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Closing Comments

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Closing Comments

Corn

Exporters shipped 31.1 million bushels of corn in the week ending December 18, up from 22.2 million the previous week and up from the five-year average for the week of 28.3 million bushels. Marketing year shipments total 433 million bushels, up 8 million or 2% from the previous year.

Exporters typically have shipped 29% of final corn shipments by this point in the marketing year, whereas they had only shipped 22% by this point last year. Thus far this year exporters have shipped 25% of USDA’s target for the year as they focus on shipping soybeans through available slots. As such, shipments to date fall short of the seasonal pace needed to hit USDA’s target by 74 million bushels, versus falling short of the pace by 73 million the previous week.

Exporters shipped 6.5 million bushels of grain sorghum in the week ending December 18, down from 9.1 million the previous week, but up from the five-year average for the week of 2.0 million bushels. Shipments to China accounted for all of the past week’s shipments of grain sorghum.

Marketing year shipments to all destinations total 107 million bushels of grain sorghum, up 70 million or 190% from the previous year. Exporters typically have shipped 31% of final grain sorghum shipments by this point in the marketing year, whereas they had shipped 17% by this point last year. However, this year they have already shipped 46% of USDA’s target for the year.

As such, shipments exceed the seasonal pace needed to hit USDA’s target by 34 million bushels, up from 32 million the previous week. The key will be to see if we see continued strong demand for grain sorghum from Chinese end users, or will they risk shifting back to corn now that Viptera has been approved by China.

Corn futures found support today from better-than-expected shipments and ideas that China “might” start buying corn, as well as the unwinding of corn/wheat spreads. However, gains were limited by talk of high yield potential in South America, with the one primary dry spot in Argentina getting rain over the weekend. March corn was able to move to a new five-month high, but gains were difficult to sustain in thin holiday trade with talk of South America’s crop increasing. Farm sales remain slow, supporting firm basis at ethanol processors, but traders always get nervous near the change of the tax year.

Commodity Weather Group updated its seasonal outlook today. It calls for mostly seasonal rainfall in Mato Grosso and Mato Grosso do Sul, where the bulk of the safrinha corn crop is grown. At this point, CWG does not see a significant problem with early harvest of soybeans in that region for the purpose of getting safrinha corn planted on time. Generally, farmers try to get the corn planted by March 1 to be sure it can make a crop ahead of the dry season.

Soybeans

Exporters shipped 82.1 million bushels of soybeans in the week ending December 18, up from 69.2 million the previous week and up from the five-year average for the week of 46.6 million. Shipments to China accounted for 50.7 million bushels of the past week’s total. Marketing year shipments to all destinations total 1.024 billion bushels, up 201 million or 24% from the previous year.

Exporters typically have shipped 43% of final soybean shipments by this point in the marketing year, whereas they had shipped 50% by this point last year. However, this year they have already shipped 58% 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 262 million bushels, up from 229 million the previous week.

Soymeal basis for the Kansas City rail market bounced $10 today, but that follows a sharp drop last week. Otherwise, the truck market for soymeal was steady to up to $5 weaker once again as demand softens amid increased supplies.

Even so, soymeal futures captured a bid mid-morning today in thin holiday trade, giving renewed energy to the soybean market. Additional energy came from the above export inspection data when it was released, pushing January soybeans upward to test Thursday’s high of $10.40. Prices eventually probed above the area, but few buy stops were found and gains were difficult to sustain at that level. As such, prices pulled back from those levels going into the close.

Wheat

Exporters shipped 16.2 million bushels of wheat in the week ending December 18, up from 14. 8 million the previous week, but down from the five-year average for the week of 18.4 million bushels. Marketing year shipments total 487 million bushels of wheat, down 229 million or 32% from the previous year. Shipments to date fall short of the seasonal pace needed to hit USDA’s target by May 31 by 57 million bushels, versus falling short by 59 million the previous week.

Wheat futures collapsed to close out the week on Friday as traders began to move past the Russian export restriction headlines on ideas that they had all been priced into the market. We saw follow-through selling overnight, but that changed in the early morning hours when a headline crossed the wire stating that Russia was prepared to start using export duties to limit grain exports. Prices quickly erased their overnight losses and pushed back into positive territory.

That strength couldn’t hold though through today’s session. Traders gradually began to look at the big picture once again. Egypt bought 8.8 million bushels of wheat over the weekend, split between 3 cargoes from France and 1 from Russia for late January shipment. U.S. soft red winter wheat was priced 78 cents above that of France’s lowest bid, showing how over-priced U.S. wheat is relative to the rest of the global market.

Futures ended the day adding to Friday’s losses, with the Kansas City/Chicago spread losing ground as well. The charts still have not confirmed a bottom, so the possibility of a rebound must be respected, but the market lacks fundamental support for holding prices at these levels at this time. Wheat trades headlines, but those are currently lacking.

Beef

The cattle complex was mostly cautiously higher today, after an encouraging day on Friday. Commercial traders were active in the market carving out a “V” bottom, although it’s too soon to say whether the market is done with its liquidation. None-the-less, we saw follow-through buying for the most part today, with a firmer product market. Cash trade late Friday finished at $160 per cwt on a live basis in Colorado and Nebraska, up from $157 two days earlier in Kansas.

Last week’s kill is estimated at 552,000 head, down 17,000 from the previous week and down 65,000 or 10.5% from the same week last year. Some believe that this week’s holiday-shortened kill could fall below 400,000. The smaller kill is providing support for the product market. The trade will be closely watching boxed beef activity over the next several weeks for evidence to show the scope of the demand recovery by the retailer amid a surge in supplies of cheaper pork.

Product movement over the past week totaled 827 loads, down from 847 loads the previous week. However, it took much lower prices to get the movement. Choice cuts finished the week at $238.57, down $6.46 on the week, while Select cuts finished at $229.88 per cwt, down $4.22 on the week. That dropped the Choice/Select spread to $8.69 in a seasonal drop, down $2.24 on the week. However, we should see those prices stabilize now as slaughter slows dramatically for the Christmas and New Year’s breaks. Movement at mid-morning today was routine at 89 loads, with Choice cuts up $0.66 and Select cuts up $0.49 per cwt.

Feeder cattle futures were modestly higher as well for much of today’s session. However, traders remain cautious. The latest CME cash index came in at $230.63 per cwt, down another $0.79 on the day and down $6.27 on the week. The index is down $14.36 per cwt from its record high set December 2.

Next resistance for February live cattle is $162.23 per cwt, followed by $163.87. Packers are expected to get more aggressive just ahead of the end of the year, but nerves are high because nobody knows how many cattle have already been contracted, nor do we know how many really heavy cattle are out there.

Pork

Lean hog futures finished last week’s trade with short-covering and consolidation ahead of tomorrow’s USDA quarterly hogs and pigs report. However, weak fundamentals weighed on the market once again today, leading to lower trade for the bulk of the session.

Today’s cash market was mostly steady to $1 lower in the Midwest. The latest CME cash index came in at $83.89 per cwt, down $1.26 on the day as losses accelerate and down $4.16 per cwt over the past week. The index has posted lower values for the past seven trading sessions in a row, with losses over that period totaling $4.62 per cwt.

Product movement rose to 1,807 loads in the past week, but it took lower prices to do so. The past week’s movement was up from 1,740 loads the previous week and it was a six week high. The composite pork product price finished the week at an 11-month low of $86.83 per cwt, down $5.72 on the week. Demand is increasing, but the supply is increasing at a faster pace. Movement at midday today was good at 208 loads, with the composite price up $0.34 to $87.17 per cwt, despite a $9.43 drop in picnic cuts.

Last week’s slaughter is estimated at 2.298 million head, up 44,000 from the previous week and up 258,351 head or 12.7% from three months ago. Weekly kills continue to trend higher, flooding the market with pork and driving prices lower.

First support for February lean hogs is at $80.275. We eased below that level late, but selling interest below that level thus far remains limited ahead of tomorrow’s report. The market is oversold and due for a more significant bounce, but it will likely need help from USDA tomorrow. Trade expectations for the quarterly hogs and pigs report are as follows:

December 23 Quarterly Hogs & Pigs

USDA

Trade Est.

Range

percent of previous year

All hogs December 1

101.5

100.8-102.5

Kept for Breeding

103.0

102.0-103.5

Kept for Market

101.3

100.6-102.4

Pig Crop

September to November

103.3

102.4-104.4

Weight Groups

Under 50 lbs.

103.6

102.5-105.8

50 to 119 lbs.

102.5

101.2-103.3

120 to 179 lbs.

99.7

98.4-101.0

Over 180 lbs.

98.0

97.3-99.6

Farrowings

September to November

103.8

103.5-104.0

Farrowing Intentions

December to February

103.7

1030-104.3

March to May

104.1

103.3-105.1

Pigs per Litter

September to November

99.9

98.9-102.4

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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