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Closing Comments

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Closing Comments

Corn

The Department of Energy reports that ethanol stocks fell to 18.6 million barrels in the week ending September 19, versus 18.8 million the previous week and 15.6 million barrels the previous year. Production during the week totaled 889K barrels per day, down from 931K the previous week, but up from 832K the previous year.

The data suggests that the industry used 94.4 million bushels of corn in the week ending September 19, down from 98.8 million the previous week, but up from 89.6 million the previous year. Estimated corn usage through the first three weeks of the new marketing year total 292 million bushels, up 19 million or 7% from the previous year. Corn usage to date exceeds the seasonal pace needed to reach USDA’s target by August 31 by 4 million bushels, unchanged from the previous week.

Money flowed back into the broader commodity sector today, providing a technical bounce for prices at a time when the dollar continued to push higher. A weaker euro on disappointing economic data helped push the dollar to new four-year highs, where it is approaching pivotal resistance at trend line resistance off the 2009 and 2010 highs on the charts. As such, some traders jumped in to take profits on short (sold) positions in the commodities on the thought that the dollar might correct lower.

December corn ended the day about 4 cents higher for the session, but that still kept the day’s high below the previous session’s high of $3.31. Some consolidation would be expected ahead of next Tuesday’s USDA quarterly stocks report. However, the timing isn’t right for putting in a low this early in a big crop year.

The dollar may correct lower, providing near-term support, but the euro’s weak fundamentals combined with expectations that the United States will be the first major economy to raise interest rates suggest that we could see the greenback push higher in the months ahead, suggesting more pressure for the commodity sector at a time when corn supplies are burdensome.

Reuters surveyed trade participants regarding next Tuesday’s September 30 USDA quarterly grains stocks report. The survey revealed expectations for USDA to peg September 1 corn supplies at 1.185 billion bushels, up from 0.821 billion the previous year and up only slightly from the agency’s previous estimate of 1.181 billion bushels. Water Street expects stocks to come in at 1.175 billion bushels. The September 30 stocks report is known for its surprises, but there is no pattern or tendency to the direction of the surprises.

Soybeans

Soybeans traded both sides of unchanged today, pressured by big crop expectations, while being supported by strength in the palm oil, therefore soyoil, market, as well as buying of the broader commodity sector. However, rallies were tough to sustain in light of rising production estimates for this year’s U.S. crop, as well as next year’s South American crop.

Reuters’ survey of trade participants reveals expectations that USDA will peg September 1 stocks at 126 million bushels, or a record low 13.6-day supply. That would be down slightly from USDA’s previous estimate of 130 million bushels. I continue to look for USDA to show stocks at 140 million bushels, or a 14-day supply.

The agencies numbers don’t add up this year unless it increases the size of last year’s crop. It currently has 5 million bushels on its balance sheet for seed and residual usage and we know that the U.S. farmer planted more than 5 million bushels this year. As such, USDA is expected to increase the size of the 2013 crop by raising yield and acreage at some point.

Next Tuesday’s report would be a good opportunity for it to do so, since it has adjusted the previous year’s crop in eight of the past 10 September 30 reports. Five of those eight changes were increases to the previous year’s crop, while three were declines. The average trade guess should USDA alter the crop would be an increase of 73 million to 3.362 billion bushels, within a range of estimates stretching from 3.289 to 3.400 billion bushels. Water Street projects a 2013 crop of 3.380 billion bushels.

Soybeans found renewed strength again today from soyoil, where values were boosted by strengthening palm oil values. However, rallies in the soybean market continue to be sold in the face of this year’s big harvest, limiting gains. As such, November soybeans finished the day fractionally higher in what was largely a consolidation day inside the previous day’s trading range.

Wheat

Wheat is well-valued at current price levels, suggesting that a near-term low may be behind it. It has tried several times previously to put in a low, but each time was pulled lower by weakness in the other markets combined with strength in the U.S. dollar. Those factors will likely remain with us. However, firmness in the other markets allowed wheat to post modest gains today.

USDA will also be releasing its September 1 stocks estimates on Tuesday, providing greater insight into this past summer’s wheat feeding. The average trade guess puts September 1 wheat stocks at 1.880 billion bushels, up slightly from 1.870 billion the previous year. Water Street is looking for stocks to be a bit higher at 1.949 billion bushels.

USDA is also expected to release it final 2014 wheat production estimates on Thursday, with the expected results below.

U.S. Wheat Production

2014-15

All Wheat

All Winter

HRW

SRW

WW

HRS

Durum

 

billions of bushels

 

 

 

 

 

USDA September 30 Report

    Pre-Report Estimates

Average Trade Estimate

2.037

1.394

0.728

0.465

0.201

0.580

0.062

Highest Trade Estimate

2.075

1.413

0.758

0.472

0.213

0.608

0.070

Lowest Trade Estimate

2.004

1.376

0.707

0.437

0.193

0.558

0.056

Previous USDA Estimate

2.030

1.397

0.729

0.466

0.202

0.572

0.061

Water Street Solutions

2.019

1.376

0.713

0.461

0.202

0.581

0.062

Beef

December live cattle futures continue to consolidate just above support at $155.45. That provides leeway for some additional softness in the cash market this week. I’m impressed with the support at that level to this point, considering estimated packer losses of $88.50 per head. The losses are mounting as the product market falls below support, flushing lower to maintain movement.

There are signs that surplus supplies are getting flushed out of the market as the packers slow the chain speed, but we need to see prices stabilize to hold cash cattle above this summer’s low of $153, before product seasonally strengthens several weeks from now.

Product movement reached 233 loads Tuesday, up from 161 loads the previous day and up from 181 loads the previous week. However, Choice cuts were down $3.85 to $239.17 per cwt, while Select cuts were down $1.18 to $227.29. That narrowed the Choice/Select spread to $11.88 per cwt as ground beef again becomes the driver. Boxed beef movement at mid-morning today was strong at 169 loads, with Choice cuts down another $0.19 and Select cuts down another $0.24 per cwt.

Feeder cattle sales backed off some earlier this week, but the latest data showed prices coming back again, with some sales above $240. The latest cash index came in at a record $230.39 per cwt, up $0.70 on the day. That allowed October feeder cattle to rise to another contract high of $230.675, which is about 50 cents below the market’s all-time record high.

Pork

December lean hog futures continued to consolidate primarily between $94 and $96 per cwt today as traders position for Friday’s USDA quarterly hogs and pigs report. The trade has priced its expectations into the market. Now it’s anxious to see if USDA’s data matches up with those expectations. Trade expectations are listed below.

Today’s cash market was mostly steady, but one could also find hogs moving 50 cents higher to $1 lower. The latest CME 2-day lean hog index was up $0.49 to $105.79 per cwt. It was the 13th day with a higher index, with gains over the period totaling $10.34 per cwt.

Product movement Tuesday was strong at 402 loads, up from 238 loads the previous day and up from 371 loads the previous week. The composite product price was $116.83 per cwt, up $1.23 on the day and its highest level since August 12. Movement at midday today was routine at 261 loads. Lin and ham prices were firmer, but larger losses for picnic and belly cuts dragged the composite price down to $116.57 per cwt, down $0.26 the previous day.

September 26 Quarterly Hogs & Pigs

USDA

Trade Est.

Range

percent of previous year

All hogs September 1

96.7

95.6-97.5

Kept for Breeding

101.7

99.8-104.7

Kept for Market

96.2

94.9-97.0

Pig Crop

June to August

97.8

96.9-99.0

Weight Groups

Under 50 lbs.

97.6

96.1-99.5

50 to 119 lbs.

96.6

94.9-97.7

120 to 179 lbs.

95.0

94.0-96.2

Over 180 lbs.

94.0

91.8-96.6

Farrowings

June to August

100.4

100.0-100.7

Farrowing Intentions

September to November

103.2

102.0-104.3

December to February

101.7

98.2-103.6

Pigs per Litter

June to August

97.4

96.2-98.9

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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www.waterstreet.org 
or 1-866-249-2528

 

 

Arlan Suderman | Senior Market Analyst
WATER STREET ADVISORY® | www.waterstreet.org
(316) 729-4599 | asuderman@waterstreet.org

 

Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK involved in trading futures and or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL. This information is provided freely and is NOT in the capacity of a trading advisor. NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. Information provided is not to be construed as an offer to sell or solicitation to buy any commodity or security named herein.

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