7 million bushels of soybeans for delivery in the 2015 calendar year. Well, this morning’s release indicate that China bought 55 million bushels, but it is all listed as shipment in the 2015-16 marketing year, so this week’s signing was apparently all new-crop sales with little impact for the market.

USDA’s baseline projects suggest that farmers will plant 84.0 million acres in 2015, down slightly from 84.2 million in 2014. Yet, it projects 2015-16 marketing year ending stocks at 519 million bushels, which would certainly be expected to pressure prices.

Soymeal basis continues to soften, suggesting that we are slowly turning the corner on this year’s fundamentals. Cash basis was down $1 to $5 across much of Iowa and Minnesota Wednesday. Today, we see rail offers down $20 to $30 across much of the Midwest, with truck basis down $5 at Kansas City.

January soymeal saw follow-through buying today after bouncing off an area of support above $350 per ton early on Wednesday. That supported soybeans as well. However, I wasn’t impressed with the close and am concerned about growing weakness in soymeal basis. A break of spot soybean futures below $10 would be expected to accelerate selling, while a move above $10.60 would be supportive.

We are seeing an area of dryness develop in Cordoba, Argentina. The dryness impacts about 15% of Argentina’s soybeans. However, conditions in the remainder of Argentina remain good, with high yields expected in Brazil as well.

Wheat

Exporters sold 18.7 million bushels of wheat in the week ending December 11, including 17.5 million old-crop bushels. The old-crop sales were up from 16.3 million sold the previous week, down from the five-year average for the week of 20.1 million, but still an 11-week high. Again, no sales to either Brazil or China.

Marketing year sales to all destinations total 656 million bushels of wheat, down 212 million or 24% from the previous year. Sales to date exceed the seasonal pace needed to hit USDA’s target by May 31 by 10 million bushels, up from 8 million the previous week.

USDA’s daily export reporting system today reflected a new sale of 4.2 million bushels of U.S. hard red spring wheat to Mexico. However, 3.3 million bushels of the total were for the 2015 crop.

Argentina raised its wheat production estimate to 13.2 million metric tons, or 485 million bushels today. The latest estimate is up from 12 mmt or 441 million bushels previously. USDA’s December crop report also pegged Argentina’s wheat crop at 12 mmt. There are some quality concerns due to persistent rains, particularly for wheat in Buenos Aires.

USDA expects 2015 wheat acres to drop to 56.0 million acres in 2015, down from 56.8 million this year. However, it expects 2015-16 marketing year wheat stocks to rise to 700 million bushels, suggesting little reason to sustain a rally. Prices continued higher today on Russia export restrictions, but there’s a lot of air beneath the market. Sources in the wheat trade say they expect Ukraine to make up much of the lost business, with U.S. sources garnering little of the business.

President Obama’s move to normalize relations with Cuba has longer-term implications for the wheat market. We can expect to sell about 18 million bushels of hard red winter wheat to Cuba annually once conditions are normalized, but that will take some time.

Yet, Wall Street money loves headlines about wheat, which has the market supported to this point. That support will likely quickly collapse once the headlines dry up, if not sooner.

Beef

The CME Group finally tripped the pressure-relief valve late Wednesday, expanding feeder cattle daily limits to $4.50 per cwt, with expanded limits of $6.75 in place should we have traded the $4.50 limit at settlement. The lead contract opened at the new $4.50 limit lower at $212.10 per cwt, before firming from that level. The opening represented a $33.10 per cwt drop on the continuation charts from the October 9 record high. It represented a $27.20 per cwt decline from the high for the January contract.

Feeder cattle opened the new limit lower, firmed into positive territory, dropped negative again, before finishing pit trade on a strong note. It certainly helped to finally find a level where trades could get cleared. The cash continues to slide, but it’s well above the futures market. The latest CME cash index came in at $234.69 per cwt, down $0.58 on the day. The index is down $10.30 per cwt from its December 2 record high.

Fat cattle trade followed the lead of the feeder cattle market. However, short-covering was more robust once traders saw that the feeder cattle market was stabilizing, leading the fat cattle market to move the $3 daily limit higher. As such, we should see the limit expand to $4.50 per cwt tomorrow. Keep in mind that expanded limit is for movement in either direction.

Wednesday’s kill was estimated at 101K head, down 11K from the previous week and down 20K from the previous year. Slaughter for the week to date is estimated at 327K head, down 9K from the previous week and down 36K from the previous year. That is a big reason why the cash market has turned soft, as demand weakens.

Boxed beef movement jumped to 204 loads on weaker prices Wednesday, up from 189 loads the previous day, but down from 221 loads the previous week. Choice cuts were down $0.47 to $242.41, while Select cuts were down $3.12 to $231.13 per cwt. That pushed the Choice/Select spread to $11.28 per cwt, up from $8.63 the previous day, but down from $13.58 the previous week. Movement at mid-morning today was routine at 90 loads, with Choice cuts up $0.11 and Select cuts down another $0.57 per cwt.

Export demand for beef is slowly returning. USDA reports that exporters sold 11.1K metric tons of beef in the week ending December 11, up from 9.9K the previous week and a three-week high. Actual shipments during the week slipped to 13.9K tons, down from 14.0K the previous week.

Many traders hoped that the market would give them a chance to square their positions ahead of tomorrow’s USDA cattle-on-feed report. CME Group had incentive to allow that as well. That may have helped push it to move to expand the limits.

Pork

Lean hog futures were oversold and due for a correction. Many traders would like to square their positions and pocket profits in the oversold market ahead of Tuesday’s USDA quarterly hogs and pigs report. Strength in the beef complex allowed the pork market to firm as well.

Fundamentally, this market remains soft, with expectations that the industry will continue to expand amid cheap corn and new-found abilities to manage the PED virus. However, traders know that USDA has become known for its surprises in these quarterly reports.

Today’s cash market was mostly a $1 lower, although the closely followed Iowa/Southern Minnesota market was $1 to $2 lower. Producers are pulling hogs forward fearing lower prices, but slaughter schedules will be shorter the next two weeks due to the holidays. The latest CME cash index came in at $85.95 per cwt, down $0.65 on the day, down $2.56 on the week and a new 10-month low.

Wednesday’s kill is estimated at 430K head, up 1K from the previous week, but down 9K from the previous year. This week’s estimated kill to date is 1.292 million head, up 4K on the week, but down 18K from the previous year.

Product movement surged to 545 loads Wednesday, up from 402 loads the previous day, up from 438 loads the previous week and the highest one-day total since November 5. However, the demand is coming at the cost of lower prices. The composite pork product price Wednesday was at an 11-month low of $87.24 per cwt, down $1.74 on the day and down $6.22 over the past two days.

Exporters sold 10.4K tons of pork in the week ending December 11, down from a robust 35.3K the previous week, but still a solid number for pork. Actual shipments totaled a strong 19.4K tons, although that was down from an impressive 45.6K the previous week.

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

Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK involved in trading futures and or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL. This information is provided freely and is NOT in the capacity of a trading advisor. NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. Information provided is not to be construed as an offer to sell or solicitation to buy any commodity or security named herein.

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