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Closing Comments

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Closing Comments

 

Corn was able to follow beans higher, with no fresh news to encourage a rally, +1 ¾ (Dec). The limited harvest results coming in from the Midwest continue to share the theme of “better than expected but not on the level of last year”. EIA Ethanol weekly reporting showed production down 1.34% from last week but up 5.30% over last year. Ethanol stocks were up slightly over last week at 0.03% and up 5.61% vs. last year. Corn used for ethanol was estimated at 106.22 million bushels, which is easily above the average needed of 104.838 million bushels to meet the USDA overall estimate of 5.475 billion bushels for the year. Ethanol margins have continued at highly profitable levels, as producers have been able to achieve returns of 15-20 cents/gallon, including all costs and basis. On the world scene, Ukraine’s Deputy Ag Minister said that the 2017 corn harvest is expected to be off 1.0 MMT from 2016 to 27 MMT. However, this will still leave them plenty of bushels to remain a competitor in the export market. With near trendline yields so far in the U.S. and plenty of corn supply, the market is following a “normal” pattern, with harvest lows typically achieved around October 1st. Option volatility is at a record low for this time of year, making calls and puts a more attractive buy.

 

Soybeans found support in big export sales, +4 ½ (Nov). The USDA reported two sales this morning – a private sale of a whopping 1.080 MMT to “unknown” destinations (960K MT for 2017/18), and a second private sale of 132K MT to China for 2017/18. Egypt’s GASC reported that they purchased 60K MT of soyoil at tender today. Overall commodity markets are seeing a buying trend also, while equities are down, which also gave the grains a boost today. There is not much else in the way of fresh fundamental news, as the market is tuning in to yield results that are starting to roll in. South American weather, Brazil dryness in particular, will begin to be monitored, although it is still too early to provide much market influence. In futures, soybeans are offering a larger incentive to the farmer, as the spread from November to July is 34 ¼ cents of carry. November soybeans need to break through strong resistance at 9.80 in order to change the trend for higher.

 

Wheat was able to reverse its negative course, with gains across all three classes: Chicago SRW +6 ¾, Kansas City HRW +6 and Minneapolis HRS +5 ¼. On the global front, Canada has raised their wheat crop expectations to 27-29 MMT, compared to the USDA forecast last week of 26.5 MMT, while Australia’s crop continues to decline with the latest estimate at 19-19.5 MMT compared to the USDA’s latest stab of 22.5 MMT. Ukraine’s Deputy Ag Minister sees wheat production lower than the USDA estimate of 26.5 MMT at 25.7 MMT. Russia’s harvest was recently estimated at 82% complete and the yield per hectare is up 1.55 tonnes over last year. At that rate, Russia’s yield would easily eclipse the USDA estimate of 81 MMT.

 

Live Cattle went limit lock up in October before finishing, +2.975, while the deferred months and feeders came along for the ride. It is thought that supply may have tightened up its belt after large marketings in August. The Cattle on Feed Report will be released on Friday. Traders are looking for the following results: On Feed 103%, August Placements 97% and Marketings 106%.

Retail meat prices have fallen by ½%.

 

Hogs fell sharply in the October contract, -1.475, but the deferred months showed modest gains. The market seems to have priced in some of the large supplies ahead and is optimistic that strong exports and increased capacity from newly opened slaughter plants will offset seasonal declines in the months ahead. The pork cut-out has continued to fall to new lows, as it was reported down $1.30 from Monday to $75.90. This compares to $79.69 last week. Bacon retail prices rose 4% from July to August, reflective of higher wholesale values earlier in the summer.

 

In Other news, the U.S. Central Bank wrapped up its two day policy meeting and released a statement indicating that the key interest rate will be left unchanged. The plan previously drafted by the Federal Reserve for a balance sheet reduction will begin in October as planned. Projected interest rate hikes include: one in 2017, three in 2018, two in 2019 and one in 2020.

 

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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