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Closing Comments

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Closing Comments

Corn

Corn falls through chart support late in the trading session.

USDA’s weekly crop progress report revealed that 94% of the U.S. corn crop was mature as of October 11, up from 86% the previous week and up from the five-year average for the week of 91%. No significant delay concerns were noted in the state by state data.

Harvest progress advanced to 42% of the U.S. crop as of October 11, up 15 points on the week and within one point of the five-year average for the week of 43%. Nearly three-fourths (71%) of the Illinois crop was harvested, while just 29% of Iowa was harvested and 15% of North Dakota. No delays of concern to the market exist yet at this point, although we’ll need to watch some of the northern states where the snow tends to fly first.

The crop rated a condition index score of 375, versus 375 the previous week and 389 the previous year. Ironically, no states saw their condition index scores drop during the week, although a half-dozen states saw gains. Yet, the weighted average remained the same. The past week’s score was the second highest of the past decade for this time of year.

My yield model is only in its third year, so confidence in it is still lacking. Yet, it shows a yield of 170.3 bushels per acre. I question that the crop is that large, believing it to be closer to 166, but regardless, we’re not going to run out of corn ahead of next year’s harvest unless something dramatically changes on the balance sheet.

December corn found support at times during the day when money flowed into the broader commodity indices. However, that strength waned late in the day allowing corn prices to drift lower. The lead December contract slipped below key support at $3.7925, posting a low of $3.785 and settling at $3.79. That leaves the contract vulnerable to greater weakness, with modest support at $3.75, followed by $3.60. Corn needs strength to return to the soybean market and the broader commodity indices, which appear to still be taking their cue from the crude oil market, which is testing chart support today.

Soybeans

Soybeans pull back after big gains on Tuesday.

USDA reports that 92% of the U.S. soybean crop was dropping leaves as of October 11, up 7 points on the week and up 1 point from the five-year average for the week. Missouri has been the only state with concerning delays. The data shows that 71% of Missouri’s soybeans were dropping leaves as of October 11, up 20 points on the week, but still below the five-year average for the week of 80%.

The agency reports that 62% of the crop was harvested as of October 11, up 20 points on the week and up 8 points from the five-year average for the week. Minnesota was 91% harvested, while North Dakota was 86% harvested and South Dakota and Illinois were both 71% harvested. Iowa came in at 65% harvested, matching progress in Ohio, with Indiana close behind at 62%.

The condition index score was unchanged at 366, unchanged on the week, but 20 points behind the same week last year. Scores dropped 1 point in Kansas, 2 points in Arkansas and 5 points in North Carolina, but were unchanged to higher in the other states. My soybean yield model was unchanged this week at a yield of 47.1 bushels per acre, and is likely within a half bushel either way of the final yield, based on USDA’s track record and the past couple years of experience with the model.

Demand for soybeans continues to be the focus. USDA’s daily export reporting service today revealed another 8.6 million bushels of the current crop sold to China, to go on top of the 8.8 million bushels sold to them yesterday.

November soybeans pushed to a high of $9.1975 early in the session, before sinking lower to settle near its session low at $9.105. the contract needs to hold support at $9, and ultimately should be okay as long as it is able to do so. That will likely necessitate renewed strength in crude oil so that fund managers feel good about owning the major commodity indices.

Fundamentally, soybean traders are now focused on the demand side of the balance sheet, which is strengthening, but the market still lacks threats that would make traders worry about us running out of the oilseed ahead of next year’s harvest. I believe the door is still open for a possible move of the nearby contract to the $10 level by the end of the year, but traders will continue to keep their eyes on the outside markets.

Wheat

Wheat erases previous day’s gains.

USDA reports that 64% of the winter wheat crop was planted as of October 11, up 15 points on the week, but down 2 points from the five-year average for the week. It was interesting to note that 62% of Ohio was planted, above the normal pace of 39%. Progress was near normal in the dry states of Oklahoma and Kansas, while Texas lagged the normal pace by 10 points. Dry areas of Oregon were also lagging the normal pace by 7 points.

Crop emergence was pegged at 33%, up 13 points on the week, but down 3 points from the five-year average for the week. Colorado trailed its normal pace for emergence by 13 points, due to dryness, while Texas trailed by 10 points. However, adverse conditions were most significant in Oregon, with just 4% of the crop emerged as of October 11, down from the five-year average for the week of 22%.

Adverse weather problems are sprouting up around the world, but current supplies of wheat are large. Historically, it’s been difficult to sustain rallies on those weather problems until late winter or spring. As such, wheat will likely struggle on days when the other markets struggle, as was the case today.

Beef

Beef rally continues to struggle above $138.

Estimated packer margins have fallen below $100 per head, but remain quite profitable. As such, packers are expected to pull a lot of cattle through plants this week, approaching the year’s weekly high of 576K head killed in September. The increase in slaughter is expected to make the market more current, but thus far weekly average carcass weights remain near record high levels. That increased demand for slaughter-ready cattle is expected to push cash prices higher once again this week, but the board is already at a significant premium to the cash market.

As such, December live cattle once again struggled after rising above resistance at $138. The contract pushed a nickel above Monday’s high before breaking lower on profit taking, just as it did on Monday. As such, this market is looking top-heavy in the near-term; needing proof from the cash market that higher prices are justified. The deferred contracts were weaker on fears that softer demand will continue to erode the market as the industry rebuilds its herd size.

Feeder cattle followed a similar pattern, with added support from recent strength in the cash market and weakness in the corn market. November feeders rose to a three-week high, with next resistance just below $190. The latest cash index came in at $186.35 per cwt, up $0.83 on the day and up $4.08 over the past week.

Today’s kill is pegged at 112,000 head of cattle, up 1,000 on the previous week and up 3,000 head from the same day last year. Week-to-date kill is pegged at 336,000 head, up 5,000 on the week and up 1,000 from the same period last year.

The recent fire sale for product prices significantly boosted demand for boxed beef. Data released this week indicates that product movement surged to 7,581 loads in the week ending October 9, up 791 loads or 11.6% over the previous week. Movement on the spot daily market was at a one-year high of 1,026 loads or 13.5% of total movement.

Movement on the spot daily market Tuesday rose to 166 loads, up from 132 loads the previous day, but down from 177 loads the previous week. Choice cuts rose to $208.46 per cwt, up $3.16 on the day and up $5.46 over the past two days. Select cuts were at $203.34 per cwt, up $4.22 on the day and up $5.88 over the past three days. That dropped the Choice/Select spread to $5.12 per cwt, down from $6.18 the previous day and down from $5.30 the previous week. Movement at mid-morning today was good at 102 loads, with Choice cuts up another $2.35 and Select cuts up $2.01 per cwt.

Pork

Lean hog futures falter once again.

Estimated packer margins are near $30 per head, providing an incentive to pull as many hogs as possible through their plants. As such, packers are expected to have a Saturday kill near 177K hogs, up from 124K the previous week. That has packers scouring the countryside for supplies this morning, supporting a rise in cash prices. The closely watched Iowa/Southern Minnesota market was steady to 50 cents higher, while Illinois was steady to $1 higher. However, eastern Midwest markets were mostly $1 higher.

The latest cash index rose to a five-week high of $74.85 per cwt, up $0.08 on the day. The index has posted gains on 16 of the past 18 trading days, rising a net $3.88 per cwt over that period of time. Today’s slaughter is pegged at 435,000 head of hogs, up 2,000 on the week and up 6,000 head from the same period last year.

Product movement rose to 383 loads Tuesday, up from 284 loads the previous day and up from 338 loads the previous week. The composite pork product price slipped to $88.92 per cwt, down $0.55 on the day, but up $1.89 over the past week. Movement at midday today was good at 237 loads, with the composite price up $0.47 to $89.39 per cwt.

December lean hogs tried to follow-through on Tuesday’s strength, but turned lower when the market could not even match the previous day’s high of $68.375. Traders continue to worry about seasonally weaker demand, amplified by the recent fire sale in beef prices that could steal even more demand. This market continues to look top-heavy, with first key support currently just above $66 per cwt. Early-afternoon trade saw the contract trading just above that level near $66.70 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

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