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Closing Comments

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Closing Comments

 

Corn could not find a reason to rally as chop trade persists, -5 ¾ at 3.55 ¼ (Dec). There has been much debate as to whether the USDA’s first estimate of 169.5 bpa was too optimistic. The average trade estimate heading into the report next Tuesday is 1.6 bpa less, with a variance of 5.7 bpa, according to Bloomberg. This is a reflection of the variety of results that were seen by crop scouts and that have been reported by farmers. Short-covering has been the trend since last Thursday, with traders and funds positioning for possible market-friendly news. EIA ethanol weekly reporting pegged ethanol production at 1.06 million barrels/day, up 1.73% over last week and 6.21% over last year. Ethanol stocks were down 0.88% from last week to 21.116 million barrels – this is up 2.24% over last year. The USDA’s overall yearly corn for ethanol usage projection is 5.5 billion bushels, with last week’s 111.3 million bushels being the first of the new year and on track to hit the target, as 105.366 million bushels are needed on a weekly average.

 

Soybeans could not hold onto gains in the overnight, as weather is trending positive with rain in the 11-15 day outlook, -2 ¼ at 9.68 ¾ (Nov). While the weak Dollar is supportive (below 92) and the Brazilian Real is into new contract highs, beans did not seem to notice as they chopped sideways with traders jockeying for position ahead of the USDA report on Sept. 12th. Beans have made significant gains since mid-August, with over a 50 cent rally off of recent lows. Is this enough to satisfy the trade before the report next week? If the bean crop is not finished in the best manner with cool temps, how much potential does this leave for a couple bushel swing? It goes without saying that two bushels would have significant market implications. Regarding Hurricane Irma, CWG has estimated that the effect on soybeans could result in damage to 4-6 million bushels of South Carolina crop.

 

Wheat is in need of a big story to pull out of the doldrums, as the complex gave the market the following results: Minneapolis HRS +4 ½, Kansas City HRW -7, and Chicago SRW -8 ½. Hard red spring wheat yields in Canada are better than expected, as they are estimated to exceed the USDA estimate of 26.5 MMT by 0.5-1.5 MMT. On the other hand, Australia’s wheat yield potential is slipping, as it is now estimated to be 1-2 MMT below the USDA forecast of 23.5 MMT. Germany is also expected to have less than stellar results, as their quality and production are estimated to be down from last year. Russia continues to dominate export news, as Bangladesh was the latest to approve a plan to import 200K MT of Russian wheat.

 

Live Cattle gapped higher out of the gates and continued higher for a big bar on the charts, +1.525 at 106.225 (Oct). Short-term supply is working against rallies, but long term supply flow tends more bullish, with a big drop in 1st quarter production expected. With the beef market holding firm, will this help to stabilize the cash market? In other news, cattle feeders are expected to show $6B in profits by the end of the year with average profits at $180/head compared to -$4/head last year and -$110/head in 2015, according to Greg Henderson with Drovers.

 

Hogs saw a sharp correction to recent gains, as the cash market is tending bearish, -2.100 at 61.450 (Oct). Trade is concerned with hog weights increasing earlier in the season than expected. This is due to low corn prices and cool August temperatures. The pork cut-out has been declining in value and July exports were 3.8% under last year, mostly impacted by slower exports to China and Mexico.

 

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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