Analysis

Hogs Bounce Higher Ahead Of The Weekend

Feb 15, 4:37 pm | Hogs & Pork

Early selling in the hog market found good demand, that lifted hog futures higher into late in the day. April hogs led the recovery, while June hogs traded down into, but failed to close an open chart gap left on Tuesday. The hog index ended the week down $.31 at a five-week low of $55.24, while the pork cutout gained $.27 to $63.03.

  The Commitment of Traders report showed that as of Jan 22nd, funds had cut their net long hog position to just 8,000 contracts or nearly 33,000 under the peak that was in late November. Hedgers continue to use the break to cover sales, and were net short 59,000 contracts vs. 117,000 a year ago.

  All of the speculative premium is out of the hog market, but we doubt funds are willing to take on a net short hog position amid China’s AFS outbreak. Hedgers see current prices as too cheap to sell and continue to cover their hedges on price weakness. The next hog rally needs to be led by the cash market.

 

Soybeans Close Firm Friday, Down For The Week

Feb 15, 4:36 pm | Soybeans

An early break in the soybean market uncovered demand and futures were 3-4 cents higher at the close. CBOT markets continue to struggle for direction and have ebbed and flowed due to the latest news or rumor on US/Chinese trade talks. The tone from Washington on Friday was positive, and the market rallied ahead of a long US holiday weekend.

  The Commitment of Traders report showed that for the week ending Jan 22nd, funds were net short 23,000 contracts of soybeans (-2,000), net long 7,000 contracts of soymeal (-3,800), and were net short 31,000 contracts of soyoil (+17,000). In soyoil, this was the smallest net short position since April of last year. Spot soyoil futures broke through long term chart resistance near $.30/lb three weeks ago but have drifted back to that breakout point this week.

  If support near $.30 holds this week, a further rally to $.33-34 could unfold as funds cover the remainder of their net short soyoil position.

  Key support in March soybeans held at the 100-day moving average on Friday, but the market remains caught in a range waiting on a US/Chinese trade deal.

Corn Ends Flat Ahead of Long Weekend; Fund Length Liquidated

Feb 15, 4:32 pm | Corn

Corn struggled to find direction amid competing inputs. Another round of US/Chinese talks lie ahead next week. The market doesn’t want to be caught short should a US/China ag package be announced. The US suggests that China and US will be signing MOUs on the points that there is agreement. This is a likely lead up to a March Trade Summit between Trump/Xi. Unknown is whether these MOUs to be signed will become public and include specific dollar amounts?

Funds as of Jan 22 were long a net 44,000 contracts of corn. Funds this evening are estimated to be short a net 3,000 contracts. Farmer sales will be lacking at current prices. $3.70 support should hold into the start of planting.

Brazilian soil moisture will be replenished amid recent and coming rains.

Model guidance includes normal/above normal rainfall in key areas through the early part of March. Early safrinha GD/EX ratings will be much better than the previous year.

The trade is optimistic on an eventual US-Chinese trade deal, particularly with another high-level meeting scheduled in DC next week. If China pledges to secure large amounts of US ag goods annually, that will be a big deal for grain and meats.

US Soybean Crush in January

Feb 15, 4:31 pm | Soybeans

The February NOPA crush report showed a monthly soybean processing rate of 171.6 Mil Bu. The figure was near unchanged from December and was 8.5 Mil Bu larger than last year, the largest January crush total on record. On a per day basis, the NOPA crush continues to hold near all-time highs, as US capacity has expanded slightly while US crushers remain incentivized to keep plants actively running.

  Based on the NOPA crush data, we estimate a total US soy crush rate of 183 Mil Bu and hold an annual estimate of 2,075 Mil Bu. The USDA raised their estimate by 10 Mil Bu in the Feb WASDE to 2,090 Mil Bu. We see this forecast as 15 Mil Bu too high. Brazil is already crushing and exporting new crop soy products while new crop Argentine meal exports will get underway in April.   

  The world meal market looks to be highly competitive beyond April.

 

 

A year ago, the soymeal market was adding in sizable premium to balance Argentine drought losses. However, since the start of the US new crop harvest, it’s been soybeans that have led the soy complex higher, while the meal market has been flat. Compared to Sep 1, spot CBOT soybeans are trading 9% higher, soyoil is up 7%, and spot soymeal is down 3%. Those changes in the components of the crush spread have put the spot margin down 42% from September 1st.

  The spot crush margin rests at $.97/Bu, $.29 lower than a year ago, but still above the 10-year average of $.87.

  The CBOT is also offering an average margin of $.95/Bu to the end of the summer, which is also well above average. US supplies remain record large, and the CBOT continues to offer opportunities to crushers. However, the US market has become increasingly dependent on soymeal exports, which need to keep up to reach our more conservative 2018/19 crush estimate.

 

Wheat Futures Hit New Contract Lows; Russian Interior Market Little Changed

Feb 15, 4:30 pm | Wheat

US wheat futures fell another 2-5 cents led by fund selling in HRW. The European market fell similarly, and this week has been marked by a Russian rush to find export demand. French exporters were awarded the bulk of the recent Algerian tender following the break in fob offers there. We mention that the US’s discount to other origins remains sizable. Russian fob prices are down $12/MT from early February, but Gulf HRW holds a discount to Russian worth $14/MT. The US market has had to drop to maintain this position, but a string of large export sales lies ahead.

Russian flour prices shrugged off weakness elsewhere and found new all-time highs in ruble terms. Russian flour & wheat tightness won’t be solved by lower prices. Market focus is shifting to a potential build in new crop surpluses if normal weather develops, but crop-critical weather is still months away. Updated climate forecast this AM include normal and well above normal temps during Mar-May across E Europe & the Black Sea.

Spot Chicago bounces around between $5.00-5.30 near term. Non US wheat exporter stocks are tight and Northern Hemisphere weather will have real importance in 2-3 weeks. Don’t sell breaks

Wheat Futures Plunge on US Export Sales/Fund Sell Stops

Feb 14, 4:59 pm | Wheat

US wheat futures fell 5-15 cents, with some measure of support being found in Minneapolis. Spot wheat in Europe fell €3.00/MT ($.07/Bu) to a new three-month low.

US export sales totaled just 4.8 Mil Bu, a marketing year low. The drop in demand during the holidays is common. The actual pace of wheat export demand and Jan-Feb won’t be fully known until next Friday’s data release.

  World wheat futures are taking guidance from the world cash market, which has fallen noticeably in the last 10 days. Russian fob this evening is offered at $243/MT, down $11/MT from early February. Whether the decline will be lasting will be better determined by Russian interior prices, which will be updated Friday. Our sources maintain that some measure of Russian export rationing is needed.

Algeria is rumored to have booked 600,000 MTs of French wheat at $230-332/MT FOB about $1-3/MT under published prices.   

  ARC maintains that a lasting break in US/world wheat prices won’t occur until new crop production is determined.

CBOT Corn Weakens on US Export Sales; Maintains Chart Support

Feb 14, 4:58 pm | Corn

Corn futures fell 3-4 cents following a disappointing US holiday export sales number. Funds were huge sellers on the break of just under 7,000 contracts. CBOT corn is caught in a range trade with support under $3.70 and resistance above $3.80 March. Fresh fundamental input is needed to break the market out of the range.

  US export sales through Jan 3rd totaled 18 Mil Bu, down 2 Mil from the prior week and well below the pace needed to hit USDA’s annual target. Grain sales tend to drag in late Dec/early Jan, but a heavier burden lies on next week’s data dump, which will include sales from and entire month of Jan 10-Feb 14. Large sales are expected given the US’s discount to all other origins in Jan & early February which will be supportive.  

Argentina’s corn crop is seeded. Crop ratings there this week rest at 61% GD/EX. The Buenos Aires exchange mentioned solid yield potential despite falling moisture reserves in La Pampa and Southern Buenos Aires. Argentine fob basis is at left. Premiums are in decline as early harvest starts in 3-4 weeks

Crosscurrents abound. US/exporter stocks stay tight without favorable N Hemisphere. Chinese demand for US corn lingers in the background. The Central US is the wettest in mid-February for nearly 2 decades. The risk is to the upside.

Hogs Turn Back Down Through Thursday

Feb 14, 4:32 pm | Hogs & Pork

Hog futures were lower at the open on Thursday and stayed down at the close. Intraday resistance was against unchanged and then fell alongside a host of other US commodity markets. The cash index continued its lower trajectory and was down $.36 at $55.55. We estimate another $.31 lower for Friday. This puts weekly cash losses at $1.65/cwt.

 The USDA is slowly catching up on livestock reporting and releasing some weekly data as it becomes available. There was an Actual Slaughter report released on Tuesday with data for the week ending Jan 12th. The report showed an average barrow/gilt carcass weight of 214 Lbs, 2 Lbs heavier than a year ago, the most for early January since the reporting began back in 1986. Those heavy weights along large weekly kill figures are keeping the US pork market very well (over) supplied.

  Next support for April is just below the market at $57 and then $54. June hogs look to go back and close Tuesday’s open chart gap.   

 

Soybeans Fall on Limited News/Technical Liquidation

Feb 14, 4:31 pm | Soybeans

Soybeans traded down overnight and extended losses through the day on Thursday. The Weekly Export Sales Report reflected net cancellations of 22.5 Mil Bu for the week ending Jan 3rd, with large cancellations from both China and unknown destinations. The cancellations triggered fund selling of an estimated 12,000 soybean futures. In the product markets, funds sold 4,500 soymeal and 4,000 soyoil futures.  

  The Buenos Aires Grain Exchange’s weekly crop condition update showed that 54% of the soybean crop rated GD/EX versus 11% last year. 75% of the crop was blooming (5 yr-avg 80%) and 47% of the crop was setting pods (5 yr-avg 49%). The Exchange held their planted area total at 17.7 Mil Ha, with a crop size of 53 MMTs versus the USDA’s Feb estimate of 55 MMTs.

  Key support for March soybeans is just below the market at a 100-day moving average near $9, though a deeper correction back to the January lows could unfold if funds continue to sell. We look for broad-ranging trade to continue and look to add to sales on rallies. The market will look to US/China trade progress for soybean pricing on Friday.

March soybeans should hold $8.90-9.00.  

 

Chinese Soybean Imports in January

Feb 14, 4:03 pm | Soybeans

Preliminary January Chinese Trade data showed that China imported 7.4 MMTs of soybeans. The figure was well above expectations as several cargos of Brazilian beans that were held up by CIQ inspectors in December were finally released. The by country break down will not be released until later in the month, but based on shipments from major exporting countries, we expect that the majority of the January soy import total was sourced from South America.

  The US soy loadout program to China began in January as S American exports declined. And offloading slowed during the Chinese New Year holiday.   

  0ur best guess for Feb imports is 5.1 MMTs, which if realized will be just under last year and would put the cumulative import total to date at 30.5 MMTs.

 

 

In the February WASDE, the USDA lowered their estimate of annual Chinese soybean imports by 2 MMTs to 88 MMTs. ARC research argues that the China 2018/19 import estimate is still too high. When the USDA was compiling their estimates, there would have been just three months of official trade data available. With four months of data available and some vision for Feb imports, the USDA’s forecast looks to be 4-6 MMTs too high. An annual China import total of 82-84 MMTs seems more reasonable based on ARC pace analysis.

  Assuming ARC’s estimate for Feb imports, China will need to import 57.5 MMTs from Mar-September. In a comparable time last year, China imported 56 MMTs and in 2017 they imported 58 MMTs. This is needed to validate the WASDE 88 MMTs import forecast

  In 2017 & 2018 Chinese feed demand (as measured by soy crush) was rising. Soybean crush so far is down 8-10% year-over-year, which diminishes the odds of stronger imports into June.  

Chinese crush rates peaked in early October and had been trending lower since. Ahead of the New Year holiday, crush rates first spiked in late January, and then slipped to a new low ahead of the week-long celebration.

  The cumulative crush to date is down 10% year over year but is also the 2nd largest on record due to the strong early season total.

  Record large weekly meal stocks have weighed on processing margins and slowed crush. However, estimates of China’s soymeal stocks turned down in late January and then fell for three consecutive weeks.

  Chinese soymeal stocks for the 1st week of February were back in line with the five-year average. The next several weeks should provide a clearer picture of current Chinese feed demand. But at this point, it looks appears that AFS is holding down China’s domestic feed demand.