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Closing Comments

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Closing Comments

Corn

The Department of Energy reports that ethanol stocks rose to 18.8 million barrels in the week ending September 26, up from 18.6 million the previous week and up from 15.5 million the previous year. Ethanol production dropped to 881K barrels per day during the week, down from 889K the previous week, but up from 875K the previous year.

The data suggests that ethanol processors used 93.5 million bushels of corn in the week ending September 26, down from 94.4 million the previous week and down from 94.2 million the previous year. This brings estimated corn usage to date for the marketing year to 385 million bushels, up 19 million from the previous year. Corn usage to date exceeds the seasonal pace needed to reach USDA’s target by August 31 by 3 million bushels, but that is down from 4 million the previous year.

Wall street was in the selling mood today, with the stock markets down sharply on increased Ebola fears. Money generally flowed into the relative safety of the U.S. dollar and government securities. We also saw a modest increase in money flow into the broader commodity sector as the dollar came off its highs, but an Ebola outbreak wouldn’t be good for commodity demand either.

There was some chatter today about the commodities carving out a broader bottom, but it would appear to be too early for corn to put in a bottom with the bulk of the harvest still before us. The weather pattern is wetter today, with periodic systems moving across the Midwest to slow harvest activity. We should see several days between systems to allow some harvest activity, but it appears that things are slowing down, which may slow the rate of descent for prices.

Prices periodically bounced into positive territory today, despite hitting new contract lows early in the session, but rallies continue to be sold as well. New-crop corn bids as low as $1.96 per bushel could be seen in the Northern Plains. That gives farmers little incentive to sell, but creative deferred pricing contracts are being offered at many locations, which tend to move grain onto the market without the farmer having to “price” it at this point. That tends to be bearish long-term for futures and basis.

December corn tried to rally, but rallies were quickly sold. The contract remains oversold, but as we’ve seen in the past, that doesn’t mean that it needs to rally. The rate of decline may slow as rains park combines, but the path of least resistance remains lower.

Soybeans

Soybean yields in some ways are even more impressive than corn thus far across the Midwest. That keeps pressure on the soybean market, with rallies continuing to be sold. However, contracts continue to be oversold, suggesting that at the very least, some consolidation is needed at some point.

We saw November soybeans drop to a new contract low today, but we also saw an increase in profit taking just above $9, providing at least temporary consolidation above that level. Bargain hunters jumped in to buy the market just above $9, but rallies were quickly sold. In the end, the market could only must a 3 to 4-cent gain, with the bulk of problems associated with this year’s big harvest still in front of us.

Goldman Sachs reportedly told its investors to expect $8 soybeans. That suggest that the money crowd is still prepared to be short (sold) soybeans, with next week’s USDA crop report expected to include a significant increase in yields, reflecting reports from the field.

Wheat

Egypt released yet another snap tender to buy wheat late on Tuesday, taking advantage of recent price weakness. The results of that tender this morning indicated that Egypt bought 4.4 million bushels of French wheat, which was priced well below U.S. wheat when freight was considered.

Wheat continues to try to carve out a bottom; chopping sideways over the past 10 days or so. However, holding recent lows will likely be difficult of the dollar continues to trend higher and corn prices lower. We also saw some more spreading of soft wheat against hard wheat today after Tuesday’s USDA small grains summary report showed less soft wheat and more hard wheat production than the trade anticipated from this year’s crop.

Much of Oklahoma continues to struggle to get the rains that it needs. This may begin to show up in crop ratings over the next couple of weeks. However, rallies based on weather scares are traditionally difficult to sustain in the fall of the year.

Beef

Focus on this week’s cash trade is increasing as we move into the last half of the trading week. Packers continue to rely primarily on contracted cattle, so the question focus primarily on, how many negotiated cattle will they need to finish filling out their needs and what will they have to pay for them? Last week’s negotiated cattle movement was the lowest in modern history.

Formula cattle are reportedly being priced at $158 to $159 per cwt on a live basis in the Plains. There were unconfirmed reports that a major packer was offering $1 over the December contract for 30 days out with no specs listed. That would suggest that the packers are feeling the impact of tight supplies.

Cattle supplies are expected to get tighter, before things get better. Yet, the industry continues to push weights higher, posting new record highs to at least partially offset the drop in numbers. Product movement remains much better than the industry expected at current price levels, particularly due to inelastic demand for ground beef. In other words, the American consumer wants ground beef at whatever price is necessary.

Product movement jumped to 251 loads Tuesday, up from 172 the previous day and up from 233 loads the previous year. Choice cuts were up a penny to $238.03 per cwt, while Select cuts were down $0.38 to $226.45. This strengthened the Choice/Select spread to $11.58 per cwt, up from $11.19 the previous day, but 30 cents below the previous week. Movement at mid-morning today was strong at 144 loads, with Choice cuts up $0.09 and Select cuts up $0.74 per cwt.

Feeder cattle were again the leader today, pushing the $3 daily limit higher through spring 2015 contracts. Strength in the cash market continues to underpin this market as corn prices dip below $2 in the Northern Plains. The latest CME feeder cattle index came in at a record $233.66 per cwt, up $0.22 on the day.

Live cattle futures contracts moved to new contract highs today, with the December contract moving to new all-time highs. The lead October contract suggests that we could see the cash market move $2 to $3 higher, but that may be ambitious.

Pork

Today’s cash market was listed as mostly steady once again today, but the cash index continues to creep higher amid packer margins estimated at more than $23 per head. The latest CME 2-day lean hog index came in at $108.96 per cwt, up $0.66 on the day. It was the 18th straight trading day with a higher index, with gains over that period totaling $13.51 per cwt. Profitable margins provide incentives for packers to push animals through the plant, but they are said to have all the hogs they need.

Product movement rose to 289 loads Tuesday, up from 223 loads the previous day, but down from 402 loads the previous week. However, prices continue to trend higher. The composite pork product price rose another $1.29 to $121.98 per cwt, which was its highest level since August 8th. Movement at midday today was solid at 259 loads, with the composite price up another $0.60 to $122.58 per cwt.

October lean hogs actually pulled back some today, reflecting softness in the nearby cash market ahead of the contract’s expiration. However, the deferred contracts found modest support in good product movement at higher prices, suggesting solid demand. USDA will report exports tomorrow morning. Weekly export totals have been impressive despite a strong dollar.

December continues to have resistance at the top of its recent trading range just above $96. Support comes from the fact that the cash market is trading at a $14 premium to the December contract. The fundamentals would suggest that supplies are currently adequate to meet demand, but rising beef prices suggest to traders that pork may have more upside potential. Protect profit margins, as we’ll likely see some big swings in the weeks ahead as the market tries to forge its way through the uncertainty.

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

Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK involved in trading futures and or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL. This information is provided freely and is NOT in the capacity of a trading advisor. NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. Information provided is not to be construed as an offer to sell or solicitation to buy any commodity or security named herein.

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