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Closing Comments

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Closing Comments

Corn

Exporters shipped 40.1 million bushels of corn in the week ending September 18, up from 29.9 million the previous week and up from the five-year average for the week of 30.9 million bushels. Marketing year shipments total 99 million bushels, up 52 million or 113% from the previous year. Shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 12 million bushels, versus 6 million the previous year.

The above total was good for mid-September, as end users try to get corn shipped before exporters put a priority on newly harvested soybeans. However, equally impressive continues to be the strong demand for U.S. grain sorghum. Exporters shipped 5.0 million bushels of grain sorghum in the week ending September 18, down from 5.9 million the previous week, but up from the five-year average for the week of 3.3 million bushels. Shipments to China accounted for 4.5 million bushels in the latest week.

USDA is scheduled to release updated weekly crop progress and condition data at 3 p.m. CDT this afternoon. The trade expects it to show crop ratings unchanged from the previous week, while I expect an uptick in ratings based on impressive harvest results. Harvest progress is expected to be at 11%, versus 4% last week.

December corn dropped to a new contract low of $3.2675 early in the session, but then firmed to settle about a penny off the session high of $3.315. Soybeans appeared to get some support from spreading of corn against soybeans. The path of least resistance remains lower as harvest activity increases over the coming weeks, although the market is oversold and due for another period of consolidation. Next week’s USDA quarterly grain stocks report may provide the excuse for that consolidation.

Soybeans

Exporters shipped 17.2 million bushels of soybeans in the week ending September 18 as new-crop supplies begin to flow, up from 9.4 million the previous week and up from the five-year average for the week of 10.7 million. Shipments to China accounted for 8.0 million bushels of the total.

Shipments to all destinations through the first 18 days of the new marketing year total 29.5 million bushels, up from 21.6 million the previous year. As such, shipments to date fall short of the seasonal pace needed to reach USDA’s target by August 31 due to the delayed harvest by 4 million bushels, but the pace lagged by 8 million bushels the previous week.

USDA crop progress data this afternoon is expected to show 5% of the crop harvested as of Sunday. The trade expects crop ratings to be stable from week ago levels, although I anticipate a modest rise in condition scores.

Indonesia and Malaysia are the world’s largest producers of palm oil. They are currently in a price war, which is expected to increase the flow of palm oil onto the world market, while also increasing its market share against competing oils such as soyoil. That led to sharply lower soyoil prices today, adding to weakness in the soybean market.

High yield reports as harvest progresses northward are making their way to Chicago, with basis tumbling at processors. The combination of the above factors, combined with the dollar at a new four-year high, weighed on soybean prices today, which gapped lower on the charts. Demand is strong, but supply is currently seen as even larger. Fund managers have nice trends that they’d like to protect on the corn and soybean charts, although periodic bounces or periods of consolidation are also possible.

Wheat

Exporters shipped 18.6 million bushels of wheat in the week ending September 18, down from 24.4 million the previous week and down from the five-year average for the week of 32.0 million. Shipments to China accounted for 0.5 million bushels of the total, while shipments to Brazil accounted for another million.

Marketing year shipments to all destinations total 304 million bushels, down 161 million or 35% from the previous year. Shipments to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 13 million bushels, versus trailing the pace by 12 million the previous week.

Egypt bought 2.0 million bushels of U.S. soft red winter wheat over the weekend, showing that U.S. wheat is well-priced now on the world market. That provided support for wheat prices early in the session. However, the market struggled to hold that strength amid a strong dollar at four-month highs that encouraged selling in the broader commodity sector, combined with weakness in corn. However, prices firmed again late in the day as corn came off its lows and the dollar off its highs.

Beef

Live cattle futures were again under pressure today, with prices dropping below last week’s lows. However, prices firmed off their lows when selling conviction dried up early in the session.

Near-term, the outlook appears weaker, with this week’s cash expected to be down another $1 to $2, after being $2 to $3 lower, primarily in the $158 to $160 level last week. Packers slowed the chains last week, killing just 571K head, with projections that this week’s kill will slow to 565K head.

That should begin to bottom the product market. Movement of product has been good, but packers have had to lower the price to keep it competitive with pork ahead of National Pork Month. This drove packer margins to an estimated loss of $83.20 per head today. Margins will likely remain in the red until demand for beef seasonally increases after retailers have completed their feature of pork.

More cattle should be available this week, and at heavier weights. The cattle industry takes a page out of the pork industry handbook; making up for lost numbers by adding weight. This will likely take some months to correct once supplies increase once again, limiting gains amid tight supplies, but accelerating losses once supplies do increase. Near-term, there is still some optimism that the cash market can maintain support at this summer’s low of $153 per cwt on a live basis in the Plains feedlot region.

The packers continue to control much of the supply in the Southern Plains, requiring them to buy relatively few head on the negotiated market. On the other hand, 39% of the negotiated cattle purchased last week were in Nebraska, with another 30% in Iowa and Minnesota, while Kansas as at 14%.

Boxed beef movement rose to 922 loads last week, up from 921 loads the previous week. The past four weeks have been the strongest period of the year for product movement, but at lower prices to maintain that flow.

Choice cuts finished the week at $243.71 per cwt, down $6.22 on the week, while Select cuts were at $229.61, down $4.93 on the week. The Choice/Select spread finished the week at $14.10 per cwt, down $1.29 on the week and down from its early-week nine-month high of $15.74 per cwt. Movement at mid-morning today was routine at 66 loads. Choice cuts were up $0.66 per cwt, while Select cuts were up $0.91.

Weakness in the fat cattle market weighed on feeder cattle futures early in the session, but strong demand in the cash market for light-weight cattle eventually lifted the futures market. The latest CME cash index came in at a record $230.28 per cwt, up $0.04 on the day. It was the ninth day in a row for a record high and the 16th trading day in a row for a higher index, with gains over the period totaling $12.93 per cwt.

USDA released its September cold storage report today. It showed that beef supplies in the freezer were 343.6 million pounds on August 31, down 6.2% from the previous month and down 20% from the same month last year. Beef supplies continue to drop, despite higher carcass weights, which supports price expectations.

December live cattle created a short-term double-bottom at $157.45 today, creating an area of support for the market. The support level also corresponds with the July 2 high for the contract. More significant support is at $153.

Pork

I expect trade in the lean hog futures market to be choppy this week as traders position for Friday’s USDA quarterly hogs and pigs report. The cash market is stagnating, but the product market has found good support ahead of National Pork Month in October. This pushed estimated packer margins to $10.80 per head.

Product movement totaled 1,528 loads last week, down from 1,696 loads the previous week. However, the composite pork product price ended the week at $113.54 per cwt, up $6.97 on the week. The test will be to see whether it can maintain that strength through mid-October when retailers begin looking back toward featuring beef once again at the retail counter. Movement at midday today was sluggish at 131 loads, but the composite price was up another $1.35 to $114.89 per cwt on good strength in the loin and belly markets.

Today’s cash market was mostly steady. The latest CME 2-day lean hog index came in at $105.35 per cwt, up $0.40 on the day. It was the 11th straight trading day with an increase in the index, with gains over the period totaling $9.69 per cwt.

USDA’s cold storage report today showed that pork supplies increased over the past month. Pork in the freezer totaled 546.3 million pounds on August 31, up 2.4% from the previous month, but down 0.5% from the previous year. The bottom line is that pork supplies still are not tight, despite 18 months of battling the PED virus. The biggest gains were in ham supplies. Pork belly supplies were down dramatically from last month, but still more than twice year ago levels.

Strength of packer margins and positioning for Friday’s data release provided support for futures prices today, following a weak start to the day. December lean hogs are finding support at $94 ahead of Friday’s USDA report. That report will likely set the tone for the next several months, providing clearer indications of losses from the PED virus, as well as attempts by the industry to expand.

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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