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Closing Comments



Closing Comments


Losses had slowed in recent days in the corn market, but that changed again with USDA’s quarterly grain stocks report. The agency pegged September 1 corn stocks at 1.236 billion bushels, up from the average trade estimate of 1.185 billion and up from my estimate of 1.175 billion. The data suggests that feed usage was roughly 50 million bushels less than anticipated this past summer.

On-farm corn stocks as of September 1 came in at 462 million bushels, up from 275 million the previous year. However, rail logistic problems really showed up in the northwestern belt, with poor basis keeping grain locked in place. On-farm supplies in Minnesota, North Dakota and South Dakota were pegged at 80, 20 and 35 million bushels respectively. The North Dakota on-farm supplies were nearly 5 times year-ago levels, while the other two states were at more than 2 times the previous year. Off-farm supplies in Minnesota, North Dakota and South Dakota were at 83, 39 and 41 million bushels respectively.

Surprises in today’s data were relatively minor in the face of the giant crop in front of us, but it certainly emboldened the bears. December corn quickly dropped to a new-contract low, with prices settling near the session low of $3.195. The path of least resistance is lower as traders look ahead toward USDA’s October 10 crop report, which is expected to reflect a significant yield increase from September.


Soybeans provided the fireworks following USDA’s quarterly stocks report. The agency pegged September 1 supplies at 92 million bushels, the lowest in 41 years. In fact, the reported stocks are just a 9-day supply or 2.56% of annual usage. The cash market has never before allowed supplies to fall below a 16-day supply, or 4.4% of usage. The drop came despite a 69-million bushel increase in last year’s soybean crop, just to make the balance sheet work.

The adjustment means that this year’s beginning stocks were 38 million bushels below the agency’s previous estimate. As such, this year’s beginning stocks drop by a similar number, resulting in ending stocks falling to 437 million bushels, down from 475 million previously. That’s still a big surplus, but it doesn’t stop there. USDA is expected to boost production estimates on October 10, taking us closer to 500 million bushels once again.

The computers initially bought the stocks headline, then sold it when they saw the increased 2013 crop estimate. Prices then chopped back and forth, trading both sides of unchanged. In the end, the trade decided that the stocks data really was immaterial in light of the big harvest ahead of us, with prices falling again to double-digit losses for the day. As such, the path of least resistance remains lower ahead of USDA’s October 10 crop report, which is expected to include that yield increase.

November soybeans traded down to $9.0975 following the report, settling several cents above that level. Yet, the contract remained above Monday’s contract low of $9.055. That low will likely be tested in Wednesday’s session, although the traditional funds already hold near-record large short (sold) positions.


USDA’s small grains summer estimated total wheat production for 2014 at 2.035 billion bushels, which was very close to the trade’s estimate of 2.037 billion bushels. No surprise for the trade there. However, USDA pegged the hard red winter crop about 10 million bushels above trade expectations, while soft red winter wheat came in 10 million below expectations. Hard red spring wheat was 21 million bushels above expectations, with white winter wheat fall short by 17 million. This produced inter-market spread trading that favored Chicago at the expense of Kansas City and Minneapolis wheat.

Wheat stocks measured at 1.914 billion bushels on September 1. That came in 34 million bushels above trade expectations, suggesting that wheat feeding was likely smaller than expected this summer. The data added bearish sentiment to the market once again.

Additional weakness came from the dollar surging through major chart resistance to new four-year highs, suggesting another leg higher. That had fund managers selling the broader commodity sector, adding pressure to corn, soybean and wheat prices that were already facing seasonal pressure.

Minneapolis wheat probed briefly to a new contract low before firming off the low, while Chicago and Kansas City held above their previous lows. Wheat continues to try to carve out a seasonal low, but that’s going to be difficult to do with the dollar pushing higher and corn lower.


Live cattle futures touched limit higher gains to reach new all-time highs over the Friday to Monday trading period. Prices pushed upward to test those highs early in today’s session, but found little follow-through buying as traders again got cold feed. This has been the cycle throughout the summer, although there are reasons for traders to be cautious, particularly amid sluggish product prices.

Today’s profit taking pulled the December contract more than $1 lower, but the loses were rather measured, relative to recent gains. Some of the profit taking may have been related to end-of-the-quarter profit taking as fund managers square their books to show profits on their statements. Additional weakness came after consumer confidence data came in well-below Wall Street expectations, raising fears that consumer acceptance of high prices may falter.

The question now comes down to this week’s cash market, which October futures would suggest will be steady to firm with last week’s trade. Trade last week saw a limited number of cattle trade in primarily Nebraska at $157 to $159 per cwt on a live basis and $244 and $245 per cwt on a dressed basis.

Feeder cattle futures showed greater resiliency, supported by a surge in the cash index as feeders look toward falling corn prices, especially in the Northern Plains. The latest cash index came in at a record $233.44 per cwt, up $2.96 on the day.

Boxed beef movement dropped to 172 loads Monday, down from 185 loads the previous day, but up from 161 loads the previous week. Choice cuts were up $0.36 to $238.02 per cwt after being down the previous 11 trading days. Select cuts were up $1.35 to $226.83. This dropped the Choice/Select spread to $11.19 per cwt, down from $12.18 the previous day and down from the recent high of $15.74.

The higher product prices improved packer margins, with losses now estimated at $74.30 per head, up from losses of $91.20 per head the previous day. Boxed beef movement at mid-morning today was good at 136 loads. Choice cuts were up another $1.49 per cwt, while Select cuts were down $0.16.


Lean hog futures consolidated recent gains today, but with firm undertones. December lean hogs pulled back from a test of the recent trading range at $96, but strength in the product market has boosted packer margins, suggesting more strength in the cash market. Today’s packer margins are estimated to be a 2014 high of $25.20 per head.

Even so, today’s cash market was reported to be mostly steady, although Peoria was up to $2 higher. The latest CME 2-day lean hog index was $108.30, up $0.66 on the day and providing support for the October contract. The cash index has been higher the past 17 trading days, with gains over the period totaling $12.85 per cwt.

Product movement dropped to 223 loads Monday, down from 244 on Friday and down from 238 loads the previous week. The composite pork product price surged higher to $120.69 per cwt, up $2.06 on the day and its highest level since August 8. Movement at midday today was routine at 161 loads, but at higher prices. Strength in loin demand helped boost the composite price another $1.06 to $121.75 per cwt.

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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