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Closing Comments

Corn

Corn posts modest gains as dollar breaks to two-month lows on poor economic data, but gains limited by large supplies.

The Department of Energy reports that crude oil stocks rose “just” 1.9 million barrels in the week ending April 24. That brings crude oil stocks to a record for April of 490.9 million barrels. Stocks are still rising, but there is a sense in the trade that declining rig counts (5-year lows) and improving demand are bringing supply and demand into balance. As such, many in the trade believe that at least a near-term bottom is behind us and they want to own crude oil. As a result, we saw crude oil prices post new four-month highs following the data release.

Ethanol stocks slipped to 20.8 million barrels in the week ending April 24, down from 21.3 million barrels the previous week, but up from 17.2 million barrels in the same week last year. Production during the week slipped to 921K barrels per day, down from 930K barrels the previous week, but up from 898K barrels per day in the same week last year.

The data suggests that ethanol processors ground 97.8 million bushels of corn in the week ending April 24, down from 98.7 million the previous week, but up from 96.7 million bushels used in the same week last year. That brings estimated corn usage to date to 3.409 billion bushels, up 121 million or 4% from the previous year. Corn usage to date for ethanol production exceeds the seasonal pace needed to reach USDA’s target by August 31 by 10 million bushels, but that is down from 13 million the previous week.

Corn futures began firming when they failed to test the previous day’s lows amid stabilizing wheat prices and a collapsing dollar. Traders remain bearish corn long-term, but a short-covering rally ahead of USDA’s May 12 crop report is possible if wheat continues to firm and the dollar sink.

Soybeans

Soybeans post double-digit gains on tight near-term cash supplies

Shipping came to a standstill today at Argentina’s largest port at Rosario. The work stoppage was a product of a strike by boat captains who take river pilots out to incoming grain ships. The boat captains are staging an indefinite strike for higher wages amid out-of-control inflation in Argentina. The shipping problems come as Argentina tries to move a bin-buster crop that is expected to beat last year’s record crop by at least 10%.

 The market was unable to maintain double-digit gains on Tuesday, but it did so today, providing added confidence in the current short-covering rally. Commercial demand is seasonally strong and speculative hedge fund managers who built record large short positions are trying to unwind those positions. Hedge fund managers traditionally are not comfortable maintaining short positions in soybeans; preferring to be long.

However, gains are still tough to sustain with a big surplus this year, a record South American harvest and expectations for expanded U.S. acreage in the weeks ahead. Soybeans find support from expectations that we will see rapid corn planting over the next week, but selling interest is also expected to increase as prices approach $10, on both sides of the equator.

July soybeans firmed to a three-week high, with approaching resistance at $9.93, $9.99, $10 and $10.10. I would be surprised to see July soybeans push above those levels unless a significant weather threat were to emerge, but we’ll watch action in the dollar to see if it might support greater money flow into the broader commodity sector. The new-crop soybean/corn price ratio finished the day at 2.49 to 1 today in an attempt at buying more soybean acres away from corn.

Wheat

Wheat builds on modest gains as dollar pushes lower.

Yesterday I highlighted the ability of wheat to reverse higher off sharp losses as the market became oversold amid massive short positions held by speculative hedge fund managers. Strength was supported by the weakening dollar. The dollar plummeted today after bearish economic data dashed hopes of an interest rate hike anytime soon, but gains were limited by talk out of Russia that it may soon lift its export tax.

Prices eventually gained a bit more upward momentum over the noon hour as the dollar began to turn lower once again. It was good to see green on the screen, but gains remain limited amid ongoing bearish sentiment. The weaker dollar helps, but prices need to push higher into areas of chart resistance in order to trigger short-covering by the speculative funds leaning hard to the short side.

The largest gains were in Chicago, where the largest short positions are seen. However, a sustained rally needs to be led by Kansas City. The hard red wheat market may get that opportunity next week when the Wheat Quality Council hosts its tour of media, traders and end users as they walk wheat fields in Kansas and surrounding states; the area that is most devastated by drought, winterkill and now stripe rust.

A Bloomberg survey of trade participants reveals expectations that the tour will find a 298 million-bushel crop in Kansas, up from 246 million the previous year. Oklahoma is expected to come in at 109 million bushels, up from 48 million the previous year. All winter wheat bushels are expected to come in at 1.484 billion bushels, up from 1.378 billion the previous year. Our submitted entries were 270 million bushels for Kansas, 105 million for Oklahoma and 1.488 billion bushels for the winter wheat crop as a whole.

Chicago July wheat sees its next objective at $4.86, with Kansas City July at $5.105 and Minneapolis September $5.71. Moves above these levels would be expected to encourage additional fund short-covering, even though they remain bearish long-term. Keep in mind, as bad as problems are in the Central Plains, we are carrying nearly a 140-day supply of hard red winter wheat and 120-day supply of all wheat over into the new marketing year, which is expected to keep a bearish cloud over the market until/unless export demand can improve.

Beef

Cattle traders consolidate prices while waiting for this week’s cash action.

Today’s live cattle futures trade was on both side of unchanged, but with firmer undertones. Packers are said to be offering $157 per cwt on a live basis in Kansas and Texas, near last week’s trade. Feeders were said to be asking $161. This follows a week where cash trade started mid-week and then firmed as we moved through the week. The bottom line is that traders see evidence that we will see steady to higher cash trade this week, breaking a string of significantly lower prices.

Supply and demand remain precariously balanced. Choice cuts are trading just below record high prices. Estimated packer margins are positive more than $35 per head. Packers have an incentive to push more animals through the plant as barbecue season warms up. Mother’s Day combines with graduation weekends and Memorial Day to heat up demand as grills are opened across the country.

Packer kills in the weeks leading up to Memorial Day last year averaged 603,000 head. Slaughter levels haven’t been close to that level this year. They fell to just 502,000 earlier this month, but rose with improved margins to 544,000 head last week, with some thinking they will reach 560,000 this week. The trade thought supplies would increase in late April, but now fear that won’t happen until June.

The deferred continue to reflect skepticism, trading at $10 discounts to the cash. This has helped packers at times break the cash market, but at other times the futures have to rally sharply to catch up to a cash market regaining its footings on tight supplies. June live cattle futures are consolidating near Friday and Tuesday’s highs while waiting for clearer direction from this week’s cash trade. More significant resistance sits near $152 and $153 on the June charts.

Today’s kill is pegged at 115,000 head, up 5,000 from the previous week, but still down 4,000 from the previous year. Week-to-date kill is estimated at 335,000 head, up 5,000 from the previous week, but down 19,000 from the same period last year.

Feeder cattle prices showed a bit more strength than the fat cattle market today on optimism that support will remain under the fat cattle market and that corn prices will continue to erode this summer. Recent strength in the cash market also provided support. The latest CME 7-day feeder cattle cash index today came in at $215.79 per cwt, up another $0.89 on the day, up $2.82 over the past three days, but still down $0.74 over the past week.

Product movement on the daily spot market reached 152 loads of boxed beef Tuesday, up from 150 loads the previous two days and up from 137 loads the previous week. Choice cuts firmed $0.83 to $257.72 per cwt, while Select cuts were unchanged at $247.98. That firmed the Choice/Select spread to $9.74 per cwt, up from $8.91 the previous day, but down from $10.27 the previous week. Movement at mid-morning today was strong at 142 loads, with Choice cuts up $1.51 and Select cuts down $1.02 per cwt.

Pork

Lean hog futures continue to trek higher on stronger cash and product prices.

Lean hog futures continued their slow trek higher today, underpinned by rising cash and product prices. Today’s cash market was mostly steady to $2 higher across the Midwest, with weights dropping as producers rush to get hogs to market before packer margins turn negative. This reduces product on the market with the higher slaughter numbers. Packer margins are near breakeven. The latest CME 2-day lean hog index was $66.49 per cwt, up $0.66 on the day, up $1.73 on the week and up $6.91 over the past 17 consecutive trading days.

Today’s kill is pegged at 426,000 head, down 2,000 from the previous week, but up 18,000 from the previous year. Week-to-date slaughter is estimated at 1.284 million head, down 6,000 from the previous week, but up 117,000 head from the same period last year, but at lower weights.

Product movement rose to 437 loads Tuesday, up from 289 loads the previous day and up from 398 loads the previous week. The composite pork product price firmed to a new two-month high of $71.02 per cwt, up $0.16 on the day and up $2.41 over the past week. Movement at midday today was good at 239 loads, with the composite price up another $1.30 to $72.32 per cwt.

June lean hogs pushed to their highest level since March 5th today, but face increasing resistance at the 100-day moving average, currently at $82.175 per cwt. This market has the opportunity to move into the $84 to $85 range, but it may not be easy getting there.

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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