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Closing Comments

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Closing Comments

Corn

Exporters sold 22.2 million bushels of corn in the week ending September 4, which was the first week of the new marketing year for this year’s crop. It wasn’t an impressive total, particularly in light of the big harvest ahead of us, but new crop sales already on the books are solid. USDA reports that new-crop sales already on the books total 487 million bushels. That’s down from 503 million the previous year, but it exceeds the typical seasonal pace needed to reach USDA’s target by next August 31 by 4 million bushels.

There were again no corn sales in the latest weekly total, but end users within China continue to aggressively buy U.S. grain sorghum. Exporters sold 8.2 million bushels of grain sorghum in the week ending September 4, with 7.6 million of the total going to China. Sales already on the books to start the new year are at a historically large 76 million bushels, which is more than twice the 36 million-bushel pace seen one year ago, thanks to Chinese buyers frustrated with domestic corn prices just below $10.

USDA gave more fodder to the bears in its monthly crop report. It pegged the national average corn yield at 171.7 bushels per acre, up from 167.40 bushels the previous month and up from trade expectations of 170.74 bushels. This put the crop at 14.395 billion bushels, up from 14.032 billion the previous month and up from trade expectations of 14.288 billion.

Keep in mind that the trade looks at history. USDA has a history of making very small upward adjustments in yield in its September report in the big crop years, with much bigger increases in October. Some commission houses were already said to be whispering a final corn yield above 175 bushels, which is near the 176 bushels per acre that I stated in early August. However, a big increase in September suggests that we could be looking at a much bigger crop yet.

Mild summers promote deep kernel developing, resulting in larger kernels and heavier ear weights. This is the factor that has been leading us to anticipate a bin-buster crop this year. This year wasn’t quite as favorable as 2004 and 2009, and ear weights came in just below those years as one would expect. However, ear populations were at record levels.

USDA raised its yield estimate for every Midwest state except Iowa, which it left at 185 bushels per acre. It raised Illinois to 194 bushels per acre, up 6 bushels from its August estimate. However, I wouldn’t be surprised if we see Illinois top 200 before it is over.

USDA tried to absorb some of the extra bushels with demand, under the assumption that lower prices stimulate demand. As such, USDA raised new-crop feed usage by 75 million, ethanol usage by 50 million and exports by 25 million. I am skeptical of the feed usage increase, as well be many traders, but the other numbers are moving closer to my estimates.

As a result, USDA pegged 2014-15 corn ending stocks at 2.002 billion bushels, up from 1.808 billion the previous month and very close to pre-report trade estimates of 2.012 billion. Water Street was looking for ending stocks in this report of 2.001 billion bushels.

The computers are the first to react to the numbers as they come across, with the human factor then jumping in. Prices were dropping into the report, putting in new contract lows. The price quickly dropped nearly a nickel as the computers reacted. A few traders tried to buy the first reaction, but then gave up and turned sellers, dropping the market to new lows.

December corn dropped to a new low of $3.3575, with our longer-term target still another 50 cents lower. However, prices bounced from that low late in the session as traders now step back to watch this weekend’s frost event. Readings moderated in the coldest areas for Saturday morning in the midday updates, while cooling in others. The bottom line is that damage is expected to be localized and be too small to significantly impact supplies in light of this year’s big crop, but traders will likely be cautious until we get through the weekend.

Soybeans

Exporters sold 36.2 million bushels of soybeans in the week ending September 4, the first week of the new marketing year. The five-year average for the week is 22.9 million bushels. Of the total, sales to China accounted for 24.2 million bushels, while sales to unknown destinations totaled another 3.9 million bushels. The latter will be suspected to also be China.

Sales already on the books as we start the new marketing year total 882 million bushels, the largest total on record for the first week of a new soybean marketing year. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 311 million bushels. That doesn’t mean that this year’s sales will exceed USDA’s target by 311 million bushels, but at the very least, it means that China is front-loading its purchases, even though we are expecting this year’s crop to be more than large enough to meet the coming year’s demand.

The above numbers do not include new sales announced this morning in USDA’s daily export reporting system. That announcement included new sales of U.S. soybeans to China of 8.8 million bushels, with China buying another 13.2 million bushels of optional origin soybeans. In addition, “unknown destinations” bought another 7.7 million bushels of U.S. soybeans. In total, the announcement included 29.7 million bushels of soybeans, likely to China, but other origins may supply part of the purchase.

USDA pegged the soybean yield at 46.6 bushels per acre, up from 45.40 bushels the previous month and up from trade expectations of 46.30 bushels per acre. That puts the crop at 3.913 billion bushels, up from 3.816 billion the previous month and up from pre-report trade expectations of 3.913 billion.

Our submitted estimate was 48.0 bushels per acre, based on our yield model, but we expected the USDA to come in just below 47 bushels per acre, with more increases in October and November. That’s the path that we are currently on and the trade’s response to USDA’s numbers would suggest it has similar expectations. USDA noted that pod counts were not that impressive, but the pods that are out there are very heavy, suggesting favorable filling conditions.

USDA raised old-crop crush and exports by 5 million bushels each, dropping ending stocks by 10 million to 310 million bushels. That puts the old-crop stocks-to-use ratio at a record low 3.85% or a 14-day supply. I’m not sure I buy that the cash market would allow supplies to get that tight, so we may see the stocks report raise supplies September 30, with larger-than expected imports and/or a larger 2013 crop, but we’ll see.

Regardless, USDA started with a 130 million-bushel beginning stock number for the 2014-15 marketing year. It then increased new-crop crush 15 million and exports 25 million bushels to absorb some of the increased supply, which comes closer to my expectations. That brought ending stocks up to 475 million bushels, up from 430 million last month and above the pre-report trade expectations of 453 million bushels. Traders will now start assuming ending stocks close to 500 million bushels, even with robust demand.

November soybeans came under considerable pressure following the crop report, trying to narrow their huge premium to corn prices, with expectations that this year’s big crop will get bigger. The lead November contract plummeted to $9.695, before settling 12 cents off that low as traders now look to this weekend’s frost event. Again, the midday model looks less threatening, but readings will be close enough to damaging levels that traders want to be sure the forecasts don’t turn colder.

Wheat

Exporters sold an impressive 25.4 million bushels of wheat in the week ending September 4, up from 6.2 million the previous week and up from the five-year average for the week of 22.9 million bushels. Biggest buyers were primarily from Southeast Asian markets, with Brazil absent during the week as new import tariffs kick in.

Marketing year sales total 446 million bushels, down 156 million or 26% from the previous year. Yet, sales to date exceed the seasonal pace needed reach USDA’s target by May 31 by 26 million bushels, versus 22 million the previous year.

USDA’s September crop report chose to wait to make further adjustments to production until the September 30 Small Grain’s Summary, which is customary. It increased imports by 10 million to 170 million bushels. That left most adjustments in the agency’s domestic balance on the demand side, with ties to the global balance sheet.

The agency cut U.S. wheat exports by 25 million bushels, raising ending stocks to 698 million, which the trade didn’t expect. That move was stimulated by increases in wheat exports for Canada, Europe, Brazil, Kazakhstan and Ukraine. I think we are more likely to see a big increase in Russia’s exports, but regardless the Black Sea region is expected to export more wheat that will hurt U.S. sales amid a strong U.S. dollar.

Wheat prices dropped sharply following the report, rebounded and then resumed their downward trek. They then firmed late to recover the bulk of the post-report losses. This morning’s weekly export sales were quite strong, but USDA obviously does not believe that trend will continue, with increased global competition expected over much of the remainder of the marketing year. Prices firmed late in the session along with the other markets, but sustaining a rally will likely be difficult without strength in corn and/or a legitimate threat to the 2015 crop.

Beef

Exporters sold a net 14K metric tons of beef in the week ending September 4, up from 10.2K the previous week and a seven week higher despite a strong U.S. dollar. This combined with strong domestic demand to help spur the big jump in cash cattle prices last week. Actual shipments during the week totaled  11.5K tons, down from 12.7K tons the previous week and an eight-week low.

Live cattle futures turned lower today in follow-through selling following Wednesday’s bearish reversal on the charts. Traders are worried that cheaper pork prices will steal market share away from beef. October is national pork month, when retailers tend to feature pork in their promotions. Packers then leveraged the lower futures, lowering their bids as well, trying to create some fear of lower prices among feeders.

They may be winning the battle, with some cattle trading in Iowa late yesterday at $248 per cwt on a dressed basis, down from $250 the previous week. Packer bids of $162 per cwt on a live basis in the Southern Plains have been replaced with offers of $160. As such, market bulls are feeling pretty weak just a day after pushing futures prices to all-time highs. Packer margins have all but disappeared, estimated at $1.70 per head today.

Boxed beef movement jumped to 236 loads Wednesday, up from 183 loads the previous day, but down from 266 loads the previous week. Choice cuts were up $0.38 to $251.46 per cwt, while Select cuts were down $0.50 to $238.18. This raised the Choice/Select spread to $13.28 per cwt, up from $12.40 the previous day, but down from $13.64 per cwt the previous week. Movement at mid-morning today was good at 105 loads, with Choice cuts up another $0.57 per cwt, while Select cuts were down $1.36.

Feeder cattle traders were somewhat bewildered by the fat cattle market, but respected the downward move despite strong cash action. We continue to see more reports of light-weight cattle trading above $240 per cwt, with the latest CME index at a record $226.38 per cwt, up $0.43 on the day. This limited the weakness in the nearby September contract, with larger losses in the deferred contracts.

Pork

Exporters sold a net 15.8K metric tons of pork in the week ending September 4, down from an impressive 20.8K tons the previous week, but still a strong pace. Actual shipments totaled 12.8K tons, down from 14.0K tons the previous week and a six week low, but still a fairly routine pace.

Cheap corn favors expansion in the hog complex, at least if the industry can get a handle on the PED virus. We’ll get our next look at hog numbers September 26 when USDA releases its quarterly hogs and pigs report. Until then, we may see some pretty choppy action. For today, traders were selling the nearby contracts, while holding the deferred contracts a bit firmer.

The latest CME 2-day lean hog index came in at $99.02 per cwt, up $1.23 on the day. The index has been up each day this week, with gains totaling $3.57 per cwt over the period. Yet, product prices are weak enough to keep margins narrow, with today’s estimated margin at just $0.70 per head. Today’s cash market was mostly steady to $1 higher in the Midwest, with hogs moving for up to $2 higher in Illinois.

Product movement increased to 482 loads Wednesday, up from 360 loads the previous day and up from 478 loads the previous week. The composite product price rose to $106.15 per cwt, up $0.87 on the day. Movement at midday today was routine at 181 loads. However, strength in the loin and belly market lifted the composite pork product price to $108.25 per cwt, up $2.10 on the day.

Closing Market Snapshot

 

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