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Closing Comments

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Closing Comments

Corn

Corn bounces off support, garnering strength from increased money flow on a weak dollar.

What a difference a day makes; and a rumor. To be sure, we probably would have seen modest gain anyway in the grain markets today as prices consolidate as selling dried up near contract lows. However, a rumor that Greece was near a deal with its creditors sent the euro surging higher, and with that a sharp break in the dollar.

The sharp break in the dollar sent money flowing into the broader commodity complex. That extra money flow amplified gains in the grains, including corn, helping trip additional buy signals on the charts that added short-covering and bargain buying.

One of the questions facing the market is the potential timing of the “second-harvest” when farmers give up on holding last year’s corn crop and dump it on the market. DTN recently released the results of an online non-scientific poll conducted April 27 to May 8. It showed that 28% of the 305 respondents will likely sell by the end of June if prices remain low, while 30% said they will definitely sell before harvest. Another 15% indicated that they would sell part before harvest, but would “wait and see” on the rest. Finally, 27% of the respondents indicated that they were willing to hold it all past this year’s harvest if necessary.

December corn rallied to one-week highs on today’s rally after the recent price break held just above contract lows. We saw a similar rally in mid-May that was cut short by a strong rally in the dollar. As such, traders will be monitoring the currency market closely. Continued weakness in the dollar wouldn’t assure a sustained rally in corn, but it would make it much easier to achieve. However, the outlook remains bearish longer-term unless a significant threat emerges to this year’s crop.

Soybeans

Soybean bounce gets bonus support from the currency market.

Soybean prices had a bad month in May, with the November contract losing 46.5 cents or 4.9% during the month as global supplies increased. The market was oversold and due for a correction. Prices were poised for at least a modest correction after selling momentum began to wane in recent days after new-crop prices reached contract lows with the crop still going into the ground.

As such, we probably would have been modestly higher today, but the surge of money coming into the broader commodity complex on a sharp break in the dollar amplified those gains, encouraging more short-covering and bargain buying to push prices to double-digit gains.

We could see the November contract push all the way into the $9.45 to $9.48 area on this run if the dollar remains under pressure, but that could change tomorrow if rumors turn the other way in Europe sending the euro reeling and the dollar surging again. Realistically, it would be difficult to justify new-crop prices above $9.50 if we continue to see favorable weather in the Midwest, considering the size of crops just harvested in South America amid easing demand in China.

November soybeans rallied to

Wheat

Follow-through buying in wheat garners support from a collapsing dollar.

The short-covering rally that started on Monday got a big boost with a weaker dollar today, adding more money on the buy side of the market at a time when sellers were stepping to the sideline. That amplified gains, sending prices sharply higher.

The rise in prices sent market commentators scurrying for a reason, as often happens in the marketplace. Little has changed since last week’s collapse, but the focus has changed, at least for now. Suddenly there’s more chatter about possible quality problems in the Southern Plains, although it will likely be several more days before fields dry enough to check fields. Suddenly there’s more talk about dryness from Europe to the Black Sea region, although locals admit they could still see a normal crop when pressed.

However, history has also shown that wheat prices “can” put together quite a run, whether justified by supply and demand fundamentals or now. It’s a matter of a market getting enough headlines focused on a problem, and then developing enough momentum in a particular direction to keep fund managers engaged in moving in that direction. As such, we will continue to monitor this rally for sustainability.

Demand is still the primary problem, but a weaker dollar makes it much easier for traders to “hope” for better export sales to justify higher prices, particularly if we see problems develop overseas. Typically the market tends to focus on headlines from the Black Sea region or Australia. However, there has been a modest increase in chatter about India after heavy rains and hail “ravaged” farms there. Ironically, forecasters are now reducing monsoon forecasts, raising drought concerns.

India still puts its crop at 90.78 million metric tons, down from last year’s record 95.9 mmt, however some local sources say it could be as low as 80 mmt, or the smallest crop since 2008. That could turn India from a net exporter to a net importer, largely due to quality problems. Historically, I don’t see many times when India fundamentals impact U.S. wheat prices much, even though they are the second largest producer in the world, but that possibility rises when the funds lean as heavily to the short side as they have this year.

Beef

Turn-around Tuesday selling pressures cattle prices.

Live cattle futures pulled back today, led by feeder cattle. The feeder cattle market came under modest pressure as corn prices pushed higher, leading to higher breakeven prices. That in turn cooled enthusiasm in the fat cattle market as traders wait for direction from this week’s cash trade. The charts continue to slowly trend higher, but upward momentum is waning as we move into early summer when prices tend to struggle.

Today’s kill is estimated at 114,000 head, down 1,000 from the previous week and down 5,000 from the previous year. Week-to-date kill is pegged at 228,000 head of cattle, up 111,000 from the previous week due to the holiday, but down 6,000 from the previous year.

Boxed beef movement on the spot daily market slide to 132 loads Monday, down from 145 loads on Friday. Choice cuts slid another $0.71 to $254.28 per cwt, while Select cuts were up $0.79 to $244.62. That narrowed the Choice/Select spread seasonally to $9.66 per cwt, down from $11.66 on Friday, while also dropping estimated packer margins to losses of $24.30 per head. Movement at mid-morning today was good at 101 loads, with Choice cuts down another $0.19 and Select cuts down $1.61 per cwt.

Demand for light-weight cattle at the sale barn remains steady to firm, due to an abundance of lush pasture this year, as well as expectations for cheap feed costs. Today’s CME 7-day cash index came in at $223.06 per cwt, up $0.35 on the day and up $3.28 over the past 7 consecutive trading days. The latest index is the highest since mid-January.

Pork

Lean hog futures pull back as market fundamentals feel top-heavy near-term.

Today’s cash market was mostly steady across the Midwest today. The latest CME 2-day lean hog index today was $82.06 per cwt, down $0.12 on the day and down $1.14 over the past 6 consecutive days. As such, the cash market isn’t collapsing, but upward momentum has certainly paused at best amid concerns that demand is softening.

Today’s kill is estimated at 422,000 head, down 9,000 from the previous week, but up 15,000 from the previous year. Week-to-date kill is pegged at 842,000 head, up 409,000 from the previous holiday-shortened week, but up 57,000 head from the same period last year.

Product movement rose to 293 loads Monday, up from 256 loads on Friday. The composite pork product price rose to $87.10 per cwt, up $0.30 on the day and just below the previous week’s 2015 high of $87.28 per cwt. Movement at midday today was good at 236 loads, with the composite price slipping $0.04 to $87.06 per cwt. Many retailers are featuring pork this month, which needs to result in strong product movement after last week’s movement fell to its lowest level since the Christmas holiday week.

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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