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Closing Comments

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Closing Comments

Corn

The Department of Energy reports that ethanol stocks rose to 18.8 million barrels in the week ending September 12, versus 18.0 million the previous week and 16.2 million the previous year. Ethanol production during the week rose to 931K barrels per day on profitable margins during the week, up from 927K barrels the previous week and up from 838K barrels per day in the same week last year.

The data suggests that ethanol producers used 98.8 million bushels of corn during the week ending September 12, up from 98.4 million the previous week and up from 90.2 million the previous year. Estimated corn usage through the first two weeks of the 2014-15 marketing year totals 197 million bushels, up 8% from the previous year. Ethanol usage to date exceeds the seasonal pace needed to reach USDA’s target by August 31 by 6 million bushels, up from 3 million the previous week.

Private forecaster Lanworth, which uses a combination of satellite, ground truth and analytical data, raised its corn yield estimate to 174.5 bushels per acre, up from 173.7 two weeks ago. It lowered its harvested acreage estimate to 83.5 million acres, versus USDA at 83.8 million. I’m sticking with my 176 bushel yield estimate for now, but am fearful that I may be too low, based on harvest results to this point.

December corn traded a nickel trading range today, spending most of the day session in negative territory. This market is starting to feel the pressure of harvest progress, with some signs that traders are unwinding corn/wheat spreads that would add selling pressure. The current contract low is a double-bottom at $3.3575.

Soybeans

USDA’s daily export reporting system today reported that China bought 22.8 million bushels of this year’s soybean crop in the previous 24 hours. This was likely a portion of an agreement signed by a Chinese delegation earlier this week.

China sends a delegation to the United States to tour the soybean industry each year. They typically sign a token agreement to purchase a large amount of soybeans while here, making for nice headlines. However, it does little to necessarily alter what they were going to buy anyway. This year’s agreement was for 176 million bushels, but that is a small fraction of what China will eventually purchase. This year’s agreed total is nearly identical to the one signed a year ago.

Lanworth raised its soybean yield estimate to 47.0 bushels per acre, up from 46.7 bushels two weeks ago. It pegs soybean harvested acreage at 82.4 million acres, down from USDA’s estimate of 84.1 million. The lower acreage would lower stocks by roughly 80 million bushels, but that would still leave stocks at a bearish 400 million +/-. I still believe the soybean yield could top 48 bushels per acre.

Soybean harvest in the Midwest hasn’t really gained any momentum yet, keeping supplies squeaky tight and basis in the $3 to $5 range above the November contract at some processors. That provided modest support for soybean futures today, but rallies are quickly sold as well. As such, this market has the look of consolidation before the next leg lower, once harvest gains momentum. The current contract low is $9.695.

Wheat

The wheat market was very quiet today, with prices consolidating after recent losses. This week’s snap tender by Egypt showed that U.S. wheat was still too high to get the business, but that we are becoming much more competitive following recent losses. This has traders thinking about their long corn/short wheat spreads, leading to some unwinding today that supported Chicago wheat, but gains were still limited by the sheer size of soft red winter wheat stocks and significant competition from Europe and the Black Sea region.

Meanwhile, both Kansas City and Minneapolis wheat probed to new contract lows, although prices came off those lows. The bulk of the day was spent within a nickel trading range, showing that things are quieting down in these markets, but the markets still lack the type of bullish headlines needed to sustain a rally near-term.

Remnants of hurricane Odile are expected to provide good rains for much of the Southern Plains winter wheat belt into this weekend, helping newly planted wheat get a good start in that region. However, that leaves few supportive headlines for sustaining a rally in the wheat market as we move into the last half of September. Moisture is generally good for the soft red winter wheat winter wheat belt.

Beef

The cash feeder cattle market remains on fire. Rains forecast for the Southern Plains raise optimism of good wheat pasture in the months ahead and reports of high yielding corn raise optimism of even cheaper feed this winter. As such, we continue to see reports of light-weight cattle selling for between $240 and $250 per cwt in some markets. The latest CME cash index came in at a record $230.98 per cwt, up $0.01 on the day, but up $12.70 per cwt over the past 13 days in which we’ve seen an increase each day.

Live cattle futures bounced today, with short-covering providing support following the past week’s losses. Traders are looking ahead to Friday’s USDA cattle-on-feed report, which is expected by the trade to show August placements down 4.5% from the previous year, with total on-feed numbers down 1.2% and marketings down 8.5%.

The supply of cattle continues to shrink, but fat cattle traders continue to worry about the ability of beef to compete with pork during National Pork Month in October. Boxed beef movement has been pretty good of late, but the packers have had to hold down prices in order to facilitate that strength.

Product movement on Tuesday totaled 181 loads, up from 148 loads the previous day, but down from 183 loads the previous week. Choice cuts were down $1.38 to $247.64 per cwt, while Select cuts were down $0.32 to $232.96 per cwt. This narrowed the Choice/Select spread to $14.68 per cwt, down from a nine-month high of $15.74 the previous day, but still up from $12.40 the previous week.

Boxed beef movement at mid-morning today stood at a solid 143 loads. However, Choice cuts were down $1.53 to $246.11, while Select cuts were up $0.25 to $233.21, further narrowing the Choice/Select spread to $12.90 per cwt.

Pork

The cash market continues to creep higher, with today’s terminals reporting prices that were mostly steady to $1 higher once again. As such, the cash market is slowly catching up to the futures market, with the job made easier by futures correcting lower.

The latest CME 2-day lean hog index rose to $103.22 per cwt, up $0.96 on the day. It was the 8th consecutive trading day with a higher index after 7 weeks of decline, with gains over the 8 days totaling $7.77 per cwt.

Product movement Tuesday rose to 371 loads, up from 256 loads the previous day and up from 360 loads the previous week. The composite pork product price rose another $1.90 to $110.75 on Tuesday, which is its highest level in four weeks. The composite price has posted gains on 11 of the past 15 trading days, with gains over that period totaling $8.07 per cwt. Product movement at midday today was good at 261 loads, but the composite price was down $1.46 to $109.29 per cwt.

The lead October lean hog futures contract has narrowed the gap with the cash market. This should make it more responsive to day to day changes in the cash market, particularly as we move closer to contract expiration next month.

Meanwhile, the December contract continues to correct lower following a surge higher in late August and early September. Traders are starting to question the size of the anticipated hole in supplies this fall following losses from the PED virus earlier this year. The trade will get updated data about that hole in supplies when USDA releases its quarterly hogs and pigs report September 26.

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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