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Closing Comments

Corn

Corn prices erode lower after failing to sustain strength, despite good export shipment data.

Exporters shipped 42.1 million bushels of corn in the week ending April 16, up from 33.8 million the previous week and up from the five-year average for the week of 37.6 million bushels. The past week’s total included 44K bushels shipped to China.

Marketing year shipments to all destinations total 994 million bushels, down 63 million or 6% from the previous year. Exporters typically ship 60% of final corn shipments by this point, whereas they had shipped 55% by this point last year. This year they have also shipped 55% of USDA’s target. As such, shipments to date fall short of the seasonal pace needed to reach USDA’s target by August 31 by 80 million bushels, versus being short by 86 million the previous week.

Exporters shipped 8.6 million bushels of grain sorghum in the week ending April 16, down from 9.3 million the previous week, but up from the five-year average for the week of 4.2 million bushels. Virtually all of the past week’s total shipped went to Chinese end users.

Marketing year shipments total 250 million bushels, up 139 million or 125% from the previous year. Exporters typically ship 63% of final grain sorghum shipments by this point in the year, whereas they had shipped 52% by this point last year. However, exporters have already shipped 71% of USDA’s target for the current year. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 28 million bushels, up from 26 million the previous week.

USDA is scheduled to release its weekly crop progress report at 3 p.m. CDT this afternoon. A Reuters survey revealed expectations that this afternoon’s report that will show that 10% of the corn crop was planted through Sunday, up from 2% the previous week. Our submitted estimate was 13% of the crop planted as of Sunday, which would match the five-year average for the week.

Today’s corn trade reflects bearish sentiment in the corn market. Friday’s CFTC report showed that the speculative hedge funds held net short positions of 434 million bushels of corn, versus being net short 197 million bushels the previous week. That didn’t scare traders one bit today, with fund managers believed to be adding to short positions.

No serious planting delays are perceived by traders at this point. It would likely take quite a surprise in this afternoon’s crop progress data to change that perception.

Soybeans

Soybeans rally on China stimulus, possible Brazil truckers strike and positive chart signals.

Exporters shipped 5.4 million bushels of soybeans in the week ending April 16, down from 16.5 million the previous week and down from the five-year average for the week of 11.2 million bushels. The past week’s total included just 1.2 million bushels destined for China.

Marketing year shipments to all destinations to date total 1.671 billion bushels, up 161 million or 11% from the previous year. Exporters typically ship 84% of final soybean shipments by this point, whereas they had shipped 92% by this point last year. They have already shipped 93% of USDA’s target for the current year. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 171 million bushels, but that is down from 187 million the previous week.

The past week’s soybean shipments were quite weak, but that didn’t matter to traders today. Early strength came from news that China would cut its bank cash reserve requirement to 18.5% starting today, down a full point, which is the largest one-time cut since the great recession in 2008-09. Furthermore, Brazil truckers will likely start a strike on Thursday. It’s not expected to impact export shipments unless it lasts well into May, but it made for good headlines.

The combination of the above pushed the May contract above trend line resistance that had held the market the past two months, leading to follow-through chart buying. Gains reached double-digits from time to time, despite weak demand and prospects for rising supplies. The charts suggest that we could see some follow-through buying, possible into next month, but in the end this will likely prove to be a rally to be sold unless a legitimate weather threat emerges.

Wheat

Wheat futures bounce on bargain buying following recent losses.

Exporters shipped 20.7 million bushels of wheat in the week ending April 16, up from 17.3 million the previous week, but still down from the five-year average for the week of 25.5 million bushels. Nonetheless, the past week’s shipments were the largest in more than six months.

Marketing year shipments total 741 million bushels of wheat, down 279 million or 27% from the previous year. Shipments to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 14 million bushels, although that is down from a deficit of 19 million the previous week.

Traders will be watching anxiously for this afternoon’s 3 p.m. CDT USDA weekly crop progress report. A Reuters’ survey of trade participants reveals expectations that it will show 29% of the spring wheat crop planted as of Sunday, up from 17% the previous week and the five-year average pace for this week of 20%. Our submitted estimate was 28%.

The trade expects the winter wheat crop to rate 44% Good to Excellent after weekend rains, whereas our estimate was 43%. Much of the wheat in the Plains was under so much drought stress that it was starting to head at 10 to 12” height. That wheat is expected to go ahead and produce a small head, but new tillers are now expected to come after the rain, creating a problem with varied maturity.

The Kansas City and Minneapolis wheat charts look bad, but Chicago appears to be building a friendly double-bottom on the charts. Ultimately, it will be difficult for wheat to sustain a rally if it’s not led by Kansas City, but the action suggests that we may be able to get a modest bounce over the next couple of weeks. We have several opportunities to create supportive headlines over the next couple of weeks leading up to the Wheat Quality Council tour of the Plains winter wheat belt. Next up is this afternoon’s crop progress report.

Beef

Live cattle futures tumble on bearish chart signals amid weaker cash prices.

Cash cattle traded at mostly $160 per cwt on a live basis in Texas on Friday afternoon, with movement at $160 to $161 in Kansas. A few traded at $163 in Nebraska, but more at $256 to $260 per cwt on a dressed basis. The sales were down from largely $162 to $163 the previous week in Kansas and $165.50 in Nebraska.

Futures broke first on sinking values for Choice cuts Friday morning, followed by a larger break on word of the weaker cash trade. Never mind that futures contracts are already trading at a large discount to the cash market. The weaker product and cash markets were all that fund managers needed to justify the collapse, with live cattle and feeder cattle futures markets both hitting the daily limit lower.

Limits were expanded today, allowing for greater volatility, but they were not needed. Prices were again sharply lower, but continued to trade throughout the day without running into the expanded limits.

Last Friday’s kill was estimated at 100,000 head, up 10,000 on the week, but matching the previous year. Saturday slaughter was pegged at 4,000 head, bringing the week’s kill to 533,000 head, up 31,000 from the previous week’s dismal total, but still down 32,000 from the same week last year. This brings estimated slaughter for the calendar year to 8.194 million head of cattle, down 666,000 or 7.5% the previous year. Today’s kill was estimated at 110,000 head, up 1,000 from the previous week and up 7,000 from the previous year.

Total beef production over the past week reached 433.2 million pounds, up from 408.3 million the previous week, but down 12.2 million or 2.7% from the same week last year. Calendar year beef production is estimated at 6.927 billion pounds, down from 4.4% from 7.248 billion the previous year.

Spot daily product movement of boxed beef totaled 807 loads last week, up from 743 loads the previous week, but down from 891 loads in the same week last year. The past week’s load count on the spot market was a nine-week high. Choice cuts finished the week at $257.79 per cwt after posting a high of $260.80 on Wednesday, just below the January record high of $263.81 per cwt. Yet, the past week’s Friday close for Choice cuts was up $1.28 on the week and up $13.67 per cwt over the past five weeks.

Select cuts finished the week at $250.97 per cwt, unchanged from Thursday and up $1.06 on the week and up $7.69 over the past four weeks. As such, the Choice/Select spread rose seasonally during the week, finishing on Friday at $6.82 per cwt, up $0.22 on the week and up $6.77 over the past five weeks.

Product movement on the spot market totaled a very routine 68 loads at mid-morning today, which isn’t unusual for a Monday. Choice cuts bounced $0.92 to $258.71, while Select cuts were up $1.59 to $252.56 per cwt.

Feeder cattle futures followed the fat cattle market lower on weakening chart signals. Today’s CME 7-day feeder cattle index came in at $217.66 per cwt, down $1.81 on the day and down $1.91 over the past week.

Pork

Chart selling continues to weigh on lean hog futures, amid worries about avian flu.

The cash hog and product markets both continue to show signs of carving out a broad near-term bottom, but futures saw more selling today. Futures contracts are already at a premium to the cash market, leaving them vulnerable. June lean hogs broke below support at last week’s low, reaching a low of $75.025 today on the chart-related selling. Fundamentally, traders continue to worry about the spreading avian flu that could dump more cheap poultry onto the market.

Today’s cash market was mostly steady across the Midwest. The latest CME 2-day lean hog index came in at $63.73 per cwt, down more than $6 from the lead May contract and nearly $12 below the June contract. Today’s index was up $0.75 from the previous day, up $3.38 over the previous week and up $4.15 over the past two weeks.

Last Friday’s kill was estimated at 419,000 head, up 23,000 from the previous week and up 39,000 from the previous year. Saturday’s kill was estimated at 79,000 head of hogs, bringing the week’s total to 2.243 million head, up 71,000 from the previous week and up 240,000 from the same week last year. That brings 2015 slaughter to 34.277 million head, up 1.693 million or 5.2% from the previous year. Today’s kill is pegged at 430,000 head, down 22,000 from the previous week, but up 56,000 head from the previous year.

Pork production is estimated at 468 million pounds for the past week, down slightly from 469.3 million the previous week, but up 7.8% from the 434.1 million pounds produced the previous week. Calendar-year pork production reached 6.880 billion pounds, up 5.3% from the 6.534 billion produced by this point last year.

Product movement over the past week totaled 1,860 loads, up from 1,746 loads the previous week, up from 1,576 loads the previous week and a seven-week high. The composite pork product price firmed to $67.99 per cwt, up $1.85 on the day, up $2.12 on the week and up $2.64 over the past three consecutive weeks. Movement at midday today was slow at just 136 loads, with the composite pork product price up $0.10 to $68.09 per cwt.

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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