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Closing Comments



Closing Comments


USDA’s weekly crop progress report indicated that 90% of the corn crop had reached dent stage as of September 21, while 42% had reached the mature stage of development, down 2 and 12 points respectively from the five-year average for the period. Corn rated mature in northern states stood at 37% in Iowa, 24% in Michigan, 19% in Minnesota, 50% in Nebraska, 9% in North Dakota, 22% in South Dakota and 19% in Wisconsin. Harvest progress was pegged at7%, up from 4% the previous week, but down from the five-year average for the week of 15%.

The crop rated a condition index score of 388 (500=perfect crop), versus 387 the previous week, 347 the previous year and the 10-year average for the week of 346. North Dakota saw the largest decline in its condition score; down 6 points to 383, with 1-3 point losses in Colorado, Iowa and South Dakota. All other states were either unchanged or higher with their ratings.

The overall higher condition score was good for a 0.1 bushel increase in the yield model to 173.0 bushels per acre. However, I suspicion that the yield model is not picking up on the depth of kernel we’re hearing about with the high yield results.

As a result, I continue to believe that the U.S. yield will top 176 bushels per acre, possibly significantly. We’ll know quite a bit more by USDA’s October 10 crop report. Historically, the October report is when we expect the biggest increase in yield in big crop years, which is what traders are building into prices now. Commercial traders are well-aware of the big yields, with fund managers now beginning to hear the reports as well. As such, more fund managers are starting to talk of sub$3 corn futures, supporting our concerns that this market remains vulnerable to significant weakness yet in the weeks ahead.

USDA’s daily export reporting system this morning included another sale of U.S. grain sorghum. Exporters sold 4.3 million bushels of grain sorghum to “unknown destinations” over the past 24 hours. The buyer will largely be presumed to be China, but we probably won’t know until they are shipped. End users in China are trying to stock up on U.S. grain sorghum before port authorities find a way to block it, forcing them to buy high-priced Chinese corn.

December corn dropped to a new contract low of $3.2525, finishing the day very close to that level. That doesn’t set a very positive tone for tonight’s action, with new-crop cash prices in the Northern Plains already close to $2.00 per bushel. Yield reports continue to come in at high levels, with fund managers now talking sub-$3 corn, based on the reports they are hearing from the field.


USDA reports that 45% of the U.S. soybean crop was dropping leaves as of September 21, up from 24% the previous week, but down from the five-year average for the week of 53%. Progress in vulnerable northern states includes 34% in Iowa, 40% in Michigan, 38% in Minnesota, 55% in Nebraska, 67% in North Dakota, 56% in South Dakota and 27% in Wisconsin. Harvest progress was pegged at 3%, down from the five-year average for the date of 8%.

The crop rated a condition index score of 380, versus 384 the previous week, 337 the previous year and the 10-year average for the week of 348. The largest drops came in Minnesota (5 points), Michigan (4 points) and South Dakota (3 points), while 1-point declines were seen in Missouri, Nebraska, North Carolina and North Dakota. All other states were unchanged or higher.

The overall drop was good for a 0.5-bushel decline in the yield model to 47.9 bushels per acre. The actual yield results so far have been remarkable to say the least. As such, I’m holding out expectations that we will see the final yield above 48 bushels per acre. We are hearing that the beans in the pods are very large this year, which was also confirmed in the data released as part of USDA’s production report on September 11.

Soyoil prices were sharply higher today, offsetting the previous day’s losses. Strength returned after the palm oil market rebounded overnight. That provided underlying support for soybean prices, although attempts to rally the market were quickly sold amid improving harvest progress, with yield reports remaining impressive.

November soybeans dropped to a new contract low of $9.31 per bushel overnight, settling just above that on increased harvest pressure. The path of least resistance remains lower, with a move below $9 appearing more likely. Yield reports thus far have been quite impressive, with a large increase in Brazilian production expected six months from now.


USDA reports that 86% of the spring wheat crop was harvested as of September 21, up 12 points on the week, but still down from the five-year average for the week of 92%. The harvest was deemed complete in Idaho and Washington, but at just 82% in North Dakota and 91% in Minnesota.

On the other hand of the spectrum is planting progress of the 2015 winter wheat crop. USDA reports that progress stood at 25% as of September 21, more than twice the 12% pace from the previous week and up 3 points from the five-year average for the week. Progress stood at 42% in Colorado, 15% in Kansas, 56% in Nebraska, 3% in Ohio, 35% in Oklahoma and 20% in Texas. No significant delays are noted in the data.

Good rains in dry areas of the Southern Plains are boosting production prospects there. The same is true in previously dry areas of Ukraine and Russia. However, much of that has already been factored into prices. U.S. wheat prices are considered to be at an area of value on the global market at this time. As such, prices are trying once again to carve out a bottom. However, that’s difficult to do when the dollar is strong, corn is trending lower and money is flowing out of the broader commodity sector.


Yesterday’s cold storage report were alarming for long-term beef fundamentals. Beef supplies in the freezer were down 6.2% from year ago levels and down another 20% from the previous year. In fact, total beef supplies in the freezer are the lowest since 1998, with few signs of rebuilding the cowherd yet at this point. In fact, holding back heifers is expected to further tighten supplies in the months and years ahead. Furthermore, we’re slaughtering fewer cows, further adding to the tight supply of cuts that can be ground, which is where the demand has been.

Near-term, the fundamentals aren’t as strong. Packers are having to drop prices to attract business as retailers focus on stocking up for National Pork Month in October. Carcass weights are at record highs, providing ample supplies of meat for near-term demand. Those fundamentals should improve over the next month as beef demand improves seasonally once again.

Packers have a larger portion of the cattle under contract currently, particularly in the Southern Plains. That means that they don’t have to negotiate the price on as many cattle, fighting over them with other packers. The number of cattle purchased through negotiation were at seven-month lows last week.

Boxed beef movement rose to 161 loads Monday, up from 140 loads the previous day and up from 148 loads the previous week. However, the movement came at a price once again. Choice cuts were down $0.69 to $243.02 per cwt, while Select cuts were down $1.14 to $228.47. This strengthened the Choice/Select spread to $14.55 per cwt, up from $14.10 the previous day, but down from $15.74 the previous week. Movement at mid-morning today was good at 130 loads. However, Choice cuts were down another $1.92, while Select cuts were down $0.38 per cwt.

Feeder cattle futures pushed to new contract highs as corn prices declined. New-crop corn bids in the Northern Plains are already approaching $2 per bushel. That’s drawing attention from cattle feeders. Friday’s cattle-on-feed report showed that on-feed numbers are 12% above year-ago levels in Minnesota and up 9% in South Dakota, largely due to cheap corn prices in the region. The latest CME cash feeder cattle index came in at $229.69 per cwt, down $0.59 on the day and the first time the index has not been higher in 17 trading days.

December live cattle continue to consolidate just above chart support at $157.45. The contract has shown surprising strength, suggesting that the trade expects the cash cattle market to find support beneath it. However, I wouldn’t be surprised to see some pressure on futures again as we get closer to the need to negotiate cash cattle later this week.


Today’s cash prices were mostly steady, to occasionally 50 cents higher, although Illinois was $1 higher. Packer margins of more than $16 per head provided good incentive to push hogs through the plant, but the supply was equally large. The latest CME 2-day lean hog index came in at $105.30 per cwt, up $0.16 on the day. It was the 12th consecutive trading day with a higher index, with gains over that period totaling $9.85 per cwt. However, upward momentum appears to be waning in the cash market.

Strong packer margins are a result of strengthening product prices. The composite pork product price rose another $2.06 per cwt Monday to $115.60, its highest level since August 14. The composite price is nearly $13 higher since August 25th. Movement at midday today was routine at 194 loads, but the composite price was up another $1.52 to $117.12 per cwt on strength in the demand for picnics and ribs.

Product prices have been trending higher as retailers stock up for National Pork Month in October. However, product movement hasn’t been overly impressive. The longer-term question then is whether prices will be able to hold beyond the October surge when retailers shift back to beef, followed by turkey in their features? The answer to that question likely lies in Friday’s USDA quarterly hogs and pigs report, which should provide a better indication on whether we will see the anticipated hole in supplies this fall.

December lean hogs continue to chop around largely between $94 and $96 per cwt. The trade is largely positioning for this Friday’s USDA quarterly hogs and pigs report, which should set the tone for the fall.

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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Arlan Suderman | Senior Market Analyst
WATER STREET ADVISORY® | www.waterstreet.org
(316) 729-4599 | asuderman@waterstreet.org


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