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Closing Comments

Corn

Corn receives a boost from the other markets, reinforcing chart support.

The major commodity indices are posting positive chart signals, although this week’s weakness in crude oil presented some challenges. Crude oil prices stabilized somewhat today, allowing money to flow into the major commodity indices. Soybeans led the way higher, with corn getting the short end of corn/soybean spreads for a while to limit gains. Unfortunately, corn isn’t getting much help on the export front. Exports are just 13% of overall demand, with the other 87% looking solid at this point. However, exports are what make the headlines week in and week out.

Exporters shipped 22.6 million bushels of corn in the week ending October 8, up from 18.5 million the previous week, but down from the five-year average for the week of 26.3 million bushels. There were no notable shipments of U.S. corn to China during the week.

Marketing year corn shipments to all destinations total 149 million bushels for the year that started September 1, down 47 million or 24% from the previous year. Exporters typically ship 11% of final corn shipments by the first week of October, whereas they had shipped 11% by the same point last year as well. However, this year they have only shipped 8% of USDA’s target for the year. As such, shipments to date fall short of the seasonal pace needed to reach USDA’s target by August 31 by 49 million bushels, versus being short by 39 million bushels the previous week.

Exporters shipped a near-record large 14.5 million bushels of grain sorghum in the week ending October 8, up from 11.7 million the previous week and up from the five-year average for the week of 2.7 million bushels. Shipments to Chinese end users accounted for 11.5 million bushels of the total.

Marketing year shipments to all destinations total 55.5 million bushels, up 18.5 million or 50% from the previous year’s pace. Exporters typically ship 13% of final grain sorghum shipments by this point in the year, whereas they had shipped 10% by this point last year. This year’s shipments thus far total 13% of USDA’s target for the year. Shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 1 million bushels, versus being short of the pace by 7 million bushels the previous week.

December corn found support at $3.79, coinciding with a double-bottom at that level in late September. The contract then rallied to finish the day at $3.845, up 3-1/2 on the day, settling near the session high. Prices remain vulnerable so close to key support, but today’s reversal with support from the broader commodity complex is encouraging. Corn suddenly finds itself as the follower after Friday’s crop report, with soybeans playing the lead role along with wheat.

Soybeans

Soybean prices surge on strong demand.

Soybean prices pushed sharply higher today, aided by strong export demand for the oilseed, combined with good soymeal demand as well. Soymeal prices broke higher on the charts, while soybeans finally managed to break through increased farmer selling near $9. Farmer selling was said to be steady through the day, but that didn’t stop soybeans from surging to their highest level since August 18.

USDA changes to the soybean yield tend to be relatively minor after the October crop report. As such, traders tend to shift their focus from the supply side to the demand side of the balance sheet after the October crop report. Export demand got off to a slower start this year, but it’s been robust in recent weeks. That’s positive for soybeans, which were also boasting chart signals suggesting that traders had little interest in pressing the downside further.

The day started with USDA’s daily export reporting service reflecting more demand. USDA reported this morning that China bought another 8.8 million bushels of current-year U.S. soybeans. That was followed by a strong weekly export shipment report.

Exporters shipped a nine-month high 67.3 million bushels of soybeans in the week ending October 8, up from 42.5 million the previous week and up from the five-year average for the week of 50.6 million bushels. The past week’s total included 53.9 million bushels destined for China.

Marketing year shipments total 163 million bushels, up 18 million or 12% from the previous year’s pace. Exporters typically ship 8% of final soybean shipments by this early date in the marketing year, whereas they had also shipped 8% last year as well. However, they have already shipped nearly 10% of USDA’s target this year. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 31 million bushels, up from 10 million the previous week.

November soybeans finally broke out of the trading range that had confined it for most of the past seven weeks, rising to its highest level since August 17. Farmer selling emerged, but was unable to overcome the speculative short covering on ideas that soybeans may have confirmed their harvest low. Don’t expect gains of this magnitude to continue once the short-covering is completed, but the positive chart signals certainly provide some encouraging direction in the near-term, especially with soymeal breaking to the upside.

Wheat

Wheat posts double-digit gains again on support from soybeans and emerging adverse weather.

Exporters shipped 10.7 million bushels of wheat in the week ending October 8, down from 20.6 million the previous week and down from the five-year average for the week of 17.7 million bushels. No notable bushels were destined for China during the week.

Marketing year shipments total 306 million bushels, down 64 million or 17% from the previous year. Exporters typically ships 39% of final wheat shipments by this point in the year, whereas they had shipped 43% by this point last year. However, this year’s shipments total just 36% of USDA’s target thus far. Shipments to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 35 million bushels, versus being short by 28 million the previous week.

Strength in the broader commodity sector provided cover for wheat to rally once again, posting double-digit gains in the winter wheat markets of Chicago and Kansas City, with dryness concerns for the belt. Additional support comes from dryness hurting yields in Australia, most notably southeastern areas, as well as even more severe dryness in the Former Soviet Union, where half of the belt is at risk.

Even so, sustaining a rally on dryness in the Northern Hemisphere is typically difficult to do this time of year without support from the other markets, particularly when current supplies are large. As such, wheat needed and received cover from the other markets today. These weather concerns should continue to provide underlying support for wheat, although sustaining gains will likely necessitate help from the outside until we get closer to the Northern Hemisphere spring.

Beef

Cattle futures consolidate while waiting for cash action.

The sense in the country is that this week’s cash trade will be steady to firm, leading to modest gains for the lead October contract. However, the deferred contracts posted modest losses on a reluctance to extend gains for contracts already at a premium to the cash market. December live cattle reinforced resistance at $138 after failing once again to sustain a move above that level.

Feeder cattle followed the fat cattle market, with the strength in the nearby reflecting sale barn demand, while higher corn prices and weaker fats led to weakness in the deferred contracts. That sale barn demand was reflected in the latest CME cash index. The cash index came in today at $185.52 per cwt, up $1.52 on the day and up $3.23 over the past week.

Packer margins remain quite profitable, although they are once again back below $100 per head. Today’s kill is pegged at 112,000 head of cattle, down 2,000 from the previous week and down 4,000 from the previous year. Week-to-date kill is pegged at 224,000 head of cattle, up 4,000 from the previous week, but down 2,000 from the previous year.

Product movement on the spot daily market dropped to 132 loads Monday, down from 174 loads on Friday and down from 147 loads the previous week. Choice cuts were up $2.30 to $205.30 per cwt, posting their largest daily gain in a month. Select cuts were up $1.23 to $199.12 per cwt. That pushed the Choice/Select spread to $6.18 per cwt, up from $5.11 the previous day and up from $4.92 the previous week. Movement at mid-morning was routine at 91 loads, with Choice cuts up $2.63 and Select cuts up $4.16 per cwt.

Pork

Lean hogs break higher, but lose steam.

Lean hog futures pushed to new highs for the move, with December posting a high of $68.375 per cwt, above the previous rally high of $67.30 per cwt. However, buying interest dried up at that point with both the cash and the product markets turning soft. The contract traded to its highest level in four months, but struggled to sustain those gains.

Packer margins pushed above $30 per head. Today’s kill is pegged at 431,000 head of hogs, down 2,000 on the week, but up 2,000 from the same day last year. Week-to-date kill totals 829,000 head of hogs, down 39,000 from the previous week and down 25,000 from the same period last year. The latest cash index came in at $74.77 per cwt, down $0.07 on the day, breaking a string of 10 straight trading days with gains.

Product movement rose to 284 loads Monday, up from 260 loads on Friday, but down from 308 loads the previous week. The composite pork product price firmed to a three-week high of $89.47 per cwt, up $0.89 on the day and up $2.30 on the week. Movement at midday today was routine at 197 loads, with the composite price breaking $1.17 to $88.30 per cwt.

Closing Market Snapshot

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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(r) | 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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