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Closing Comments

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Closing Comments

Corn

Exporters shipped 23.7 million bushels of corn in the week ending September 25, down from 41.5 million the previous week and down from the five-year average for the week of 28.9 million. Marketing year shipments, through the first 25 days of the new marketing year, total 124 million bushels, up 55 million or 81% from the previous year. Shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 2 million bushels, but that is down from 12 million the previous week.

Grain sorghum shipments were very strong during the week. Exporters shipped 11.7 million bushels of grain sorghum in the week ending September 25, up from 5 million the previous week and up from the five-year average for the week of 4.2 million bushels. All of the past week’s shipments were destined for China. Marketing year shipments to all destinations total 25 million bushels, up 9 million or 53% from the previous year, largely due to China.

Corn managed modest gains today on speculative short-covering ahead of tomorrow’s USDA quarterly stocks report. However, rallies of 3 to 4 cents continue to be sold. The weakness of this market was demonstrated today by the inability of December corn to even test Friday’s session high of $3.27.

Soybeans

Exporters shipped 25.2 million bushels of soybeans in the week ending September 25, up from 17.2 million the previous year and up from the five-year average for the week of 18.9 million. Shipments to China accounted for 16.1 million bushels of the total.

Marketing year shipments total 54.8 million bushels, up 18.4 million or 51% from the previous year. Shipments to date match the seasonal pace needed to reach USDA’s target by August 31, while it had trailed the pace by 4 million bushels the previous week.

October soyoil surged higher today on bullish palm oil concerns about dryness, but the contract still failed to take out Friday’s high. Nonetheless, strength in the soyoil market combined with speculative short-covering ahead of tomorrow’s USDA stocks report to support double-digit gains in the soybean market.

Based on the yields coming in, I’d be very surprised if the low in the soybean market is behind us, but the short-covering provided surprising strength ahead of the crop report. Friday’s CFTC report showed that speculative hedge managers held net short positions in the soybean market of a record 431 million bushels, versus net short 422 million the previous week. This left traders a bit too nervous going into tomorrow’s report.

However, it should be noted that today’s rally fell just short of testing Friday’s high, leaving the charts bearish longer-term. The path of least resistance remains lower going into the heart of this year’s harvest, with yield reports extremely impressive. Today’s action ahead of tomorrow’s report simply helps correct an otherwise oversold market.

Wheat

Exporters shipped 21.1 million bushels of wheat in the week ending September 25, up from 19.1 million the previous week, but down from the five-year average for the week of 25.8 million. Shipments to Brazil accounted for 2.8 million bushels of the total.

Marketing year shipments to all destinations total 326 million bushels, down 172 million or 35% from the previous year. Shipments to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 14 million bushels, versus falling short by 12 million the previous week.

USDA confirmed late Friday that unapproved volunteer GMO wheat had been discovered at a Montana research facility where the crop had been grown over a decade ago. However, systems put in place to reassure global end users following a similar discovery in Oregon last year appear to have successfully kept fears of broader contamination in check. Wheat prices jumped on today’s pull-back in the dollar to add modest gains as the food grain continues to attempt a near-term low.

Weekend rains disappointed in Australia. This leaves 30% of the crop at some risk going into heading. That could increase to 50% if the pattern fails to improve in the next several weeks. However, production losses at this point appear to be 2 to 3% at the most of the national crop. As such, this crop still lacks the type of headline event to sustain a rally in the face of a strong dollar and weak corn prices.

Beef

Live cattle futures found renewed energy to start the week, following Friday’s daily limit higher move. Today’s strength was also boosted by broader commodity buying, but also by unanticipated strength in the pork sector, which many feared would steal business away from the beef market in October.

Packer margins are estimated at losses of $91.20 per cwt, but there’s a sense in the trade that those margins can improve several weeks from now as demand returns seasonally. The product market is showing signs of carving out a bottom, stopping the bleeding in packer margins.

Very little cash trade too place in the negotiated market last week, with packers relying primarily on formula cattle, but two major packers were said to have paid $159 per cwt on a live basis in western Nebraska. Packers continue to slow the chains to support product prices amid negative margins. As such, this week’s kill is again expected to be near 570K head.

Last week’s product movement reached a 2014 high of 1,064 loads, up 142 loads from the previous week. Choice cuts finished the week at $237.66 per cwt, down $6.05 on the week, while Select cuts were at $225.48, down $4.13 on the week. This put the Choice/Select spread at $12.18 per cwt, down $1.92 on the week and down from this fall’s high of $15.74 per cwt. Boxed beef movement at mid-morning today was strong for a Monday at 123 loads. Choice cuts were up $0.71 to $238.37 per cwt, while Select cuts were up $1.90 to $227.38.

The October live cattle futures contract pushed to the $3 daily limit higher move late in the session, although trading continued for most of the session. That placed the session high at $161.45 per cwt, just below its contract high of $161.75 per cwt. Meanwhile, the December contract pushed to $165.075; a new record high. The trend higher would appear to be back on the charts, but we’ll need to see the product market follow.

Feeder cattle futures were more the follower than a leader today, although the November contract did trade the $3 daily limit higher for much of the last hour of pit trade. The latest CME feeder cattle index came in at a record $230.48 per cwt, up $0.15 on the day.

Pork

Today’s lean hog futures market was impressive, following Friday’s bearish USDA quarterly hogs and pigs report. Some analysts were calling for a $3 limit lower open this morning. I didn’t think we’d be down the limit, but felt we wouldn’t be far off of that.

That’s basically what happened this morning, but contracts didn’t remain there very long. Buyers bought the break when they failed to see follow-through selling, lifting prices through the morning. In fact, prices pushed into positive territory by late-morning. The net effect is that December continues to show good chart support near $92, with resistance just above $96, with traders back to monitoring the near-term fundamentals.

Last week’s Federally Inspected slaughter was estimated at 2.032 million head, up 16K on the week, but down 93K or 4.4% from the previous year. Meanwhile, carcass weights are averaging near 4.5% above year ago levels, offsetting the decline in numbers due to the PED virus and Friday’s USDA quarterly hogs and pigs report suggested that the industry is learning to manage that disease.

Product movement was good, but not overly impressive last week at 1,568 loads, up about 40 loads from the previous week. However, prices continue to firm. The composite pork product price finished the week Friday at $118.63 per cwt, up $5.09 on the week. It was the fourth weekly gain in a row for the composite price. Gains since August 27 total $18.45 per cwt. Movement at midday today reached a sluggish 120 loads, but strength across the board lifted the composite price another $1.83 to $120.46 per cwt.

Today’s cash price was mostly steady at Midwest terminals, but the cash index continues to rise. The latest CME 2-day lean hog index came in at $107.64 per cwt, up $0.56 on the day. The index has been higher the past 16 straight trading days, after being down the previous seven weeks, with total gains over the past 16 days at $12.19 per cwt. This strength continues to lift the October contract ahead of expiration on October 14th.

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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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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