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Closing Comments

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Closing Comments

Corn

The Department of Energy reports that ethanol stocks rose to 18.0 million barrels in the week ending September 5, up from 17.7 million the previous week and up from 16.3 million the previous year. Ethanol production rose to 927K barrels per day during the week, up from 921K the previous week and up from 848K barrels per day in the same week last year.

The data would suggest that corn usage for ethanol production during the week totaled 98.4 million bushels, which was the first week of the new corn marketing year. That exceeds the seasonal pace of 97.6 million bushels needed to reach USDA’s target for the new marketing year that began September 1. Meanwhile, the data suggests that we finished the 2013-14 marketing year very close to USDA’s target, although we may see the need for USDA to boost the past year’s corn usage by up to 10 million bushels.

The midday GFS was a little cooler for southeastern Minnesota and surrounding areas, keeping readings very marginal for primarily Saturday morning, although some areas further west could see frost already on Friday morning. We will likely see frost of many of these areas this weekend, but significant damage takes readings down to 28 for a couple hours or more and that is not expected. It will be a close call, but at this point, losses are still not expected to be significant in the big picture, although those farmers impacted will feel the pain.

Modest short-covering ahead of Thursday morning’s USDA crop report provided a bit of support today, with December holding above Tuesday’s contract low overnight. Yield reports remain high, with sentiment in the trade bearish, but USDA reports always make people nervous. There was talk of losses in southern Iowa, northern Missouri and west-central Illinois from heavy rains and more talk of frost this weekend, but buying based on that talk was limited. Again, the pain can be great for those impacted by those events, but the trade will assume that losses will be minimal in the big picture of the U.S. crop.

U.S. Yields & Production

2014-15

2014-15

 

Corn

Soybeans

Corn

Soybeans

 

Yield in bushels per acre

Production in billions of bushels

USDA September 11

    Pre-Report Estimates

       

Average Trade Estimate

170.743

46.293

14.288

3.883

Highest Trade Estimate

174.100

48.000

14.649

4.035

Lowest Trade Estimate

168.500

45.400

14.000

3.760

Previous USDA Estimate

167.400

45.400

14.032

3.816

         

Water Street Solutions

172.700

48.000

14.475

4.035

 

U.S. Ending Stocks

2014-15

        – new crop

Wheat

Corn

Soybeans

 

billions of bushels

USDA September Report

    Pre-Report Estimates

     

Average Trade Estimate

0.667

2.012

0.453

Highest Trade Estimate

0.716

2.421

0.495

Lowest Trade Estimate

0.625

1.811

0.353

Previous USDA Estimate

0.663

1.808

0.430

       

Water Street Solutions

0.651

2.001

0.495

Soybeans

Private estimates have been pushing the 2014-15 Brazilian soybean crop to the 95 to 98 million metric ton level over the past week to 10 days. Producers are moving away from corn toward soybeans in South America, increasing the size of the coming oilseed crop. I doubt that USDA would make that adjustment this early, suggesting that it will likely hold its estimate at 91 mmt, but that is a risk.

Forecasts for the northwestern Midwest this weekend are concerning, but the odds still favor relatively insignificant losses overall, although it will be close. Those in the region who do see losses are vulnerable, but it would matter a lot more to the trade if USDA were forecasting a 150 million-bushel carryover, rather than a 430 million, which is expected to rise above 450 million tomorrow.

November soybeans traded down to $9.90 per bushel overnight, a new contract low. It did firm on that modest short-covering today, but maintained gains of just a few cents through most of the day, with November settling just 1-cent higher and below $10 per bushel.

That suggests that traders are quite comfortable going into this report leaning heavily to the short (sold) side, finding it difficult to believe that USDA could come up with a significant bullish surprise tomorrow. Friday’s CFTC report showed the speculative hedge funds holding a record large short position, which they are believed to have added to that total in the week since then.

USDA actually cut its yield estimate 0.6 bushel in the September report in the big crop year of 2004, before pushing it sharply higher in October. I don’t expect a cut tomorrow, but the trade will likely assume that the October number will be larger than the September.

Wheat

The bulls have had little to cling to in recent months. The dollar is trading near 14-month highs against global currencies, making our wheat more expensive on the world market. Furthermore, the size of global supplies are rising. Yes, there will be a lot of feed wheat around the world, but Germany announced this week that the quality of its crop should be quite good, despite heavy rains at harvest. In addition, production estimates are rising for a number of major production areas around the world, with Russia possibly reaching a record crop.

Conditions are quite dry in areas of both the Russia and Ukraine winter wheat belt, although southern areas have seen some relief this week. However, it’s traditionally been very difficult to get the wheat market excited about weather problems in the early part of the growing season based on planting and emergence problems.

Futures settled near their session low at all three exchanges today, with expectations that a strong dollar will make it tougher to sell U.S. wheat amid rising global competition. Furthermore, the lead December contract set new contract lows at all three exchanges. The charts are bearish on expectations of greater competition from global supplies, as well as cheap corn here at home.

Beef

Live cattle futures pushed to new contract highs early today, before collapsing in profit taking amid yet another case of the jitters. We’ve seen this cycle play over and over again in recent months, with traders getting cold feet after prices rise to contract highs. However, prices slowly recovered into the close, strengthened by reports that product was moving at firm prices and cash bids were rising on a Wednesday. Reports midday suggested that packers were raising their offers to $162 in Texas, where trade was largely $162 to $163 per cwt on a live basis last week.

There was some talk that packers may slow the chains to support greater gains in the product following the recent surge in cash, but some packers seemed to be short on cattle yet for this week. The showlist is larger this week, but demand appears to be strong enough to absorb it at this point, with retailers still grabbing the product out the back door.

Boxed beef movement Tuesday reached 183 loads, up from 155 loads the previous day, but down from a strong 212 loads the previous week. Choice cuts were down $0.31 to $251.08 per cwt, while Select cuts were up $0.84 to $238.68. This narrowed the Choice/Select spread to $12.40 per cwt, down from $13.55 the previous day, but up from $12.28 the previous week. Movement at mid-morning today was strong at 169 loads, with Choice cuts up $0.40, while Select cuts were down $0.06.

The question is whether this demand can be sustained. Market bears point to a wide disparity between beef and pork prices, with expectations that pork production will increase the rest of the year. That seems to fly in the face of PED virus numbers from earlier this year, but it is a widely held belief. Poultry numbers are also expected to increase. The bottom line though is that boxed beef prices have been much slower to rise this time around, giving some credence to fears of declining demand as retailers prepare to feature pork in October.

Pork

There’s quite a battle going on in the pork complex, with some saying that the two vaccines available to the industry will combine with cheap corn to increase supplies, while others are still looking for tight supplies over the next few months. The lead October contract is now focused primarily on the cash market, while the deferred contracts are more roiled by the ongoing debate between the bulls and the bears until we can see USDA’s quarterly hogs and pigs report September 26.

Today’s cash market was mostly steady, with some markets up to $1 higher. The latest CME 2-day lean hog index was up another $1.00 to $97.79 per cwt. It was the third consecutive day of the index posting an increase after seven weeks of declines. Gains over the past three days total $2.34 per cwt.

Product movement was good Tuesday at 360 loads, with the composite pork product price rising $1.74 per cwt to $105.28. Movement at midday today was also strong at 318 loads, with the composite price up another $1.32 to $106.60 per cwt.

October lean hogs found strength in both the cash market and the ability of the market to push above chart resistance at $106.15. The next target for many traders is the $109 level, with first significant support at $103.

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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