Agricultural Commodities Report 3/1/17

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Includes: CAFE, CANE, JO, SGAR, SGG, SOYB, WEAT, WEET
by: Hedged Equity

Summary

Global wheat stocks are decreasing, and have been lowered 4.7 million tons due to lagging production and increased consumption.

Coffee - Global consumption for 2016/17 is forecasted at a record 153.3 million bags. As of October 2106, the EU, Japan, Russian Federation, Norway and Switzerland led all non-US importers.

Sugar - Global consumption for 2016/17 is projected to be at record levels, coming in at 174 MMT. Year end stocks are anticipated to be the lowest since 2010/11.

Futures contract identification information, synopsis, relevant market data and weekly charts are provided for the following Agricultural commodities:

● Wheat

● Rice

● Soybeans

● Coffee

● Sugar

● Live Cattle

● Lean Hogs

The information used in this report pertains to the trading year of 2016/17 and is derived from the following sources:

● Monthly USDA release dated February 9, 2017

● Weekly USDA export sales report released February 16, 2017.

● Monthly USDA Sugar and Sweeteners Outlook for February 15, 2017.

● Commodity specific USDA biannual and quarterly reports dated 2016

● Futures pricing data is courtesy of the CME Group and ICEUS online trader portals.

The Wall Street Journal daily online cash price index for Friday, February 24, 2017 is referenced for current commodity spot pricing.

● Charting applications used are provided by the CME Globex and NinjaTrader (supported by Kinetic end-of-day data).

● In addition, this report contains information from the USDA Cattle Report, issued 1/31/17.

Product: Wheat

Market: CME Globex

Classification: Grains

Description: Chicago SRW Wheat, Kansas City HRW Wheat

Symbol: ZW, KE

Front Month Contract: May 2017 (ZWK7)

Overview:

The global trade of wheat futures is primarily focused upon the Soft Red Winter (SRW) and Hard Red Winter (HRW) strains. For the period of 2/16/17 to 2/28/17, trading volume of the Chicago SRW Wheat futures fully rolled from March 2017 to the May 2017 contract. Currently, 60% of all volume is trading the May 2017 contract, with the balance to be transitioned out of March in the coming days. May wheat has been experiencing a substantial corrective phase, with price moving towards February's low of 429'4 made on 2/1/17.

Wheat Market Fundamentals

● Traditionally, February is a continuation of January's regression in pricing in both the futures and spot markets. After showing strength early in February, May 2017 SRW futures are in correction, selling off over 50% of gains since 1/1/17.

● Global wheat supplies for 2016/17 are lowered 4.2 million tons due to dramatic reductions in the India and Kazakhstan crops.

● USDA global export stats dated 2/15/17 list net sales at 451,000 metric tons (NYSE:MT), down 14% from the previous week and down 23% from the 4 week average.

● Global wheat consumption for 2016/17 increased by .5 million tons, led by increasing consumption from Vietnam and China. Global wheat stocks are decreasing, and have been lowered 4.7 million tons due to lagging production and increased consumption.

● US wheat production for 2016/17 remains unchanged. Wheat exports are raised 50 million bushels to 1,025 million.

● US food use for wheat 2016/17 is lowered 3 million bushels to 960 million. Ending stocks have been reduced 47 million bushels, projected at 1139 million bushels. Ending stocks remain at late 1980's levels.

● For the period 2/16/17 to 2/28/17, SRW Wheat futures have undergone correction, trading from the yearly high of 477 made on 2/16 to the daily low of 445'6 established 2/24.

● Spot prices for St. Louis Soft No. 2 Red closed at 4.3100 per bushel on 2/24/17, down from 4.5800 one year ago to the day.

● Technicals: Weekly chart for SRW Wheat Futures, 2/27/17

Product: Rice

Market: CME Globex

Classification: Grains

Description: Rough Rice

Symbol: ZR

Front Month Contract: May 2017 (ZRK7)

Overview:

Although a worldwide staple, rice is a lightly traded commodity on U.S. futures markets. For the period 2/16/17 to 2/28/17,the Rough Rice futures contract rolled volume from the March to May 2017 contract. Currently, the May 2017 contract represents 55% of trading volume, with the balance to shift from March during the coming sessions. Rice is quantified in hundredweight (NYSE:CWT).

Rice Market Fundamentals:

● Wet weather experienced during February has created a positive production environment in Northern California and Southeast Asia.

● Global production of rice for 2016/17 remains unchanged. World exports are raised .5 million tons, with increases by Thailand and India acting as the catalyst. USDA release dated 2/15/17 reports global net sales at 451,300 metric tons, down 14% from the previous week and 23% from prior 4-week average.

● Global consumption of rice for 2016/17 has been raised .8 million tons. Ending stocks have been reduced by .8 million tons, but remain at the largest levels since 2001/02.

● U.S. production for 2016/17 all rice crops is unchanged. Rice exports are lowered 2.0 million cwt to 110 million.

● U.S. consumption for 2016/17 is unchanged. All season price average is raised $.10 per cwt from the median to $10.50. Ending stocks are projected to be the highest since 1985/86.

● For the period 2/16/17 to 2/28/17, May 2017 Rough Rice futures have entered a consolidation phase trading within a high established on 2/21/17 of 976.00 and 2/22/17's low of 950.5.

● Spot prices for Long Grain Milled, No. 2 Arkansas closed at 20.63 on 2/24/17, down from 23.00 one year ago and relatively unchanged from 2/15/17.

● Technicals: Weekly chart for RR, current as of 2/27/17

Product: Soybeans

Market: CME Globex

Classification: Oilseeds

Description: Soybean futures

Symbol: ZS

Front Month Contract: May 2017 (ZSK7)

Overview:

Soybeans are one of the most heavily traded agricultural commodities on the futures market. For the period of 2/16/17 to 2/27/17, average daily volumes have been diluted, representative of the split between the March and May 2017 contract due to rollover. Currently, May serves as the front month contract with over 70% of traded volume with the roll from March nearly complete. Units of measure are bushels, tons and metric tons, with yield being calculated as Bu/Acre, or bushels per acre.

Soybean Market Fundamentals:

● Typically, Soybeans trade near the yearly lows in both the spot and futures markets during the month of February, with price beginning to show strength at the end of the month. May 2017 Soybean futures are in a short-term corrective phase, poised to challenge 2017's lows, and the bottom 40% of 2016's range.

● Global production levels for 2016/17 have been adjusted downward 1.2 million tons to 336.6 million.

● Global net sales of 413,500 reported on 2/15/2017 down 54% from the previous week and 32% from the prior 4 week average.

● Global soybean crush for 2016/17 has increased .4 million tons to 290.7 million. Stocks are projected to be lower, based upon the higher crush and decreased production from Argentina. Options were exercised by China to import 120,000 metric tons from non-U.S. producers.

● U.S. production for 2016/17 is unchanged for the month. Exports are projected to be up 114 million bushels year-over-year, for a total of 2,050 million bushels.

● U.S. consumption levels are unchanged, with ending stocks estimated at 420 million bushels.

● Spot markets for No. 1 yellow soybeans in Illinois closed at $9.8200 on 2/24/17. This price is up from $8.4700 one year ago to the day.

● For the period 2/16/17 to 2/28/17 May 2017 Soybean futures traded directionally downward, from a high of 1073'2 established on 2/16/17 to a low of 1017'0 on 2/27/17. Long term consolidation is present as February pricing has traded inside of January's range, near the 50% level of 2016.

● Technicals: Weekly Chart Soybeans 2/27/17

Product: Coffee

Market: ICEUS

Classification: Softs

Description: Coffee "C" futures

Symbol: KC

Front Month Contract: May 2017 (KCK7)

Overview:

Coffee C is one of the featured commodities available for trade on the Intercontinental Exchange (NYSE:ICE). It is the global benchmark for Arabica coffee, with prices being a function of the warehoused supply of exchange-grade beans from any one of 20 countries of origin. Coffee C has fully rolled, with volume dominantly on the May contract. USDA statistical reports for coffee are released on a biannual basis instead of monthly, leaving a degree of opacity to supply and demand levels.

Coffee Market Fundamentals:

● Seasonal trends in coffee pricing are complex due to the widespread geographical scope of production. February typically trades in the upper 40% of the yearly range in the spot market and near the 50% in futures. Currently, Coffee C is trading within normal parameters.

● World coffee production for 2016/17 is projected to be 3.7 million bags greater than 2015/16. However, record levels of output for Brazil Arabica have been largely offset by low Robusta production in Vietnam and Indonesia. June 2016 projections of global production have been revised downward 300,000 bags to 153 million, with ending stocks for 2016/17 lowered 600,000 bags to 34.8 million, a 5 year low.

● Global consumption for 2016/17 is forecasted at a record 153.3 million bags. As of October 2106, the EU, Japan, Russian Federation, Norway and Switzerland led all non-US importers.

Report issued by Goldman Sachs has cited global economic growth of 3.5% for 2017 being a catalyst for increased coffee consumption. Growth in emerging markets led by China are projected to spike global demand.

● The U.S. is the second largest global importer of coffee beans. Forecasts for 2016/17 have been revised down 300,000 bags to 44.4 million.

● U.S. consumption for 2016/17 is projected to gain 200,000 bags to 25.3 million. Ending stocks are to remain relatively unchanged at 6 million bags.

● May 2017 Coffee C futures have entered a substantial corrective phase, trading downward from a high of 153.30 on 2/22/2017 to a low of 140.00 established on 2/27/2017. Full rollover to the May 2017 contract has led to a weakened market for Coffee C, with a run at December 2016's lows possible.

● 2/24/17 spot prices for Colombian, New York coffee, came in at $1.6646 per pound. This is up from $1.3566 per pound on the same date, year over year.

● Technicals: Weekly chart for Coffee C futures, 2/28/17

Product: Sugar

Market: ICEUS

Classification: Softs

Description: Sugar No. 11 Futures

Symbol: SB

Front Month Contract: May 2017 (SBK7)

Overview:

The global trade of raw sugar centers around the Sugar No. 11 futures contract for trade on the Intercontinental Exchange . For the period 2/16/17 to 2/28/17, Sugar No. 11 futures traded with 80% volume on the May 2017 contract. The Sugar No. 11 July 2017 contract is also seeing considerable action, recently posting over 10,000 daily traded contacts. The USDA report for the sugar industry is released on a biannual basis, in May and November.

Sugar Market Fundamentals:

● Seasonal trends in the sugar market are largely dependent upon rainfall in production oriented regions. Historically, sugar futures and spot pricing begins its descent from yearly highs to summer pricing in late February and March.

● Global production for 2016/17 is estimated to be up 5 MMT to 171 MMT. Gains in Brazil and the countries of the EU largely serve to offset declines in India and Thailand.

● Global consumption for 2016/17 is projected to be at record levels, coming in at 174 MMT. Year end stocks are anticipated to be the lowest since 2010/11 despite a 4.1 MMT reduction in the worldwide sugar deficit.

● US cane sugar production for 2016/17 is reduced 72,803 STRV (short tons, raw value) based upon lessened production levels in Hawaii and Florida. Exports are projected at 75,000 STRV on strong sugar beet exports. Projected domestic deliveries for 2016/17 remain unchanged at 12.000 million STRV.

● US imports are projected higher due to a 50,000 STRV increase attributed to the re-export program. Imports from Mexico for 2016/17 have been increased to 832,000 metric tons. Ending stocks for 2016/17 are projected at 1.881 million STRV, with reduction to the ending stocks-to-use ratio of .6% to 14.8%.

● For the period of 2/16/17 to 2/28/17, May 2017 No. 11 Sugar futures experienced strength early on, posting a high of 20.94 on 2/22/17. Currently, May Sugar futures are in heavy correction, establishing a low of 19.10 on 2/27/17. Price has weakened substantially, moving under January 2017's low. December 2016's low of 17.66 is a key psychological level.

● Technicals: Weekly Chart for Sugar No. 11 Futures, dated 2/28/17

Product: Live Cattle

Market: CME Globex

Classification: Livestock

Description: Live cattle futures

Symbol: LE

Front Month Contract: April 2017 (LEJ7)

Overview:

The trade of Live Cattle futures provides producers, consumers and speculators an avenue by which to hedge production risk or speculate upon future pricing fluctuations. For the period of 2/16/17 to 2/28/17, Live Cattle futures traded the bulk of volume on the April 2017 contract with growing interest facing the June 2017 contract. Data for global production of beef is taken from the USDA biannual livestock report.

Cattle Market Fundamentals:

● Historically, the futures pricing and spot pricing of Live Cattle begin to show strength from January pricing towards the end of February and throughout March. Current Live Cattle futures pricing serves to reinforce this pattern, as price has rebounded from heavy selling in early February.

● International production of beef is led by Brazil, the EU, China, India and Argentina. For 2016/17, foreign production of beef is projected to expand to 49,510 thousand tons. Beef exports are projected to increase 3% to 9.7 million tons.

● The 2016/17 projections of International consumption levels are led by China, the EU, and Brazil. Consumption levels are expected to increase 500,000 tons to 47,550 thousand tons.

● Primary importers of beef reported 2/15/17 were Japan, South Korea, Mexico, Hong Kong and Canada.

● International net sales of 10,400 MT were reported 2/17/17 down 22% from the previous week and 41% from the prior 4 week average. Total global exports for 2017 reported 2/17/17 came in at 13,300 MT, slowing 9% week-over-week and down 6% from January.

● US production for 2016/17 is forecast to be up 4%, to 11,808 thousand tons. Exports are expected to increase a modest 73,000 tons, with shipments to South Korea, Japan and Mexico driving demand.

● USDA Cattle Report lists an all cattle inventory in the US of 93.6 million head, up 2% from January 1, 2016. Cows and heifers are up 3%, beef cows are up 3%, and milk cows are up slightly year-over-year. Calves under 500 pounds are up 2%, steers over 500 pounds are up slightly and bulls 500 pounds and over are up 4% year-over-year.

● Trade of April 2017 Live Cattle futures for the period of 2/16/17 to 2/28/17 have shown early strength and subsequent correction. From the low of 112.650 established 2/16/17, Live Cattle rallied to a high of 117.350 on 2/23/17 before selling off to the midpoint of 2017's range.

● The 2/24/2017 spot prices of choice and select beef (600-900 pounds) came in at 183.52 and 179.92 respectively. Both values are down year-over-year from 202.32 and 197.37.

● Technicals: Weekly Chart of Live Cattle, 2/28/17

Product: Lean Hogs

Market: CME Globex

Classification: Livestock

Description: Lean Hog futures

Symbol: HE

Front Month Contract: April 2017 (HEJ7)

Overview:

The trade of pork products is a largely international undertaking, with China, Brazil, Russia and the United States being the key players. For the period of 2/16/17 to 2/28/17, the April 2017 Lean Hog futures contract has traded the lionshare of the volume. Growing participation in the June 2017 contract will become a factor in volume split for the coming weeks. USDA reports are released quarterly, March, June, September and December.

Pork Market Fundamentals:

● The pricing of Lean Hogs during late February into March for both the futures and spot markets tend to be a time of weakness as price tests yearly lows. The period of 2/16/17 to 2/28/17 has followed this pattern into corrective territory after relatively stable pricing in early February.

● Global production for 2016/17 is projected to be up 3% to a record level of 111 million tons. This increase is attributable to a spike in output from China, as well as gains in Brazil and Russia. Exports are forecast to rise 1% to a record of 8.6 million tons.

● Foreign consumption levels for 2016/17 are projected to rise 2330 thousand metric tons. China is the global leader in pork consumption and imports, with a projected 2,300 thousand metric tons. As a result of increased consumption, ending stocks for 2016/17 are projected to decrease 32,246 thousand metric tons, or 4.5%.

● Global Net Sales reported 2/15/17 came in at 20,800 MT, up 12% from the previous week, but off 11% from the previous 4 week average. Global exports reported on 2/15/17 came in at 22,400 MT, down 5% week-over-week and up 1% on the previous month. Mexico, Japan, South Korea, China and Canada were the leading importers of pork for this period.

● US production for 2016/17 is forecast to be up 4% to a record 11.7 million tons. Exports are also expected to increase 4% to 2.4 million tons, with much of the stock going to satisfy demand in China.

● US consumption for 2016/17 is also expected to rise nearly 4% with a value of 359,000 tons. In contrast to the foreign projections, stocks are expected to increase 1,006 thousand tons.

● Overall, a 5% year over year increase in the September-November pig crop was realized for 2016, with the pending slaughter likely in the second quarter of 2017.

● For the period 2/16/17 to 2/28/17, April 2017 Lean Hog futures have undergone substantial correction. Stable pricing near 2016's highs has given way during the April 2017 contract, trading from a high of 71.775 on 2/16/17 to a low of 66.025 on 2/23/17. The low of 66.025 is the low level for 2017. Price remains in the upper 30% of 2016's range, but a test of lower levels may be in the offing.

● 2/24/17 spot prices for Iowa-South Minnesota hogs settled at $73.24 cwt, posting a substantial month-over-month increase as well as being up from last year's price of $64.99.

● Technicals: Weekly Chart for Lean Hogs, 2/28/17

This article contains general information and does not represent trading advice.

Disclosure: I am/we are long WHEAT & COFFEE FUTURES.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Some model portfolios at www.HedgedEquity.com are long wheat and coffee futures in the managed futures model. The use of this article is for educational and informational purposes only. NOT investment advice. None of the material presented in this article should be construed as investment advice (neither direct, explicit, or implied). It is strongly suggested and recommend that you do your own due diligence and/or consult a qualified financial advisor for any investment advice based on your situation.

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