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Closing Comments

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Closing Comments

Corn

Global economic fears were the focus to on Wall Street to start the first full week of 2015. More stimulus is expected for China and Europe, while the U.S. economy slowly grows. That pushed the dollar to nearly 9-year highs as crude oil dropped to a new 5-1/2 year low of $49.77 and RBOB gasoline dropped as low as $1.36. That’s not good when ethanol is trading near $1.60. Wall Street is worried that the drop in crude oil is a reflection of a slow global economy. As a result, we saw the Dow Jones Industrial Average trade well over 300 points lower at times.

Yet, it was a day for bargain hunting in the corn pit. Traders liquidated positions last week to show profits on year-end statements. Thin holiday trade exaggerated the move, giving big losses. End users saw that as an opportunity, with demand remaining strong and farmers still holding tight. The trade is still leaning bullish for next Monday’s crop report as well. Trade surveys are not out yet, but there seems to be a leaning toward expecting USDA to drop U.S. corn and soybean acreage and yields on Monday, leaving them vulnerable if it doesn’t happen.

There was considerable chatter about emerging dryness in northern areas of Brazil over the next two weeks. It’s true that rains are expected to focus on southern areas, with below-normal rains further north, but normal is quite a  bit this time of year in the region. Commodity Weather Group believes that only 10 to 15% of the crop area will actually feel moisture stress, but acknowledges that we will need to monitor the situation. We’ll need to watch for expected scattered showers in the 6- to 15-day period to verify.

Exporters shipped 21.2 million bushels of corn in the week ending January 1, down from 24 million the previous week and down from the five-year average for the week of 22.5  million bushels. Marketing year shipments total 478 million bushels, up 5 million from the previous year. Shipments to date fall short of the seasonal pace needed to hit USDA’s target by August 31 by 81 million bushels, versus falling short by 78 million the previous week.

Exporters shipped 4.8 million bushels of grain sorghum in the week ending January 1, down from 8.9 million the previous week, but up from the five-year average for the week of 1.8 million bushels. Shipments to China accounted for nearly all of the week’s total once again.

Marketing year shipments to all destinations total 120 million bushels, up 80 million or 196% from the previous year, largely due to China’s insatiable appetite. Grain sorghum export commitments (sales) have already reached USDA’s target for the year ending August 31. Shipments typically reach 34% of final shipments by this point, whereas they were at 19% at this point last year. However, exporters have already shipped 52% of USDA’s target for the current  year. As such, grain sorghum shipments to date exceed the seasonal pace to hit USDA’s target by 41 million bushels, versus 36 million the previous week.

In the end, today’s buying appeared to be about a lot of bullish traders re-establishing their positions for the first quarter of 2015, with a lot of analysts searching for reasons to justify the move. Export basis was actually somewhat soft with a lot of farmers beginning to delivery on January contracts, with buyers saying they’re getting plenty of corn. There was also some money moving out of the energy and equity sectors looking for a home.

March corn traded back to the bottom of its previous trading range ahead of end-of-the-year positioning pulled the bottom out. The question now is whether we can hold that range the next couple of days and build on it. Supply is increasing, so the bulls need a weather story. The odds are still against such a story, but it can’t be ruled out yet.

Soybeans

USDA’s daily export reporting system today noted that China bought another 8.6 million bushels of old-crop soybeans over the weekend. Demand for U.S. soybeans remains strong in both the export and crush sectors. It’s not a question of demand, but rather of the scope of supply relative to that demand. The supply looks more than enough to meet that demand once the South American harvest begins, but for now the U.S. farmer remains a slow seller.

Exporters shipped 51.7 million bushels of soybeans in the week ending January 1, down from 55.2 million the previous week, but up from the five-year average for the week of 39.2 million. Shipments to China accounted for 35.8 million bushels of the week’s total.

Marketing year shipments to all destinations total 1.132 billion bushels, up 207 million or 22% from the previous year. Exporters have typically shipped 48% of final soybean shipments by this point, whereas they had shipped 56% by this point last year. However, this year they have already shipped 64% of USDA’s target for the year ending August 31. Shipments to date exceed the seasonal pace needed to hit USDA’s target by 281 million bushels, versus 270 million the previous week.

Today’s trade seemed to be all about the bulls re-establishing their positions, similar to the corn market. Like corn, today’s rally took prices back up to the previous trading range. Now we need to see if we can hold it there. That may be tougher than with corn, as traders are more confident in a big South American crop. Nonetheless, the bulls will be watching to see if those 6- to 15-day showers verify in central and northern Brazil.

Wheat

Bitter cold temperatures are expected to focus more on the Midwest, after being more of a Plains issue last week. Wednesday night should see the coldest temperatures. Fresh snow will fall ahead of that time, but up to a third of the Midwest soft red winter wheat belt will likely remain vulnerable to some damage. Unfortunately, it will likely be many weeks before we know the scope of any damage. Last week’s cold likely impacted portions of 20% of the Plains hard red winter wheat belt.

Exporters shipped 13 million bushels of wheat in the week ending January 1, up from 8.9 million the previous week and up from the five-year average for the week of 12.7 million bushels. Marketing year shipments total 510 million bushels, down 233 million or 31% from the previous year. Shipments to date fall short of the seasonal pace needed to hit USDA’s target by 29 million bushels, versus being short by 31 million the previous week.

Several states released updated crop ratings today for the winter wheat crop, showing some deterioration over the past month. Kansas wheat was rated 9% poor to very poor and 49% good to excellent, versus 4% poor to very poor and 61% good to excellent a month earlier. Oklahoma wheat though was unchanged at 54% good to excellent. The percent of South Dakota’s wheat rated good to excellent dropped to 58% good to excellent, down 11 points over the past month. Yet, one of the biggest drops came in Illinois, where just  24% of the crop was rated good to excellent, down from  56% the previous month.

Wheat prices bounced today, but they lacked the energy of corn and soybeans. It will likely be 7 to 10 weeks before we know the extent of any possible winterkill damage. It’s difficult to sustain strength without news, particularly when export demand is hurting. For today, it received a boost from first-of-the-year buying and robust strength in corn and soybeans.

Beef

Live cattle futures added to last week’s gains today, following feeder cattle higher. Product prices continue to push higher on the recent slowdown in slaughter for the holidays, and last week’s cash action suggests that supplies are tighter than the packers would like to see them. Product prices are trading at their highest levels in four to five weeks.

That seems to be re-energizing the feeder cattle market. The latest cash index came in at $228.74, up $10.79 on the day and well-above where the January futures contract is trading. Buyers are returning from the holidays looking to buy light-weight cattle on expectations that corn prices will be dropping and fat cattle prices remaining high following last week’s trade of up to $169 per cwt on a live basis and up to $266 on a dressed basis.

Choice cuts were up another $1.53 to $249.36 per cwt today, while Select cuts were up $1.01 to $240.33. Total movement came in at 155 loads, up from 105 loads on Friday and up from 114 loads the previous week. Estimated packer margins were losses of $49.90 per head, versus losses of $55 on Friday and $49.40 the previous week.

Pork

Lean hog futures accelerated their downward spiral today on weakness in the cash market, as well as the product market. The latest CME cash index came in at $78.11 per cwt, down $0.16 on the day and still below the lead February contract. The index has posted losses for the past 15 trading days, with losses over that period totaling $10.40 per cwt. Slaughter weights are strong, along with slaughter numbers that have been trending higher outside of the holiday period.

Product movement totaled 342 loads today, up from 229 loads on Friday and 324 loads the previous week. However, prices continue to erode lower. The composite pork product price came in at $83.30 per cwt, down $0.02 pm the day, but down $3.58 on the week and the lowest composite price since January 13 of last year.

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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