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Closing Comments

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Closing Comments

Corn

Exporters shipped 29.2 million bushels of corn in the week ending September 11, down from 47.1 million the previous week and down from the five-year average for the week of 32.0 million bushels. Total shipments through the first 11 days of the new 2014-15 marketing year are 57.7 million bushels, up 29 million or 104% from the previous year. Shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 6 million bushels, but that is down from 10 million the previous week.

Exporters shipped 5.8 million bushels of U.S. grain sorghum in the week ending September 11, up from 2.5 million the previous week and up from the five-year average for the week of 2.9 million. Of the last week’s total, 4.3 million bushels were destined for China. Marketing year shipments total 8.3 million bushels, down about 1.5 million from the previous year.

December corn bounced today when it failed to fall below last week’s contract low. It was a rather modest technical bounce, considering the distance that prices have fallen. Uncertainty ahead of this afternoon’s USDA crop progress data and tomorrow morning’s updated FSA acreage data provided fundamental cover.

This market remains bearish below $3.60, with the farmer the biggest long (owner) in the market, and the speculative hedge funds holding a small net long position as well. Yields are amazing, suggesting a much larger crop in USDA’s October report. Storage is going to be a problem, forcing bushels on the market. I fail to see anything in that mix that argues for higher prices in the near-term. Rather, this market remains vulnerable to new lows without a significant surprise to change these dynamics.

Soybeans

The National Oilseed Processors Association reports that its members crushed 110.6 million bushels of soybeans in August, down from 119.6 million the previous month, but up slightly from 110.5 million the previous year. That brings NOPA soybean crush for the 2013-14 marketing year to 1.654 billion bushels.

NOPA member crush is typically somewhere near 95% of total crush activity. Looking at historical data relative to final Census Bureau crush, it would suggest that USDA needs to raise its old-crop crush estimate another 4 to 5 million bushels. However, the trade is largely focused on the new-crop fundamentals at this point.

Exporters shipped 9.4 million bushels of soybeans in the week ending September 11, up from 6.4 million the previous week as more new-crop supplies become available in the South, and up from the five-year average for the week of 8.4 million bushels. Shipments to China accounted for 4 million bushels of the past week’s total.

Marketing year shipments through the first 11 days of the 2014-15 year total 12.3 million bushels, up 7.4 million or 155% from the previous year. Shipments to date still fall short of the seasonal pace needed to reach USDA’s target by August 31 by 8 million bushels, but that is expected to change dramatically in the weeks to come as new-crop supplies become available.

Basis remains quite volatile ahead of new-crop supplies reaching processors. It’s not unusual to see bids change by 75 cents per bushel within a few hours, depending on the flow of soybeans. The highest bid today was said to be $4.50 above the November contract for spot delivery of soybeans to an eastern Midwest processor. All of this is expected to collapse as harvest works north and/or end users simply decided to wait on the impending arrival of new-crop supplies.

Today’s NOPA report showed tighter soyoil stocks than some expected, producing a sharp rally in that market. Otherwise, the dynamics in the soybean pit mirrored those in the corn pit. Prices remain well-within their recent bear channel and it would likely take a significant surprise change in market dynamics to change that in the near-term.

Wheat

Exporters shipped 20.0 million bushels of wheat in the week ending September 11, up from 19.6 the previous week and down from the five-year average for the week of 29.4 million bushels. The past week’s total included 175K bushels destined for China, with another 2.0 million bushels destined for Brazil.

Marketing year shipments to all destinations total 280 million bushels, down 142 million or 34% from the previous year. Yet, shipments to date continue to exceed the seasonal pace needed to reach USDA’s target by May 31 by 19 million bushels, unchanged from the previous week.

Wheat traders aren’t concerned about crop progress numbers or surprises in FSA acreage data. As such, they remained focused on rising competition on the global market and bearish chart signals. Minneapolis led the way down, with Kansas City close behind. However, all three markets posted new contract lows for the lead December contract. At some point, we expect wheat to benefit from the unwinding of corn/wheat spreads, but sustaining a meaningful rally would mean going upstream if corn continues to trend lower.

Beef

Another week of cat and mouse has begun between packers and feeders as they seek to establish the proper cash market value. Estimated margins are more than $40 in the red for packers, leading them to do everything they could to talk down the market last week. With all the talk of slowing chain speeds, two of the past three weeks have seen the kills come in considerably above trade estimates, with retailers absorbing the product.

Last week’s cash trade ended up mostly $1 to $2 below the previous week, with the help of weaker futures. However, the break was rather modest, with futures traders recognizing the strength of demand, even with the larger showlist last week. Probably the biggest bearish argument is the premium of beef to pork as retailers stock up for October, which is National Pork Month. They typically feature pork at the retail counter during the month, reducing demand for beef.

This leaves a “show-me” attitude in the live cattle futures market, with traders nervous near the $160 area on the charts. However, it’s a different story in the feeder cattle market. Southern Plains rains, suggesting good wheat pasture, and a bin-buster corn crop, suggesting even cheaper feed prices, are stimulating demand for light-weight cattle.

Yes, higher corn prices caused feeder cattle futures to pause today, but futures are still very close to record highs. The latest CME cash index came in at a record $227.74 per cwt, up $0.76 on the day. The index has posted gains on each of the past 11 trading days, with gains over that period totaling $10.39 per cwt. New records have been posted in each of the past four trading days.

Boxed beef movement last week totaled 921 loads, down from 925 the previous week, but still near this year’s highs. The past three weeks of product movement have been the strongest of the year. Choice cuts ended the week at $249.93 per cwt, up $1.26 on the week. Select cuts were at $234.54 per cwt, down $1.71 on the week. The Choice/Select spread finished the week at $15.39 per cwt, up $2.97 on the week and its highest level since last December. Movement at mid-morning today was decent at 91 loads, with Choice cuts down $0.06 and Select cuts up $0.72 per cwt.

Pork

Lean hog futures found strength today from strengthening product prices and a firm cash market, but traders are far more cautious then they were a couple of weeks ago. Strength in the cash market has under-performed expectations, with the lead futures contract already at a significant premium.

Today’s cash market was mostly steady to $1 higher, with the cash index continuing to push higher. The latest CME 2-day lean hog index came in at $101.34, up $1.14 on the day. It was the sixth consecutive trading day with a higher index, with gains over that period totaling $5.89 per cwt. However, the lead October contract rallied more than $17 off its high and is currently roughly $5 above the cash index.

That margin is narrowing, so the futures contract should start responding more to daily cash price movement in the days and weeks ahead. However, this market is also consolidating while waiting for clearer direction from USDA. The agency is scheduled to release its quarterly hogs and pigs data September 26, which should provide greater clarity on the highly-anticipated hole in supplies this fall due to the PED virus earlier this year.

Last week’s product movement totaled 1,696 loads, up from 1,472 loads the previous week and a three-week high. The composite pork product price finished the week at $106.57 per cwt, up $3.41 on the week and the second week in a row of gains. Movement at midday today stood at 139 loads, with high loin prices pushing the composite price up $3.10 on the day to $109.67 per cwt.

Closing Market Snapshot

 

All opinions expressed in this commentary are solely those of Water Street Advisory. This data and these comments are provided for information purposes only and are not intended to be used for specific trading strategies. Although all information is believed to be reliable, we cannot guarantee its accuracy or completeness. There is significant risk of loss involved in commodity futures and options trading and may not be suitable for all investors.

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