All Members: Weekend Commodity Wrap-Up

Weekend Commodity Wrap Up

Aug 26, 9:23 am | Weekend Commodity Wrap-Up

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Commodity Index

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 The CRB/CCI recovered on the week with the US dollar index to test a critical level of support early next week at $.92. The US dollar is down 9% on the year, and further losses are expected as EU Central Bank Head Draghi indicated that the EU economic outlook is brightening and that EU Central Bank was not yet ready to wind down its massive $71 Bil bond buying program. Nor did the EU Central Bank head complain about the strengthening euro which allowed traders to push the greenback lower. A further weakening of the USD would fuel new investment in raw material markets.

  US political/legislative uncertainty persists as the Trump Administration has lacked the force to enjoin the US Congress to pass key tax or infrastructure bills. As emerging economies recover, a further drop in the US dollar is anticipated.    

 

 

 

 

 

Corn

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Corn futures set new contract lows, mostly amid a lack of fresh demand news and unexciting reports from Farm Journal’s Crop Tour. Somewhat surprisingly the tour found more issues with the bean crop than corn. ARC maintains that the most probable US corn yield lies within a range of 165-166 Bu/Acre, which still will strip 300-400 Mil Bu of supply from the US balance sheet. The chart below features spot futures on a monthly basis, which have been rather boring, and barring a yield below 163, this range is very likely to continue into winter, when S American prospects will be assessed. US export demand will be lacking in 2017, but there are signs of growth in biofuel demand. And amid a collapse in Brazilian cash prices, we doubt acreage expansion there will be very robust in 2018. It pays to be neither bullish nor bearish, and recall seasonal lows are very often scored in late Aug/early Sep (Aug 31 in 2016), and so we advise patience with respect to extending sales. Fair value over the next quarter is pegged at $3.35-3.90, basis spot futures.

 

 

 

 

 

 

Wheat

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  Wheat futures also fell to new contract lows as Russia’s wheat crop estimate continued to get bigger, and the trade fiercely debates Russia’s ability to export more than 29-31 MMTs. Part of this will hinge upon the severity of winter weather, but our work suggests that without abandoning corn and barley exports altogether, Russia’s export capacity is indeed roughly 30-31 MMTs. Russian production, which will stay robust for years to come, will simply spill into end stocks without massive investment in infrastructure. The market has digested the USDA’s boost in major exporter stocks/use. Moving forward, a supportive outlook is advised and a demand-led recovery is anticipated this autumn. Amid current world fob spreads, the US market is well positioned to exceed the USDA’s export forecast by 75-100 Mil Bu. This along with a fall of another 20-40 Mil Bu of US spring wheat due to a 1-1.4 Mil acre rise in abandonment would drop US 2017/18 wheat stocks closer to 800-850 Mil Bu. The sharp fall in the US dollar will reduce seeding globally and the market is starting to more closely focus on Aussie weather.

 

 

 

 

 

Soybeans

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  It was a firm, but quieter week of trade in the soybean market that left prices moderately higher at Friday’s close. Strong new crop sales, along with the US Commerce Department’s ruling against Argentine/Indonesian biodiesel imports were supportive. And the Farm Journal Crop Tour that had the market’s attention. Based on crop samples collected across the Cornbelt states, the tour estimated a national soybean yield of 48.5 BPA, down 0.9 BPA from the USDA’s August forecast. On average, the Tour’s yield projection has been within 0.6 BPA of NASS’s September crop report. ARC would note that collective pod counts were the lowest since 2013 and that to achieve a 48.5 BPA yield requires another year of high pod weights – which is doubtful. Moreover, August will be the 7th or 8th coolest since 1895, which is likely to harm the soyoil yield – further tightening US soyoil supplies. A test of $10-10.20 is expected with Chinese demand strengthening on any break to $9.30 November next week.

 

 

 

Cattle

cattle

  Cattle futures traded mostly higher through the week, with the market finding support from short covering ahead of the August Cattle On Feed report. The beef market continued to trend lower as both choice/select cutout values slipped to new lows, while initial cash trade for the week was down $3 at $107. October cattle  have turned range bound over the last 2 week’s with support developing from $105 to $106. However, the outlook into the end of the year is more bearish on record large 4th quarter beef production. The August Cattle on Feed report did not offer any major surprises, but did confirm Aug 1 cattle on feed at a 5 year high. Spot futures look to be targeting the 2016 lows at $98-102 later this year and any late summer or early autumn rallies should be used for sales against 4th quarter feedlot production.  

 

 

Hogs

hogsHog futures were lower through the week with prices under pressure from a mix of technical trading and weakening cash prices. Hog slaughter rates have turned higher and a major correction in the pork belly market is underway. Despite record low August 1st belly stocks, cash pork belly prices fell more than $25 this week, and are off more than $50 in the last 2 weeks. This week’s hog kill totaled 2.338 Mil head, up 4,000 from last week and 71,000 head more than a year ago. October hogs found  support at midweek and bounced higher on short covering. However, the market  turned back down ahead of the weekend. The price outlook is bearish into the 4th quarter on record hog inventories and pork production and any rallies ahead of the next USDA Inventory Report should be used for sales through the end of the year. Our initial target for spot futures holds at $50-55.00.

Weekend Commodity Wrap Up

Aug 19, 9:28 am | Weekend Commodity Wrap-Up

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Commodity Index

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The CRB/CCI index declined and confirmed a more bearish technical profile as prior week lows were exceeded. In fact, the drop below the July low argues for a retest of the June bottom when spot crude oil futures tested $40.00 support. ARC doubts that crude on this break can fall too far under $45.00 on declining US stocks and a seasonal rise in demand. However, the ag markets, including livestock, are in a bearish position with the US dollar rising.

  The post August USDA crop report reaction has been bearish, but local field surveys argue for yields that are far different. The market always accepts the USDA data at face value, but some of the best trades into autumn have been set up by August USDA misses. Although there will be some additional decline in the CRB in the week ahead, this is no place to turn bearish.

 

 

 

 

 

Corn

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 Corn futures ended at new 11 month lows and following the USDA’s bearish report last week, summer weather premium has been completely extracted. South American corn exports are ramping up, Black Sea milling wheat cash prices have fallen rather quickly, and early/mid-August is seasonally a weak time of year for price. However, our work continues to point towards a measurable decline in US yields (to 161-166 Bu/Acre), and the growing season looks to finish much drier than normal in IA & IL. And somewhat quietly, moisture deficits have been growing in the Eastern Corn Belt for IN/OH/KY. Perhaps most importantly, the S American cash market bottomed in late July and in Argentina has rallied some 40 cents in recent weeks. Brazilian farmers are slow sellers of the new crop harvest preferring to store at current prices. A bullish outlook is not advised, but neither is a bearish one, and like a year ago we expect sideways trading through autumn. Await rallies to extend sales with lower US corn yields expected to bump prices higher thru the harvest.

 

 

 

Wheat

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  Wheat futures ended sharply lower for a fourth consecutive week on fund selling. Spot CME futures have fallen to meet a longer term uptrend, and early trading next week will go a long way in determining whether seasonal lows have been scored. The wheat decline has been dramatic, and largely a function of record combined Ukraine/Russian production. However, ARC nots that logistic issues will prevent Russia from exporting more than 29-31 MMTs (similar to last year), and demand beyond this will be forced to other markets – including the US. Canada’s crop continues to decline and despite a likely wetter pattern in Australia in Sep/Oct, production there is likely to better than 22-23 MMTs, vs. 35 MMTs a year ago. Excluding the Black Sea, world wheat exporter supplies will be down 40 MMTs! Seasonal trends point upwards beyond late August, and as such no new sales are advised. Gulf wheat is the world’s cheapest supply, basis fob. Wheat is just too cheap and the US will uncover additional demand and will likely see a further fall in spring wheat production on greater abandonment.

 

 

 

 

Soybeans

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  Soybeans were lower sharply lower in the first half and recovered a large portion of early losses in the last half of the week. Chinese demand was uncovered on the break, and fund short covering offered support ahead of the weekend. Some rain fell across IA, but amounts were lite which looks to keep weekly crop ratings at no better than unchanged. Monday’s Pro Farmer Crop Tour and the relentless stream of tweets from the field that will have the markets attention. The Tour has a fairly good track record for estimating the USDA’s September Crop Report yield. Key figures will be pod counts in IN, IL and IA where crops are enduring dry conditions. 

  Longer term support rests at $9.20 November and we note that strong US export demand has pushed the Sept/November soybean spread to even money.

ARC research maintains a 47 BPA yield which is 2.4 BPA or 212 Mil Bu less than NASS issued in August. Such a production decline would return the market back to the summer highs. Our bet is that early seasonal lows are forming.

Cattle

cattle

  It was a sharply mixed week of trade in the cattle market that left futures lower for the week. October cattle futures were lower to start the week out, rallied to strong gains through Tuesday, and then fell sharply in the last half of the week in technical trading and confirmation of lower cash trade. Cash markets turned active on Thursday, with cattle across the 5 area region selling $5 to $6 lower at $109-110. Hope for a seasonal August beef market rally have been dashed by large weekly kills. Falling beef prices are squeezing slaughter margins, and continuing to weigh on CME cattle prices. CME cattle futures are oversold, but based on large summer placement rates, the longer term outlook is bearish and any late summer rallies at the CME should be use for 4th quarter sales. Any turn longer term hinges on Chinese demand in early 2018 and a fall decline in placement rates.

Hogs

 October hogs were higherhogs in early week trade, but fell sharply in the last half of the week on sliding cash markets and technical trading. The cash pork belly market fell to an 8 week low, and cash hog market dropped to the lowest since early June on increasing hog supplies and narrowing slaughter margins. The drop in the pork belly market confirms that a seasonal top is in, with a more bearish trend to continue into later this year on record large hog slaughter rates. December hogs closed the week more than $4 under the early week high, but were still more than $20 over last year’s low. 4th quarter production is expected to be 5% larger than last year, which presents significant downside price risk. ARC is bearish hogs on any late summer rally with fall lows expected between $50-55.00.   

                                    

Weekend Commodity Wrap Up

Aug 12, 9:57 am | Weekend Commodity Wrap-Up

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Commodity Index

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 The CRB/CCI index finished lower as soft commodity prices declined including;  soybeans, corn, cattle, corn, sugar and wheat. Energy prices closed mixed while metal prices advanced on the heightened political tensions between the US and North Korea. The lower CRB close did not alter the technical uptrend, but another week of weakness cannot be tolerated without a retest of the early June lows. 

  Seasonally, the grain/soy markets should form their lows in August with an uptrend expected into early 2018. No lasting downtrends are expected in corn, soybeans and wheat until a second record South American soy/corn crop can be confirmed.

  Amid the favorable global economic outlook and there being no evidence of a decline in Chinese demand, ARC maintains a supportive view of raw material prices into early 2018.

 

 

 

Corn

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 Dec corn fell 6 cents, which was entirely a function of NASS’s bearish US yield surprise. Friday’s trade was moderately higher, and there’s a general consensus that NASS’s first ear weight guess is too high, to a degree that is yet to be determined. ARC maintains a US corn yield of 166 Bu/acre, but there’s evidence to suggest an even lower number by the Oct or Nov crop reports. We now simply await harvest data. Otherwise, S American exports continue to dominate world trade, but demand has rallied Brazilian and Argentine basis bids substantially. It’s far too late to turn bearish S American cash prices The most probable scenario is that of an ongoing neutral corn market, and so far Dec corn has held major support at $3.70. There’s some downside risk as harvest approaches, but we doubt Dec corn can trade much below $3.60 without confirmation of near record large US ear weights. Target an early autumn rally to $3.85-3.90 Dec to extend sales. Corn is caught in a range!   

 

 

 

 

Wheat

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  Wheat futures again closed sharply lower on a bearish August world WASDE report and ongoing fund liquidation. Even as of early this week, managed funds were long a net 49,000 contracts in KC, which is historically large, and as Black Sea crops get bigger the last of these stubborn longs is getting out. An upward revision was fully expected to Black Sea production, but the USDA in its report this week raised combined Ukraine and Russian wheat production 7.5 MMTs, which no doubt exceeded expectations and also pushed major exporter stocks/use noticeably higher. However, it’s not supply that will cap Russian exports but rather logistics. Last year’s Russian shipments (31 MMTs) likely indicates an intermediate high until investment is made into infrastructure there, and with US Gulf wheat still the world’s cheapest, ample export opportunities lie ahead. Crops in the US, Canada, Australia and Europe are still overstated, and we maintain that a very long term bottom was made almost exactly one year ago. The US market needs acres, EU cash prices continue to rally, and we don’t advise any new sales here. Wheat should be forging seasonal lows.

 

 

 

Soybeans

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  Soybeans were on both sides of unchanged through the week and finished lower. Short covering ahead of the USDA’s August Crop Report offered support in the first half of the week, while a much larger than expected yield estimate sent the market sharply lower on Thrusday. The trade had been positioned for a US soybean yield around 47 BPA, or 1 lower from the July WASDE, while NASS estimated a yield of 49.4 BPA or 1.4 higher. Based on much weaker conditions and our own crop analyst assesments of Midwest fields, our view is that the August USDA yield estimate could be the highest of the year. Crop ratins are expected to be unchanged to 1% lower on Monday as cool temps in the last week have helped offset limited rainfall. However, much of the Midwest is in dire need of rain, while the weather models projected limited rains and building heat in the next 10 days. Beans are back to oversold, funds are flat, and the forecast is less than desireable. Farm selling is shut off, and we expect the market to stabilize ahead of the Pro Farmer Crop Tour.                    

Cattle

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   Cattle futures were under liquidation pressure right from Monday’s open, and selling continued throughout the week. Commodity fund traders started to unwind their cattle position in July and selling accelerated this week on slow beef demand and lower cash trade that was down $2 to 3 for the week at $115 to 116, or $8 to 9 over late week trade in October cattle. October cattle are oversold and well under the cash market. However, the outlook for cattle prices going into the last half of the year is more bearish following large spring and summer placements. The USDA once again raised their forecast for US beef production in the 4th quarter, which is expected to be record large. The CME is back under cash prices, but this time it’s the CME leading the downward charge. A $4-6 rally should be used for late year sales and any bullishness is on hold until 2018.  

 

Hogs

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 October hog futures were able to build on the previous week’s technical strength and posted strong gains on Monday. However, the market spent the rest of the week consolidating those gains, trading back and forth in a narrow range. The cash market continues to work lower, and hog basis is narrowing, but more significant for the market was the sharp break in cash pork belly prices. The pork belly value has been the main driver of hog prices over the last several months, but after reaching a record high in late July, was as much as much as $18 under that high this week. Going forward, both slaughter rates and carcass weights will continue to increase rapidly through the early autumn months, and the USDA maintains record large 4th quarter pork production, which keep the hog market outlook bearish.

 

 

 

 

Weekend Commodity Wrap Up

Aug 5, 7:42 am | Weekend Commodity Wrap-Up

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Commodity Index

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The CRB/CCI index closed slightly lower on the week and within the prior week’s trading range as the grains/soy retreated and the rally in energy and metal futures stalled. The US dollar recovered late in the week after being technically oversold as the Jobs Report reflected a strong US economic outlook. Wage price pressures are expected to grow as the US is reaching full employment. It’s inflation that has to be closely followed in coming months which could cause the FED to raise US interest rates more aggressively. The global economic outlook remains bright and raw material demand remains sound. Macro headwinds are not offered for the CRB/CCI Index and our trading mindset is one of buying breaks. Crude oil will stumble against $50 resistance, but should reach $55.00 for a seasonal peak in early autumn.  

 

 

 

 

 

Corn

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Corn futures ended lower on fund liquidation and cool Central US temperatures. Weather will have much less of an impact on yield moving forward. Supply-driven rallies occur in July, and unless crippling drought continues in August, it’s just the wrong time of year to sustain the market. Such is the case this year. However, more and more of the trade is putting US corn yield 161-165 Bu/acre, which is not wildly bullish but does suggest that supplies will be down some 450-700 Mil Bu from the USDA’s outlook in July. And 2017/18 US corn end stocks will rest between 1.7-1.9 Bil Bu. Like wheat, a multi-year high in US and global inventories was achieved in 2016, and major price changes will hinge upon South American weather this winter, and N Hemisphere plantings next spring. Price action this week confirms a neutral outlook in world grain prices, but we maintain a strategy of selling strong rallies. Note that S American cash markets have bottomed, and downside risk is limited below $3.70 December corn futures. Upside is pegged at $3.95

 

 

 

 

Wheat

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 Wheat futures ended sharply lower (18-20 cents) mostly on falling corn prices and fund long liquidation as Russian crop estimates continue to inch higher. Russia looks to harvest a record wheat crop, barring drought in Siberia in the next 3-4 weeks. However, N Hemisphere harvest pressure is in fast retreat and in each year since 2010 Black Sea cash prices have formed their seasonal lows in early August. Already US Gulf wheat is the world’s low cost origin, and with EU/Black Sea cash markets to inch higher into late year, a bearish outlook is not advised. Either the US follows other world markets, or export demand is funneled to the US. Both scenarios are supportive on the margin. Major crop woes exist in Canada and Australia.  No new sales are advised below $5.00 basis December CME, and a demand pull market should soon be starting the upside as world exporter supplies drop.  

 

 

 

 

 

Soybeans

beans

 It was a week of liquidation in the soybean market with fund managers selling out their market length on last week’s better soybean crop ratings and light rainfall across the W Midwest. Rainfall across most of IA in the last 60 days has been less than 80% of normal, with large pockets that have had just 30-50% of normal. Based on the past week’s rain totals, we look for national GD/EX soy crop ratings on Monday to be close to unchanged, but still well under a year ago and near the long term historical average. NASS will release the August Crop Report next week, and based on current crop ratings, we look for a US soybean yield near 47 BPA. This, along with bump in old crop soybean exports will further tighten old and new crop balance sheets. It’s possible that the soy market is putting in an early harvest low and prices below $9.50 spot should be used to cover forward needs for end users. With a 47 BPA yield, 2017/18 US soybean end stocks fall to just 310 Mil Bu!                               

Cattle

cattle

  October cattle were lower to start the week, and slipped to the lowest level since April. But that break found good demand, which along with firm cash prices lifted the market into late in the week. The week’s cash business started on Wednesday and continue into later in the week, with cattle trading mostly from $117-118 or steady to $1 higher from last week. The beef market is also trying to confirm a seasonal low, and demand is expected to improve through August ahead of the Labor Day holiday which looks to support beef and cattle prices for the next several weeks. However, larger feeder cattle inventories and on feed totals allows a more bearish longer term outlook. Technical targets for October and December cattle are still another $3-4 above this week’s market, which should be used for sales against 4th quarter feedlot production.

Hogs

  

Hogs fell throughhogsh the first half of the week on sliding cash prices and technical trading, but found support and rallied in the last half of the week as current cash prices remain nearly $20 over October hog futures. The hog index marked the 3rd consecutive weekly decline to confirm the mid-July top. US hog supplies are steadily improving, and the cash market should continue to work lower, though the large difference between today’s cash and CME prices looks to keep October futures in a broad trading range. However, the hog market outlook remains bearish as record large hog slaughter rates keep the US pork market well supplied into the end of the year. Rallies back to $63 or better December or $68 February offer the next sales opportunity for late 2017/ early 2018 hog production. However, US pork export demand will remain solid.  

 

Weekend Commodity Wrap Up

Jul 29, 12:14 pm | Weekend Commodity Wrap-Up

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Commodity Index

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The CRB/CCI index recovered strongly to end the week and confirmed a more bullish outlook for broad US commodity prices. Crude oil futures lurched back to $50/barrel and the metal markets gained on the weakening US dollar and lack of a Central US rate hike. ARC expects that the FED will raise their lending rate by another .25% into late year on improving US and world economic conditions. The weaker US dollar is accelerating raw material demand in the emerging market economies. ARC looks for the CRB spot index to reach 420 by late summer and test the late 2016 highs by late year.

  For the ag markets, one has to be careful about being too bearish either livestock or grains with the US dollar down 8% on the year. ARC remains steadfast in looking to use breaks for new purchases.    

 

 

 

 

 

Corn

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CBOT corn futures ended the week slightly lower and the trade will be cautious about establishing any large new positions ahead of the USDA’s August report. US corn export sales will remain lackluster through late autumn as South American corn is historically cheap & abundant, and as old crop global corn stocks still may be understated by 2-4 MMTs. So any CBOT rally is based totally on a further loss of US corn supply.   ARC research argues for a deeper erosion in US yield potential, with several of our models indicating a national yield of 161-164 Bu/Acre, which assuming unchanged harvested area would strip 550-750 Mil Bu from the US balance sheet. This would put 2017/18 US end stocks closer to 1.7-1.8 Bil. This will also have a measurable positive impact on the major world exporter balance sheet.

  Fair value is pegged between $3.60-4.20 basis spot futures. Rallies should be rewarded in both 2017 and 2018 production. However, the downside price risk has been curtailed and December corn is no longer expected to fall below $3.60 during the throes of harvest.

 

 

 

Wheat

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  Wheat futures ended lower on the week, but found some measure of support on Friday. Like corn, old crop supplies remain abundant – excessive even – while major changes to the new crop world and major exporter balance sheets lie ahead. NASS is fully expected to lower spring wheat yield further and modestly hike abandonment. Canada’s wheat crop is trending closer to 24-25 MMTs, vs. the USDA’s 28, and harvest losses are likely in Northern Europe as a pattern of above normal rainfall will continue there into the middle of August. The net result of all of this is that world cash markets remain well supported, and are at higher levels than at this time a year ago.

  The trend through late fall is yet higher cash fob offers, and at current prices, the US Gulf market is somewhat competitive for export demand. We advise against chasing breaks below $4.80, Sept CME, and target $5.35-5.60 to extend or catch up on 2017/18 sales. A longer term low has been set in wheat.

 

 

 

 

Soybeans

beans

   Weather market volatility kept soybeans on the move through the week and had November beans nearly 28 cents over the lows at Friday’s close. A wet weather forecast on Tuesday put in the week’s low, while limited rains and a drier weather outlook supported prices into the end of the week. This was the 4th consecutive weekly close in November above $10.00!

  Old crop US soybean exports are picking up and offering support for soybean basis, while limited rains across large portions of the W Midwest and N Plains is whittling away at the new crop supply. Rains last week fell across the parts of the Midwest that didn’t need it and avoided the areas that do. The August Crop Report is now 2 weeks out, and we expect NASS’s initial yield estimate could be as much as 2 BPA under the July WASDE prediction of 48 BPA. Such a yield would likely limit harvest lows this year to $9.50 November.

Cattle

cattle

   It was a lower week of trade in the cattle market as live and feeder cattle futures responded to the results of the July Cattle on Feed and Inventory Reports. The On Feed report showed larger than expected June feeder cattle placements and on feed supplies, while the Inventory Report showed feeder cattle supplies outside of feedlots at their largest level since 2010. Cattle started the week with limit losses and the market remained under pressure into the end of the week. Basis against both August and October cattle remains exceptionally strong, which is expected to offer short  support in the upcoming weeks, but the July cattle report confirm USDA’s forecast for record large 4th quarter beef production.

 Longer term, Chinese demand for US beef is expected to ramp up in 2018 and offer a demand pull to prices. Cash cattle are near seasonal lows

 

 

 

Hogs

Hog futurhogses were back and forth through the week with August/October contracts finding support on breaks from firming cash bids. Rallies struggled against record supplies and an outlook for record large pork production in the last half of the year. The cash market continues grind lower, but at the end of the week was more than $8 over August hogs. The NASS Monthly Cold Storage report confirmed another month of record low pork belly stocks, and the pork belly values continue to trade at historic prices.  Strong cash prices look to keep support under hog futures on breaks, while strong rallies will struggle on record large inventory. The transition from a demand led bull market (bellies) to a supply driven seasonal bear market looks to keep CME futures in a broad range over the next several weeks. Longer term, a supply bear market lurks into yearend.

Weekend Commodity Wrap Up

Jul 22, 8:50 am | Weekend Commodity Wrap-Up

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Commodity Index

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The CRB/CCI finished higher on the week and is close to confirming a seasonal bottom. The 8% decline in the value of the US dollar to a fresh 2 year low is encouraging a new flow of funds back into hard assets. A CRB/CCI higher close next week will confirm a seasonal and likely annual low. So far, the US Trump Administration has not been able to pass key legislation, and the frustration is growing. Tax legislation looks to be the best chance for legislative approval, but the Republican majority mandate is quickly fading. This keeps the dollar on a weak trajectory. 

 The world economic outlook has improved and raw material demand is solid. The emerging market growth is accelerating and our outlook for the CRB is firm into yearend. Buy the CRB/CCI Index on breaks.

 

 

 

 

 

Corn

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CBOT corn futures ended moderately higher, and daily & weekly price movement is solely focused on Central US weather. The market has found an elevated price range based on the expanding drought across the Plains and W Midwest. Trading will hinge almost entirely on rain in the Western Corn Belt in coming weeks. Already intense dryness across the KS, NE, SD and ND has capped national yield potential at 165 Bu/Acre – and thus harvest lows have been raised to $3.60-3.70. Based on the weather forecast, the 2017 US corn yield can slip to 159-161 BPA in early August. This would lower US corn end stocks to 1,750-1,825 Mil Bu and open the market to a rally to new highs. Otherwise, we remind clients that this is not a demand-driven rally, and S America will ship massive tonnages of corn into Nov/Dec. Crop conditions on Monday afternoon will be down another 1-3% in the GD/EX category with acute stress on corn reported across W IA, SD, KS and MO.

 

 

 

 

Wheat

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  Wheat futures ended mixed (higher spring wheat/lower winter) and were largely range bound through the week. The market has digested much of this year’s decline in major exporter wheat production (which ARC puts at a sizeable 40 MMTs), and current prices are viewed as fairly valued. Major market changes in the next 30-45 days will now center on Northern Hemisphere corn yields and whether US yield potential is 158 or 165 BPA?. However, we do mention that harvest is ongoing across Europe and the Black Sea, and so far harvest pressure has been rather limited. Our work suggests there’s a strong tendency for world cash markets to bottom in the first half of August, and so this year’s prices are assured to be much higher than last year. We look for EU/Black Sea prices to average $210-215/MT in the Sep-Nov quarter, vs. current offers of $198-205, and so a bearish outlook is not advised. Our strategy is unchanged, and new sales are not advised below $5.50, basis spot CME wheat futures.  

 

 

 

 

Soybeans

beans

   Soybeans were mostly higher through the week on lower crop condition ratings and fund buying. After a record week of short covering, fund buying continued on building Midwest heat and limited rainfall across the Western Iowa and southern half of Illinois. Hedgers used the rally for sales, but at the end of the week, November soybeans were more than 20 cents higher with spot futures back above $10. Large parts of IA, IL and the Plains remain short on rain. Crop ratings have been trending lower and based on last week’s weather, we look for national GD/EX ratings to be 1-2% lower. Near ideal weather in the remainder of the summer is needed for the national yield to reach the USDA’s 48 BPA forecast. Our best guess is that yield potential has already been lowered by 1-2 BPA, which along with improving spot demand by US exporters due a growing Gulf program looks to support CBOT breaks. Like corn, harvest lows are being raised in soybeans.  

Cattle

cattle

  It was a mixed week in the cattle market with early selling finding support at midweek, followed by back and forth trade that left cattle prices unchanged to slightly lower ahead of the weekend. Beef prices inched lower through the week and initial cash trades were down $2 and around $118. Seasonally, summer lows tend to be forged in mid to late July. However, large spring and summer placement rates look to slow late year rallies. The On Feed report showed June placements were the largest in 11 years and July 1 On Feed totals the largest since 2006. The latest USDA production forecast shows 4th quarter US beef production will once again be over the 3rd quarter and  record large! This will keep cash cattle prices in a broad range of $110-125 into  2018. Higher prices are possible in 2018 on demand. 

 

 

 

Hogs

  Hog futureshogs traded higher through the week, with higher cash prices offering support to the deeply discounted August contract. July hogs expired on Monday over $92 while August took over as the front month more than $10 lower as the CME continues to price in a summer top in the cash market. The cash market inched lower through the week, which is likely confirm a July high. However, cash pork bellies pushed on to a new high, keeping the carcass value up and supporting slaughter margins. Slaughter rates have yet to show any seasonal increase.

  The near term outlook remains neutral with support against $80 in August expected to hold, while rallies are expected to struggle against record large inventories. We hold to a view of using any $3-5 rally for sales through the end of the 1st quarter.  Our outlook is more bearish.

 

Weekend Commodity Wrap Up

Jul 15, 7:15 am | Weekend Commodity Wrap-Up

 

table

Commodity Index

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The CRB/CCI finished the week slightly higher as the US dollar declined to fresh 8 month lows as speculators started to secure the energy complex as demand ahead of the winter heating season is expected to rise across the Northern Hemisphere. ARC would note that world emerging stock markets broke out to the upside as the health of the world economy continued to improve. The falling USD and improving economic outlook argues that there is limited downside in raw material prices into yearend.

  The ongoing political stalemate in Washington should allow for the US dollar to test $93.00 on the index, the 2016 lows.

  As the USD declines, it pressures the profitability of world commodity producers and slows future supply expansion.   

 This along with a strengthening demand profile argues for a measured rally of the CRB index into yearend. For ag prices, its cautions producers not to be as bearish as prior years.  

 

 

 

Corn

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  CBOT corn futures fell 15 cents on fluctuating weather forecasts, an increase by USDA in old and new crop US corn stocks, as well as major exporters’ stocks/use in its June WASDE. ARC points out that changes to corn balance sheets were completely within expectations – they simply accounted for NASS Stocks and Seeding data – and that Northern Hemisphere yields are far from being determined. The major forecasting overnight Saturday maintain a pattern of warmth and dryness, particularly across the South Central US through July 25th. And Central US weather conditions since early June suggests trend yield will not be met. Our work suggests a new plateau has been reached. Sales are advised above $4.00, basis Dec 17, while seasonal lows are likely to be scored in early fall at $3.50-3.60 – vs. $3.20 last year. Longer term, another large S American crop will need to be confirmed to turn significantly bearish of corn.

 

 

 

 

 

Wheat

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Wheat futures ended mixed, with winter contracts lower and spring wheat higher, which adequately reflects the USDA’s first pass at US by-class balance sheets. SRW stocks will be record large, HRW stocks will be down sharply from last year, but still comfortable, while HRS stocks are below pipeline with demand rationing needed. And our work indicates the USDA is still some 30-50 Mil Bu too high with its HRS production forecast – abandonment was left untouched – and so through basis and spreads, spring wheat rationing will be on ongoing process. Otherwise, like corn, a new price range has been established, and as too much rain falls across N Europe and Central Russia, and as Canadian and Australian droughts expand, we doubt spot CME futures can trade below $5.00 for any length of time. Target $5.50+ basis Sept CME, to catch up on any sales.

 

 

 

 

 

 

Soybeans

beans

   It was a wide week of trade in the soybean market that left spot July down 11 cents and November was near 13 cents lower. The Commitment of Traders report showed that that through Tuesday, funds had covered all of their net short position and held a modest net long position for the first time since late April. It was a record week of fund buying, while hedgers were large sellers on the rally. Weather forecasts and then crop ratings on Monday look to direct trends in the week ahead. The Eastern Cornbelt saw good rains last week, while drought looks to  drift out of the Dakotas and push south and east. Crop ratings have been trending lower, and based on rains in the last week we expect that crop ratings on Monday will be steady to 2% lower from a week ago. Weather premium should be added until ratings start improving. We are not anxious sellers of new crop under $10.00 and look to rallies back to $10.50-11.00 to make sales.

Cattle

cattle

   After a slow start to the week, cattle futures traded up on Tuesday and then surged to limit gains at midweek on better than expected cash cattle trade. The beef market has fallen sharply since the start of the month and expectations were that cattle would sell steady to a couple dollars lower this week. However, cash trading got underway on Wednesday with sales $2 to $3 higher at $120.  While cattle traded higher, the beef market continued it’s decent, with cutout values sliding $2-3 every day. Packer margins were squeezed as beef and cattle prices moved in opposite directions, which is expected to cap cash cattle trade in coming weeks. Longer term, 4th quarter beef production is expected to be record large amid the big summer placement rates, which is expected to dampen 4th quarter beef and cash cattle rallies.  

 

 

Hogs

hogs

Hog futures finished the week mostly lower, with the exception of July. The cash index continued to inch up and was higher every day which supported July hogs ahead of Monday’s expiration, but the rest of the market turned down on expectations that a market top is forming. Cash pork bellies forged a new record high and finished the week lower which is likely marking a longer term top, and will also signal a high in both the pork carcass value and cash hog prices. At week’s end, the spread from July to August hogs was more than $10, and basis against August is at an all time high which is expected to offer support under $80. However, hog supplies should increase in the coming weeks, while carcass weights should start gaining by summer’s end. Strong rallies at the CME should be used for longer term sales

 

Weekend Commodity Wrap Up

Jul 8, 1:53 pm | Weekend Commodity Wrap-Up

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Commodity Index

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The CRB/CCI tried to rally early in the week, but the market was pulled lower on Friday’s break in crude oil/metal prices. Soft commodity values continued to rise amid threatening Central US weather and strong demand for US meat products. The US and world economy continues to gain traction with the US GDP rate to rise to 2.5-2.7% in the last half of 2017. The economic strength is likely to limit any further break in the CRB index and we would caution clients about turning bearish as the US Central Bank prepares to raise interest rates 1-2 more times in 2017, and at least another 2 times in 2018. The demand for US meat products will remain stout, its US grain and soy demand that could suffer on a further rally amid the abundance of other suppliers and a rising US dollar into yearend.

 

 

 

 

 

 

 

Corn

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  December corn rallied another 13 cents as the US weather forecast through the week trended steadily warmer/drier, especially across the Plains. As ARC  discussed last week, some 25% of the crop is being grown in the Dakotas, NE and KS, which in 2014-2016 was bearish, but is now rather supportive.

  High pressure Ridging of varying intensity will be anchored aloft the Plains & W Midwest through July 23 (no pattern change was indicated as of Friday evening), and as such substantial draws in soil moisture are indicated across some 50-60% of the US corn belt. 

  A sizeable decline in crop rating lies ahead, and ARC pegs the most probable US yield at 164 Bu/Acre as of July 7th, which in turn pulls end stocks to 1.7-1.8 Bil Bu. South American corn is still very cheap, and will likely find its way to the Southeastern US on any further rally, but a test of $4.25-4.50 Dec is projected without a rather quick reversal in Central US weather. Await a further advance to extend cash sales with the focus being on 2018 and 2019 production.

 

 

 

 

 

 

Wheat

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  Wheat futures ended steady to higher, and although contracts settled off their highs, our work suggests a new plateau has been reached. The wheat bear market which began in 2012 is over. The future goal of wheat prices is to00 secure additional spring wheat acreage in the US and Canada in 2018, and also to account for a roughly 40 MMT cut in major exporter supplies this year!    

  World wheat cash markets have largely followed the US advance and Russian wheat – the world’s cheapest – is now offered at a level comparable to $4.75-4.80, basis spot KC, and so sub-$5.00 US futures is unlikely in coming months. Rising corn, oat and barley prices, and falling crop estimates in Canada, will offer further support. Spring wheat futures should score a seasonal top closer to $9.00-10.00. Target $5.80-6.20, basis CME to catch up on sales. A seasonal peak should be scored in Sept/October.

 

 

 

 

 

 

Soybeans

beans

 Soybean futures extended gains through the holiday shortened trading week on continued fund short covering following the June NASS report. The Commitment of Traders report showed funds had been big buyers through the week, but are still estimated to be holding a sizable short position in soybeans. Hedgers were modest sellers on the rally, but are still holding a rare net long position in the soybean market. Additional fund short covering lies ahead.  

  Market focus in the week ahead will first be on Monday’s crop ratings, followed by the July WASDE report on Wednesday. Based on limited rainfall in the last week, we look for a 1-2% decline in national GD/EX ratings. The WASDE report is not expected to show any significant changes, but the current pace of demand is hinting at a lower crush and larger US export forecast. The new crop yield estimate is expected to hold steady at 48 BPA.

  Spot soybeans have now retraced 50% of the January high to June low price move, with the next immediate price target at $10.60.

Cattle

cattle

   It was a mostly lower week of trade in the cattle market with early strength on finding strong resistance, while selling at midweek found good support against several key technical levels. Rallies at the end of the week struggled against lower cash cattle trade and the continued drop in the beef market. Cattle in the Plains negotiated cattle markets traded two to three dollars lower for the week at $117-118, while the beef market continued lower on reduced seasonal demand. The drop in beef prices continues to work against slaughter margins, though packers are still estimated to be clearing nearly $220/head, which is expected to support cattle on breaks. Broad ranging trade is expected to unfold over the next several weeks, with support expected under $112 and resistance against $124.00.  

Hogs

  The hog mahogsrket continues to struggle balancing record large supplies and production against exceptionally strong US demand (and near record pork belly prices). Hog carcass weights continue to decline and are not expected to turn higher until late summer, though this week should mark a low in weekly kill rates. Momentum in the belly market has slowed, though Friday’s quote from the USDA showed the composite value trading above the 2014 high! Weekly pork production rates should start to increase in the upcoming weeks, as the seasonal outlook is for steadily better kill totals starting in the next 30 days, followed by a recovery in carcass weights to begin at the towards the end of the summer. With an improved supply outlook in the next month, the price outlook for pork belly and cash hog prices is starting to lean bearish. Be careful with new purchases! Hogs are fundamentally overvalued and a rise in the USD could spark liquidation!   

Weekend Commodity Wrap Up

Jun 24, 6:48 am | Weekend Commodity Wrap-Up

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Commodity Index

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The CRB/CCI fell to sharp losses on the week with energy, metal and ag markets continuing their decline. The CRB has now retraced 50% of the 2016 rally and key in the week ahead will be if any technical support is uncovered heading into the end of the month and quarter?

 Index funds will suffer another quarter of losses and questions abound on whether investors will more fully vacate the raw material space? Commodity index fund investors have endured a long period if negative returns. Patience has to be running thin as US and world equity prices soar.

  There is no evidence of cracks in the demand profile for world raw material demand. The Global GDP rate looks to improve to 3.2-3.3% in the last half of 2017. The recent CRB decline is related to growing supplies and not demand destruction.   Large supplies get quickly discounted by the marketplace and we cannot advise turning bearish of commodities.

 

 

Corn

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  CBOT corn futures fell 25 cents on improved Central US weather, and the elimination of any high pressure Ridging for early July. Rather abruptly, abnormally cool temps have been established across the heart of the Corn Belt, which in the near term will ease concerns about dryness and provide a modest boost in crop ratings across IL, IN & MO. Argentine fob basis has sunk to record lows (just a penny over CBOT futures for spot delivery) and US export demand will be slowing over the next 10-12 weeks. However, unlike recent years, there’s not a clear North American climate signal. Record warm ocean temps (globally) are causing fits for the model output, and our best guess on the reminder of summer is wild swings in weather conditions. Heat & dryness is expected to reveal itself a few more times between now and September.

  Technically, the market failed at recent highs, and so the long-established range will continue until weather in the second half of July is known. Longer term corn likely will maintain the range as drawn in attached chart.

 

 

 

 

 

 

Wheat

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  Wheat futures ended mixed, but firm relative to neighboring corn and soy markets. CME futures fell a penny, KC fell 5 cents, while spring wheat futures rallied to new highs for the move at $6.60/Bu, basis spot. Major world exporter production is in retreat and weather concern exists across the Northern US, Southern Canada, E Europe, Ukraine and Australia. And ARC is concerned about the arrival of heat and dryness in the Black Sea next week. Combined major exporter production may be down 4-5 MMTs from the USDA’s forecast, and thus down roughly 20 MMTs from last year. The world cash market is beginning to account for this with spot offers some $10/MT ($.30/Bu) above last year, and still we doubt spring wheat prices are high enough to trigger needed rationing. Wheat’s premium to corn will widen further in the weeks ahead, and fundamental support is pegged at $4.50, basis spot. Await a test of $4.90-5.00, Sep CME, to extend cash sales. Longer term wheat has bottomed.  

 

 

 

 

 

Soybeans

beans

   Soybeans were under pressure at the start of the week as the extended weather forecasts turned cooler and wette. Reduced weather threats, and selling ahead of key USDA June reports kept the soybean market under pressure through the week. Spot July tested $9 in late week trade, while new crop November slipped to 9 month lows. Key USDA reports will be released at the end of the week with NASS’s count of June 1 soybean stocks and updated estimates of new crop acreage. Trade estimates have soybean stocks at a decade old high (like last quarter), while the average estimate calls for a slight increase in soybean acres from March. The soybean market is back to deeply oversold levels, and we are not willing to advise sales at current prices, but adverse weather is needed to spur any kind of recovery into late summer.  

 

 

Cattle

cattle

  It was another week of liquidation in the cattle market that left both live and feeder cattle prices lower at the end of the week. Weak technical conditions along with lower cash trade and a turn in the beef market all weighed on trade through the week. Cattle in the cash market began trading at midweek and initial sales were $9-10 lower for the week at $121-122.

  The USDA reported US beef production in May was 6% over a year ago, while beef stocks dropped 10% during the month. Beef demand appears to have been quite strong over the last 6 weeks. But after hitting multi year highs, the beef market turned down this week which is likely marking a seasonal top. Domestic US beef demand is expected to slow following the July 4th holiday. June cattle expire next week, while August cattle continue to trade significantly under the cash market. Strong basis levels have repeatedly supported CME futures on corrections all year. 

Hogs

hogs

  It was another sharply mixed week of trade in the hog market with spot July pushing on to new highs for the year, while the rest of the market turned down in the last half of the week on selling ahead of next week’s Inventory Report. The pork cutout value was sharply higher through the week and briefly traded over $100 for the 1st time since late 2014, with the week’s rally led by strength in the pork belly market, which briefly traded at multi year highs. Strong pork prices has maintained very strong slaughter margins and lifted cash hog prices. The quarterly USDA Inventory Report is expected to show record hog supplies and steady to higher farrowing rates. At week’s end producers could still lock in a $64 average 4th quarter price versus $50 last year. The rebound in demand, especially bellies has been incredible, but a top in belly prices will mark a high in the cash hog market by late summer.

Weekend Commodity Wrap Up

Jun 17, 9:48 am | Weekend Commodity Wrap-Up

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Commodity Index

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The CRB/CCI index declined to new 2017 lows this week. And in doing so, it confirmed a new bearish trend. The key question going forward is whether the CRB will halt the decline at the 50% retracement at $394 or continue its fall to test support at $377-380.00?  Since US crude prices appear unlikely to fall below $40.00, our bet is that the 50% correction level should hold this break.   Energy paced the decline with the metal markets in tow. The next level of support for spot crude oil futures rests at $40-42.00, the old lows from 2016. Spot gold prices have traded in a range of $1,100-1,300 for much of the past 18 months, and there is no reason to expect that the  prevailing range should change. The US Central Bank raised its lending rate .25% as expected, and there was no noticeable impact in world equity prices.  Amid a world economy that keeps offering improvement, we would caution against becoming bearish the CRB into late 2017.

 

 

 

 

 

Corn

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July corn fell 4 cents on back and forth weather forecasts, and as some moisture relief impacted the Northern and Eastern Corn Belt late in the week. Crop conditions at 67% GD/EX are decent, and argue for a yield near trend. ARC’s concern is the early season heat (June temp records have already been broken) and the lack of a lasting wet pattern forecast into July. Despite the recent rainfall, soil moisture deficits remain, and are becoming severe across the Plains and Western Corn Belt. Like wheat, demand news is lacking and S American corn offers are historically cheap. But our best guess on US national yield today rests at 165-167/Bu, which changes the balance sheet enough to offer strong support at $3.80 basis December. Spot futures have exceeded long held highs, and a new range of $3.70-4.00, spot corn looks to be established without a rapid improvement in the US weather pattern. Ukraine and Western Europe are also very dry. We’re sellers of strong rallies, but increasingly a test of $4.20-4.40 Dec is becoming likely.

 

 

 

 

Wheat

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  Wheat futures soared to gains of 20-33 cents, once again led by spring wheat contracts in Minneapolis. Decent rain fell across the Dakotas this last week, but drought & severe moisture deficits persist. And with 60-70% of the wheat crop in the heading stage in South Dakota, new rainfall will only have so much benefit. Our work suggests the US will have to ration its available supply of high protein wheat, particularly as protein in the S Plains remains disappointing. A test of $6.80 basis spot MGE, lies ahead. Otherwise, other weather hot spots include much of Western Europe, China’s N Plains and now Australia, where very little rain has fallen in June and where very little rain is forecast for the next two weeks. A meaningful demand driver is absent, but major exporter production estimates are in retreat. Russian wheat, the world’s cheapest milling origin, is offered at $4.50. The downside price risk is limited to 10-15 cents. Wheat chart patterns are supportive. Await a test of $4.90, spot CME/KC for catch up on sales.

 

 

 

 

 

Soybeans

beans

  Soybean futures saw a quieter week of trade, with neither rallies nor breaks able to get much traction. At the week’s close, July beans were down just 2.5 cents. Better than expected rains across the Midwest limited gains through the week, while a larger than expected May soybean crush offered support. Based on the preliminary demand data, the USDA is expected to lower the old crop crush estimate, but likely to increase exports in the July WASDE report. However, old crop stocks are historically large. Funds still hold a significant net short soybean position, but began to cover a portion of it last week.  The near term price outlook looks to be directed weather  forecasts over the next 4-6 weeks. ARC lookS to use weather driven rallies to clean up old crop and extend new crop soybean sales. The initial upside target is $9.90.

Cattle

cattle

 It was a week of liquidation in the futures market, that left both live and feeder cattle futures lower at week’s end. Funds began unwinding their large net long position in cattle futures several weeks, and liquidation accelerated this week on ideas that the market has finally reached it’s seasonal high. Sales in the cash market were slow and took place over several days, with early business starting out $6-8 lower at $128-130, and prices were even lower later in the week. But while cattle prices headed south, the beef market traded firm through the week, and pushed higher just ahead of the weekend, taking the week’s estimated slaughter margins on to knew highs. August cattle finished the week back at the bottom end of a trading range that began developing in early May. The nearby outlook for the CME is neutral, on still higher cash cattle and beef prices.

Hogs

hogs

It was a sharply mixed week of trade in the hog market, with July hogs trading back and forth in a wide range, while other months sold off sharply in the last half of the week. And while futures prices were sharply mixed through the week, trade the cash market continued higher every day, reaching the highest level since last July. Slaughter margins remain exceptionally strong as the pork belly market continues to move higher on tight stocks, which has maintained good packer demand for hogs. The belly market alone has added nearly $10 to the hog carcass value in the last 6 weeks. The spring high in belly prices is still another $16 higher, and once again a top in the cash hog market is likely to occur with a top in belly values.  CME hogs are expected to hold in a broad range into the end of month USDA inventory report.