Market Snapshot, 10:00 am CT (VIP) -- Advice -- May 21, 2013

May 21, 2013 05:10 AM
 

SOYBEAN CASH-ONLY MARKETERS: TRIM OLD-CROP INVENTORIES...

July soybean futures have moved into the upper end of the extended, choppy trading range, an area that has repeatedly turned back rally attempts since last fall. Combined with very strong basis, this is all the incentive we need to trim old-crop inventories. Cash-only marketers are advised make a 15% 2012-crop sale to get to 90% sold on old-crop.

We are willing to hang on to the final 10% of old-crop bushels as gambling stocks for now, but be prepared to finish sales if July futures signal a move back into the lower end of the range.

 

Corn futures are double-digit lower in old-crop contracts, while new-crop is mostly 3 to 4 cents lower.

  • The market is reacting to USDA's progress update yesterday that showed a record-large acreage surge in planting last week to 71% complete. The 43-percentage-point rise tied the all-time record surge in terms of percentage gains and the pace is now just 8 points behind the average pace. The sharp pickup in planting is causing traders to have less concerns with tight old-crop stocks. Thus, the unwinding of bull spreads.
  • But development continues to lag the norm by a wide margin. Just 19% of the crop is emerged, compared to 46% at this time last year.
  • Little planting progress is expected this week as the Upper Midwest has seen multiple rain events over the past five days. Plus, the NWS 6- to 10-day outlook calls for above-normal precip for this area.
  • The market is ignoring news Gulf basis firmed 1 to 8 cents for May and June delivery, which signals demand news may lie on the horizon.

 

Soybean futures are 1 to 5 cents lower in all but the front-month, which is around a nickel higher.

  • Tight old-crop supplies, as indicated by basis strength, is supporting the July contract.
  • Adding to such concerns is news Argentine port workers at Rosario went on strike Monday due to wages. It's uncertain how long this work stoppage will last, but they are typically short-lived.
  • Buying interest in deferred contracts is being limited by strong gains in corn planting last week, which signals farmers will soon shift attention to getting the bean crop planted.
  • Also, the relatively slow seedings pace (just 24% complete as of Sunday compared to 42% on average) is not yet overly concerning as the planting date is not as crucial with the bean crop.
  • Gulf soybean basis slid 10 to 15 cents for May and June delivery this morning, signaling slower demand and that recent strength in old-crop futures has triggered some farmer selling.

 

Wheat futures are roughly 6 to 8 cents lower in Chicago and Kansas City, while Minneapolis wheat is mostly 3 to 5 cents lower.

  • Pressure on the wheat market stems from recent and expected precip for U.S. HRW wheat country. Areas of Russia and Ukraine also received beneficial rain this week.
  • Russia's Grain Union raised the upper end of its 2013 grain harvest forecast to now stand at 90 MMT to 100 MMT. This would be up sharply from 71 MMT last year. It expects wheat production of 57 MMT, which would be a 50% increase over year-ago.
  • Also, strength in the U.S. dollar index raises concerns about export demand.
  • The market is largely ignoring ongoing deterioration in the HRW wheat crop. The amount of wheat rated "poor" to "very poor" rose 2 percentage points from last week to 41%, while wheat rated "good" to "excellent" slid one point.
  • Pro Farmer's weighted Crop Condition Index shows the HRW wheat crop declined by 5.3 points from last week to 246.62 on a 0 to 500 point scale, while the SRW wheat crop improved by nearly 5.5 points from last week to 378.34.

 

Live cattle futures are off to a slightly firmer start this morning. Feeder cattle futures are posting moderate gains in all but the soon-to-expire front-month.

  • Expectations for at least steady cash trade this week is encouraging some followthrough buying in live cattle today as nearby futures are at around a $5 discount to last week's cash action at $125 in Texas and $125 to $125.50 in Kansas.
  • This idea is supported by ongoing beef price strength which has pulled packer profit margins deep into the black.
  • Yesterday, Choice boxed beef values rose another 53 cents to yet another (the sixth consecutive) all-time high of $210.04. Select cuts also firmed $1.10, though movement was again light at 147 loads.
  • Recent weak movement has remained a source or pressure as this is seen as confirming ideas lofty prices are not sustainable.
  • Weakness in the corn market and ideas the downside has been overdone is supporting most feeder cattle contracts. The front-month is trading in line with the cash index.

 

Lean hog futures are off to a narrowly mixed to mostly firmer start.

  • Uncertainty about near-term direction is limiting both buying and selling interest today.
  • Yesterday, the pork cutout value slid 63 cents, but more concerning is that movement was especially slow at 234.6 loads.
  • Cash hog bids are mostly steady today as packers are working to improve their margins, which are right around breakeven. Supplies are tightening seasonally, but demand is limited as packers bought ahead in preparation for the Memorial Day holiday.
  • Light support for the front-month contract comes from the $1-plus discount it holds to the cash hog index.
     
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