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Market Insider: Weather market needed for commodity prices to move higher

Market Insider: Weather market needed for commodity prices to move higher

Wheat

For the week ending June 1, Chicago wheat closed 21.5 cents per bushel lower; Kansas City wheat closed 23 cents lower and Minneapolis wheat closed 40 cents lower.

Weekly export sales for all wheat showed a total of 11.0 million bushels (300,400 metric tons) with 1.1 MB (112,300 MT) for the 2017-2018 marketing year. This puts total marketing year sales at 872.4 MB, 16 percent below the previous marketing year.

In the May 29 crop progress and conditions report, U.S. winter wheat conditions were estimated at 38 percent good to excellent vs. 36 percent expected, up 2 percent from 36 percent good to excellent last week and 50 percent last year. Hard red winter conditions posted notable improvement. U.S. spring wheat planting is 91 percent complete vs. 91 percent expected (90-95 percent range), 79 percent last week, 95 percent last year and 89 percent average. The month of June brings the end to the growing season and harvest has just begun in Texas and Oklahoma and should move north into number one winter wheat state Kansas by the middle of the month, assuming good harvest weather.

The USDA will update early yield results in the June crop report. The USDA will also update world wheat production and ending stocks. After the USDA World Agricultural Supply & Demand Estimates (WASDE) report on June 11, the market will be trading harvest results and weather in the spring wheat belt.

The next fundamental price determinant for spring wheat will be weather in the spring wheat belt as a hot and dry summer will force price rationing as the supply side of the wheat will again be threatened.

Strategy & outlook

The huge supplies of wheat mandates supply issues to provide rallies. Look to sell out inventory and use options to manage risks on sharp rally attempts.

Corn

Corn closed the week of June 1 at 16 cents lower.

For the last week of May, private exporters announced sale of 231,248 MT of corn to an unknown destination.

Weekly export sales of corn showed a total of 45.0 MB (1.142 million metric tons) with 39.1 MB (993,100 MT) for the 2017-2018 marketing year. This put total marketing year sales at 2.144 billion bushels, 1 percent above the previous marketing year.

In the weekly crop progress report, NASS reported U.S. corn crop conditions at 79 percent good to excellent vs. 72 percent expected vs. 65 percent last year. This year's corn crop is tied for second best initial rating in 27 years. U.S. corn planting is 92 percent complete vs. 93 percent expected, 81 percent last week, 90 percent last year and 90 percent average. In the weekly Energy Information Administration report, ethanol production increased by 13,000 barrels/day from last week to 1.041 million b/d, up 2.1 percent from a year ago and in line with USDA projected pace. Ethanol stocks fell 36 million gallons to 893 million, 6.6 percent below last year.

During June, the outlook for prices depends on weather and how it impacts the emerging crops. The only other supply side news the market will deal with is the June 12 USDA monthly WASDE report.

The trade will want to be bullish as the key pollination time period is directly ahead of the market; however, it will take weather concerns during June to ignite a rally. Producers will want to use options as a way to manage risk and provide price insurance. This will enable producers to make sales and cover the upside if weather is adverse. The end of the month will also have the quarterly stocks and planting intentions report from the USDA. This report could be a shocker to the market as some reports have farmers decreasing seeded acres from the last report in March due to some late seeding in the upper Midwest. Seasonal highs are usually formed by June 23.

Strategy & outlook

Producers should have either made sales and re-owned with call options or buy puts to establish a price floor.

Soybeans

Soybeans closed the week of June 1 at 18 cents lower. Weekly export sales of soybeans showed a total of 38.4 MB (1.045 MMT) with 10.0 MB (273,400 MT) for the 2017-2018 marketing year. This put total marketing year sales at 2.038 BB, 5 percent less than the previous marketing year.

In the May 29 weekly crop progress and conditions report, U.S. soybean planting was 77 percent complete vs. 73 percent expected, 56 percent last week, 65 percent last year, and 62 percent average. The month of June looks to be similar to corn as we are in a weather market and weather forecasts will be the primary driving force. The crop looks to be seeded before June 15 leaving beans to spend the rest of June developing its root system. Rains after June 15 will be viewed as beneficial to crop development and negative for prices. However, dryness in the month of June will send prices sharply higher.

Like the corn market, producers should use options as a risk management tool and price insurance. The month of June is not the key reproductive month for soybeans; however, the market will be quick to add a premium into prices on less than ideal weather. The acreage report at the end of the month could be a shocker to the trade as additional soybean acres are likely to be seeded. Seasonal highs are usually formed by June 23.

Strategy & outlook

Producers should have been making sales and re-owning with call options or buy puts to establish a price floor.

Live Cattle

Last week, live cattle closed 72 cents higher while feeder cattle closed 47 cents higher.

In late May, Fed cattle traded in the North between mostly $111 and $111.50, and the South had the bulk of their cash cattle trade at $110/cwt.

Trade in the south was steady with last week’s light national test at $110 but trade was $1 higher in the North. Dressed trade occurred between $177-$178. The weekly Fed Cattle Exchange saw 450 head listed for sale, all from Kansas. Three lots sold totaling 225 head at $110. Net beef sales of 31,300 MT for 2018 – a marketing-year high – were up noticeably from the previous week and from the prior four-week average. Weekly steer weights fell 2 pounds to 846 pounds, but are still 10 pounds above a year ago.

It certainly appears as if the summer lows are in the cattle futures; however, cash trade should come down slightly to meet the cash markets which are likely to work higher.

Strategy & outlook

On periods of weakness, producers should look at lifting hedges and carry risk in the cash markets.

Lean Hogs

Lean hogs closed the week of June 1 at $1.30 higher. Futures have bounced off double bottom weekly support but large supplies have limited the upside potential. Weekly hog weights fell to 282.4 pounds from 283.9 pounds the week prior vs. 280.8 pounds last year. Net sales of 21,800 MT for 2018 were up 6 percent from the previous week and 14 percent from the prior four-week average.

Strategy & outlook

Producers can carry all risk in the cash market as prices bounce off weekly support.

Brian Hoops is president and senior market analyst of Midwest Market Solutions. Brian can frequently be heard on radio stations across the country including KWMT, KAYL, KKIA, Ag News 890, Red River Farm Network and Commodity Wrap on Sirius XM radio. Brian can also be heard daily on DTN, is seen as a frequent guest on RFD-TV and is heard on the Minneapolis Grain Exchange marketing hotline. Brian also writes several newsletters that are published throughout the Plains and the Midwest, covering the states of Iowa, Minnesota, North and South Dakota, Nebraska, Kansas, Montana, Wisconsin, Wyoming and Idaho. Brian has been quoted in the Wall Street Journal, Bloomberg, Reuters and Dow Jones newswires and U.S. Farm Report.

Daily market commentary and trade recommendations are available at www.midwestmarket-solutions.com or by e-mail at bhoops@midwestmarketsolutions.com. Hoops can be contacted at 417-501-5132. (Copyright 2018 Midwest Market Solutions Inc.)

This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.

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A Kansas native, Katy is the daughter of a farmer and a cowgirl. She has been a professional journalist since 2008 and is the Editor of Midwest Messenger. She can be reached at katy.moore@lee.net.

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