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Closing Comments

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Closing Comments

Corn

Corn futures firm on expectations that USDA will confirm lower acreage tomorrow.

Exporters shipped 30 million bushels of corn in the week ending March 26, down from 39.2 million the previous week and down from the five-year average for the week of 37.7 million bushels. No corn was inspected for shipment to China during the week.

Marketing year shipments total 876 million bushel of corn, down 6 million or 1% from the previous year’s pace. Exporters typically ship 54% of final corn shipments by this point in the marketing year, whereas they had shipped 46% of final shipments by this point last year. This year, exporters have shipped 49% of USDA’s target as of March 26. As such, shipments to date fall short of the seasonal pace needed to reach USDA’s target by August 31 by 88 million bushels, versus short by 80 million the previous week.

Exporters shipped 6.8 million bushels of grain sorghum in the week ending March 26, down from 9.5 million the previous week, but up from the five-year average for the week of 4.1 million bushels. Virtually all of the past week’s shipments were again destined for Chinese end users.

Marketing year grain sorghum shipments total 220 million bushels, up 129 million or 142% from the previous year. Exporters typically ship 58% of final grain sorghum shipments by this point in the marketing year, whereas they had shipped 43% by this point last year. However, this year they have already shipped 73% of USDA’s target. As such, shipments to date exceed the seasonal pace needed to hit USDA’s target by 47 million bushels, unchanged from the previous week.

Futures prices firmed modestly, but within recent trading ranges, on expectations that USDA will confirm tomorrow that farmers will plant nearly 2 million fewer acres to the feed grain this year. December corn continues to have strong resistance near $4.20, which traders don’t want to take out until they see tomorrow’s USDA acreage and stocks reports.

Soybeans

Soybeans follow the grain complex higher, but prices pulled well off their highs as farmer sales increased today.

Exporters shipped 24.1 million bushels of soybeans in the week ending March 26, up from 19.1 million the previous week and down from the five-year average for the week of 25.5 million bushels. The past week’s shipment total included 13.3 million bushels destined for China.

Marketing year shipments total 1.628 million bushels, up 153 million or 10% from the previous year. Exporters typically ship 80% of final soybean shipments by this point in the marketing year, whereas they had shipped 90% by this point last year. However, this year they have already shipped 91% of USDA’s target. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 197 million bushels, but that is down from 207 million the previous week.

Soybean futures benefited from seasonal factors that support prices in April, combined with good strength in the corn and wheat markets. However, USDA is expected to confirm expectations that farmers will add several million soybean acres this year when it releases the results of its latest survey tomorrow at 11 a.m. CDT.

As such, many farmers unloaded a portion of their old-crop supplies today, causing prices to pull back from their session highs. Long-term soybean fundamentals remain bearish if acreage expands as expected and if weather favors trend or better yields, but soybean prices tend to find good support in April. The new-crop soybean/corn price ratio finished the day at 2.27 to 1, as it continues to trend lower in favor of corn.

Wheat

Wheat prices explode higher on speculative short-covering following Friday afternoon’s CFTC data.

Exporters shipped 11.8 million bushels of wheat in the week ending March 26, down from 20 million the previous week and down from the five-year average for the week of 21 million bushels. Marketing year shipments total 689 million bushels, down 263 million or 28% from the previous year. Shipments to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 32 million bushels, versus short by 29 million the previous week.

Some key states in the Plains winter wheat belt have been releasing weekly crop ratings this month. Other Midwestern states will join them this week, with report releases expected at 3 p.m. CDT today. USDA is scheduled to begin releasing weekly crop ratings for the grow season starting next Monday. I look for Kansas, and likely Oklahoma, to report declining ratings in this afternoon’s state reports.

Yet, many fund managers remain bearish wheat, due to very sluggish export demand. However, they also know how easy it is for a cold front to drop out of Canada in April, causing freeze damage to a vulnerable crop. As such, they are nervous holding larges short positions at this point in the growing season, particularly with dryness also being a factor in the Plains.

Gains tomorrow will likely be much more difficult to sustain until traders see USDA’s data release at 11 p.m. Prices are nearing the top of this winter’s predominant trading range, with traders anxious to see crop ratings and tomorrow’s stocks report to see whether a move to fresh highs is justified or not.

Beef

Live cattle futures turn lower in profit taking after failing to sustain a move to new highs despite strong cash prices.

The cash market waited until the 11th hour last week, with modest amounts of cattle moving late Friday at mostly $165 per cwt on a live basis and mostly $262 to $263 per cwt on a dressed basis in the Plains feedlot region. That supported fresh strength in cattle futures early today, but prices quickly turned lower in profit taking when lead contracts failed to sustain a move to new highs in both the live cattle and feeder cattle markets. Ironically, the lead April contract’s early-day rally reached $162.975 per cwt; just short of the February contract’s last high of $163.10, reinforcing resistance at that level.

Friday’s kill was estimated at 95,000 head, up 12,000 from the previous week, but down 15,000 from the previous year. Saturday’s kill is pegged at 17,000, up 12,000 from the previous week and up 9,000 from the previous year. That brings the past week’s estimated kill to 531,000 head, up 13,000 from the previous week, but still down 57,000 from the previous year. That brings calendar-year slaughter to 6.623 million head, down 109,000 head or 7.1% from the previous year.

Today’s kill was estimated at 109,000 head, up 5,000 from the previous week, but down 7,000 from the previous year. Last week’s slaughter started slow, but then gained momentum late. Activity is starting at a faster pace this week, but many packers are expected to slow down as we approach the end of the week and the Easter holiday weekend.

Product movement over the past week totaled 631 loads, down from 745 loads the previous week and a three-week low. The total was also down from the 718 loads that moved in the same week last year. Choice cuts finished the week at $250.80 per cwt, up $6.29 on the week and up $6.68 over the past two weeks. Select cuts finished the week at $246.71 per cwt, up $3.43 on the week. That strengthened the Choice/Select spread to $4.09 per cwt, up $2.86 on the week and up $4.04 over the past two weeks.

Movement at mid-morning today stood at a mere 53 loads, which is slow even for a Monday. Choice cuts were up $1.70 to $252.50 per cwt, while Select cuts were up $2.57 to $249.28. Today’s estimated packer margins stood at losses of 43.10 per head.

We’ve been looking at the possibility of feeder cattle futures testing resistance at $225, but today’s action reinforces resistance at $220. As such, we’ll need to see strong support from the cash market to push the lead contract higher. The latest CME feeder cattle index came in at $217.73 per cwt, up $1.02 the previous day and up $2.13 over the past week, but still below the lead April futures contract.

Pork

Lean hogs garner strength in deferred contracts following supportive data in Friday’s USDA quarterly hogs and pigs report.

Friday afternoon’s USDA quarterly hogs and pigs report confirmed that the hog industry had made huge strides toward expanding after managing to bring the PED virus under better control. However, it also showed that the industry has begun to pare back expansion now that prices have responded to the larger supply. As such, I looked for the nearby contract to come under pressure from big upfront supplies, with support for the deferred contracts.

Today’s open was quite volatile, with some orders in the waiting for limit-down prices across the board. That didn’t happen. We did see a very volatile open, with the June contract trading a $2.75 spread in the first few minutes. The market traded both sides of unchanged before settling into more of the expected pattern by late morning, with nearby contracts under pressure and deferred contracts finding support.

Friday’s kill was estimated at 422,000 head, up 7,000 from the previous week and up 61,000 from the previous year. Saturday’s kill is pegged at 115,000 head, up 15,000 from the previous week and up 92,000 from the previous year. That puts the week’s estimated kill at 2.270 million head, up 33,000 from the previous week and up 239,000 from the same week last year. Calendar-year hog slaughter is estimated at 27.663 million head, up 1.112 million or 4.2%from the previous year.

Today’s kill was estimated at 435,000 head, up 1,000 from the previous week and up 38,000 from the previous year. However, late-week kill may drop due to the Easter holiday weekend.

Product movement totaled 1,805 loads over the past week, down from 1,812 loads the previous week, but up from 1,480 loads in the same week last year. The composite pork product price finished the week at a new multi-year low of $65.35 per cwt, down $2.68 over the past week. The composite price has been lower now in eight of the past nine years, with the lone gain seen a week ago at just $0.55, with the net price loss over that period totaling $19.03 per cwt.

Movement at midday today was slow at 177 loads. However, the composite pork product price firmed a bit to $65.65 per cwt, up $0.30 on the day.

Today’s cash market mostly steady across the Midwest. The latest CME 2-day lean hog index came in at $60.39 per cwt, adding to nearby weakness in futures. The latest index was down $0.42 on the day, down $2.51 on the week and down $7.70 over the past 16 consecutive trading days, showing that the cash market continues to erode lower by about 50 cents per day; at least until today.

April lean hogs found support from the deferred contracts today, with the deferred contracts garnering support from Friday’s USDA data. However, April will have to respect movement in the cash market in the days ahead and big upfront supplies still leave that market vulnerable near-term.

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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