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Closing Comments

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Closing Comments

Corn

Corn traders mark time waiting for harvest results, despite supportive tour results.

Exporters shipped 35.0 million bushels of corn in the week ending August 13, up from 32.3 million the previous week and above the five-year average for the week at 28.1 million bushels. There were no shipments to China during the week.

Marketing year shipments to all destinations total 1.686 billion bushels, down 80 million or 4% from the previous year. Shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 57 million bushels, up from 56 million the previous week.

Exporters shipped 6.8 million bushels of grain sorghum in the week ending August 13, down from 8.2 million the previous week and up from the five-year average for the week of 3.7 million bushels. The past week’s total included 6.7 million bushels destined for Chinese end users.

Marketing year shipments to all destinations total 338 million bushels, up 151 million or 81% from the previous year. Exporters typically ship 90% of final grain sorghum shipments by this point in the year, whereas they had shipped 88% by this point last year. However, this year they have already shipped 96% of USDA’s target for the year. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 22 million bushels, although that is down from 23 million the previous week.

USDA-FSA released its first monthly update of certified acres. Typically I would be wary of reading too much into this first report, but the data contained some red flags that suggest we could see this year’s planted/harvested acreage adjusted in future USDA crop reports.

Corn prevented plant acres in the August report totaled 2.3 million acres, compared to 1.5 million in the same report last year. However, planted acres are above the expected pace, suggesting that USDA is currently under-estimating total corn acres. As such, I think we need to see future monthly FSA reports before we can draw any hard conclusions on the corn acres. Even so, the bias currently is to see a modest increase in corn acres net overall.

This week’s primary focus is on the highly-anticipated Pro Farmer crop tour. The tour will not reach the best crops until later this week. Tour participants have seen both very good and very bad crops, but the bottom line is that they have not seen the kind of consistency needed to reach USDA’s estimate, nor have they seen the exceptional crops in western areas needed to offset problems in the southern Midwest.

Yet, traders are reluctant to turn bullish. They bought into the bullish story ahead of the USDA crop report and paid a steep price for doing so. As such, they need to see harder evidence that this year’s corn crop will fall substantially below USDA before going long (bought) again. That may take combines moving into the Midwest.

Soybeans

Soybean prices find firm footing as cautious optimism slowly returns.

Exporters shipped an 18-week high 13.8 million bushels of soybeans in the week ending August 13, up from 6.1 million the previous week and up from the five-year average for the week of 10.6 million bushels. Shipments to China during the week totaled just 0.02 million bushels.

Marketing year shipments to all destinations total 1.815 billion bushels, up 227 million or 14% from the previous year. Exporters typically ship 96% of final soybean shipments by this point in the year, whereas they had shipped 97% last year. Thus far this year the USDA data indicates that exporters are just 10 million bushels shy of reaching its target. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by 62 million bushels, although that is down from 61 million the previous week.

The National Oilseed Processors Association reports that its members crushed 145.2 million bushels of soybeans in July, up from 142.5 million the previous month and 21% above the previous July. The trade had been expecting a total of 141.5 million bushels, while my submitted estimate was 143.3 million bushels.

NOPA members continue to set monthly records thanks to strong export demand for soymeal. Marketing year NOPA soybean crush totals 1.643 million bushels through July, up 100 million from the previous year. NOPA crush to date exceeds the seasonal pace needed to reach USDA’s target by August 31 by 13 million bushels, up from 7 million the previous month.

USDA’s August 12 crop report indicated that the agency reduced planted soybean acreage by 800,000, with 650,000 coming from Missouri and the remainder split between Kansas and Arkansas. However, FSA’s August data release of certified acres indicates that Missouri soybean prevented acres totaled 1.02 million acres and that number could continue to work higher as more data becomes available.

Total soybean prevented acres in this August report came to 2.17 million, up from 0.827 million in the same report in 2014. Illinois soybean prevented plant acres came to 231,000 acres, with Indiana adding another 92,000 and Iowa 77,000. The bottom line is that soybean acres could drop by another 300K to 400K based on this very preliminary data.

The first day of the Pro Farmer crop tour found both very good and very poor soybeans, but not the consistency needed to reach the 46.9 bushel average projected by USDA on August 12. Tour participants should see better soybeans later this week, but a 46.9 bushel average is exceptional and takes good crops consistently over most areas of the Midwest. The data thus far suggests that is not the case.

Some friendly spreading of soybeans against corn and wheat reappeared to kick off the week, supporting by field reports from the tour, as well as a friendly NOPA crush report and strong export shipments. However, fund managers were burned by USDA the last time they began to turn bullish and therefore want to see harder evidence of a short crop before building long (bought) positions once again. That may take combines rolling in the Midwest next month.

Wheat

Wheat supplies remain large amid disappointing demand.

Exporters shipped a nearly four-month high of 20.6 million bushels of wheat in the week ending August 13, up from 15.4 million the previous week, but still below the five-year average for the week of 24.6 million bushels. There were no shipments to Brazil during the week, while shipments to China totaled just 0.03 million bushels.

Marketing year shipments to all destinations total 152 million bushels, down 39 million or 20% from the previous year. Exporters typically ship 20% of final wheat shipments by this point in the year, while they shipped 22% by this point last year. However, this year they have only shipped 16% of USDA’s target thus far. Shipments to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 35 million bushels, versus being short by 34 million bushels the previous week.

Wheat has been trying to carve out a bottom yet once again, but it struggles to do so without help from corn. That help wasn’t present today, allowing wheat to fall on big domestic and global supplies. Prices remain vulnerable to new lows until/unless corn is able to drag it higher or a new supply concern emerges.

Beef

Beef complex drifts listlessly while searching for direction.

Last week’s cash cattle trade was very disappointing, both in volume and value. Reports generally range from $148 to $150 per cwt on a live basis. That led to an immediate drop in futures contracts this morning, but then values gradually firmed starting by mid-morning on firmer product prices, with contracts already at a discount to the cash market.

The lead August contract remained in negative territory, while the deferred contracts were largely able to post positive gains. October live cattle uncovered buying interest when the contract held support at $146, but it will remain vulnerable below $150.

August feeders found support from the premium currently held by the cash market, while the deferred contracts were under pressure. September feeders traded near the session high late today, but still below the previous day’s high after setting a new three-week low. The trade behaves as if it expects higher corn and weaker fat cattle prices. Today’s cash index came in at $216.50 per cwt, down $0.21 on the day and down $0.16 on the week.

Packer margins remain profitable, encouraging slaughter activity, but packers are worried about declining profitability in a couple weeks as product prices slip seasonally lower. As such, we’ll likely see them keep the chain speed slow as long as imports remain strong. Today’s kill is pegged at 108,000 head of cattle, up 1,000 on the week, but matching year ago levels.

Product movement on the spot daily market over the past week totaled just 559 loads, down from 682 loads the previous week and a six-week low. The total compares to 841 loads in the same week last year. Choice cuts finished the week at $244.72 per cwt, up $8.38 on the week and up $14.02 over the past three weeks.

Select cuts finished the week at $235.44 per cwt, up $5.30 on the week and up $7.21 over the past three weeks. That pushed the Choice/Select spread to $9.28 per cwt, slipping slightly from Thursday’s 2-1/2 month high of $9.96 per cwt. The spread was up $3.08 on the week and up $6.81 over the past three weeks. Demand for beef is expected to ease after retailers finish stocking up for the Labor Day holiday grilling weekend.

Movement at mid-morning today was routine for a Monday at 74 loads, with Choice cuts up $0.53 to $245.25 per cwt, while Select cuts were up $0.59 to $236.03 per cwt.

Pork

Lean hogs rally to close the gap with the cash market.

Lean hog futures pushed higher today on good chart strength, with help from the cash and product market. The cash market was mixed, but with firmer undertones. The closely watched Iowa/Southern Minnesota market was steady to 50 cents higher, while Illinois was anywhere from $3 lower to $2 higher. Indiana and southeastern Ohio were mostly steady, while northwestern Ohio was mostly $1 higher.

Cash margins remain near $20 per head, encouraging packers to pull hogs forward. Today’s kill is pegged at 428,000 head of hogs, up 2,000 from the previous week and up 20,000 from the previous year. Last week’s slaughter was at a nearly four-month high.

Today’s cash index came in at $78.53 per cwt, up $0.08 on the day, but down $0.57 on the week. The cash index has been trading a couple dollars either side of $80 for the past three months, while futures keep anticipating a break to lower levels. The real test comes next month when feed efficiencies tend to increase carcass weights at a time when demand is expected to decline.

Product movement totaled 1,626 loads over the past week, down from 1,651 loads the previous week and down 1,684 loads. The composite pork product price peaked at new 2015 highs early in the week, led by belly prices at their highest level in well over a year. However, the composite price began to ease late in the week as the past week’s big slaughter increased supply.

The composite price finished the week at $89.36 per cwt, down $1.41 from Tuesday and down $0.81 from the previous week, breaking a streak of four straight weeks with gains. Friday’s composite price is down considerably from the $111.80 per cwt seen during the PED virus crisis that tightened supplies a year ago. Movement at midday today was slow at 143 loads, but the composite price was up $0.55 to $89.91 on strength in butt, ham and belly cuts.

October lean hogs broke back above the $66 level today, rising to $66.775 per cwt, but struggled to sustain the move at that point. I was impressed with the contract’s ability to sustain the move, but now it needs to take out the August 4 high of $67.70 per cwt, with the 100-day moving average at $68.45. Ultimately, it’s going to come down to the cash market, with deferred contracts closely watching corn prices as harvest begins in the South.

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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