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Closing Comments

 

Corn drafted off soybeans’ lead today, achieving a nice gain, +3 ¼ (Dec). There is not much fresh fundamental news, but some of the market movement may be tied to October option expiration and the large number of puts open in corn. With downside coverage expiring, short puts convert into long futures. Watch the market action on Monday to see if the upward direction continues. The Midwest harvest is starting to move along more quickly, with the hot/dry conditions causing a rapid dry-down. More yields should be reported after the weekend to compare to expectations.

 

Soybeans took out key resistance at 9.80, finding support in soymeal and a weak U.S. Dollar, +13 ½ at 9.84 ¼ (Nov). On the charts, beans are in a trend of higher highs and higher lows. Soybeans were able to tack on yet another sale to end the week, as Mexico inked a private transaction for 190K MT. Demand has helped to offset large supplies, but in order for the market to see a sustained rally, there must be a supply side threat. Answers will soon be coming from the U.S. harvest, and a watchful eye must be focused on South America as they get into planting their next crops. JCI, based in Shanghai says that U.S. spot soy into China is 9 cents lower than Brazil. On Monday, China’s soybean import data for August will be available. Arkansas is taking the lead on regulating dicamba drift with a legislative measure limiting its use from January 1st to April 15th. Some farmers are opposing the measure saying they would like to see its use approved through May 25th, with a one mile buffer required to reduce risk onto other fields. There are now lawsuits against Monsanto and BASF in 10 states, and this is expected to climb. However, the suits will be hard to prove and it is likely the product will remain on the market with use limitations.

 

Wheat had mixed results, as Chicago was not able to hang onto gains from earlier in the day, -3 (Dec). Spring wheat had the largest gains, with Minneapolis HRS +10 ½. KC hard red winter eked out a small increase, + ¾. The shortfall in the Australian crop estimates gave some new life to U.S. wheat this week and may provide a boost to exports in Dec-May timeframe. In other news, SovEcon is projecting Russia will export 4.1 MMT of wheat in September compared to 3.541 MMT last year same month. Russia’s wheat harvest is 87% complete and yielding higher than last year, with a total of 80.8 MMT harvested so far compared to 72.7 MMT a year ago.

 

Live Cattle saw solid gains across contract months, +1.225 (Dec). Analysts have been keeping close tabs on weekly dressed steer weights of barrows/gilts. The USDA posted their latest data yesterday, and it showed dressed steer weights at the inspected plants to be 7 lbs lower than last year, but also increasing at a faster clip than normal for this time of year. According to the CME, the question is will market and weather conditions propel weights above last year, and if so by what amount? Look for the Cattle on Feed and Cold Storage results later this afternoon to have market implications on Monday.

 

Hog futures gapped lower led by October, -1.625. The latest USDA gilt/barrow dressed weights released yesterday had a surprise in store as more than expected weight gains contributed to the already large supplies the market is trying to digest. It is thought that if the dressed weights continue higher, there are likely slaughter hog price declines ahead. The Hogs & Pigs report next Thursday will bring clarity to the size of the U.S. breeding herd, and be key to price direction.

 

In Other News Creighton University’s Rural Mainstreet Index shows the farm economy dipping based on farmland prices declining for the 46th straight month, Ag equipment sales below growth neutral for 49 straight months, many farms having to restructure loans with increasing collateral requirements. Loan defaults have increased by 2.1%. Many farmers are still sitting on hefty supplies, which is not helping improve prices. Hopefully, higher than expected yields will help lower break-evens this year.

 

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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