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Closing Comments

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Closing Comments

Corn

Corn shows some resiliency once again in the face of a global sell-off.

A global sell-off started again overnight after data showed weakening profits for China’s industrial sector. That raised fears again on the scope of China’s economic problems, with implications for the global economy as well. Furthermore, data released this morning showed that U.S. pending home sales fell to a five-month low.

That data accelerated losses already in place from the China news. Global traders were active sellers of both commodities and equities, putting pressure on grain and oilseed prices in the process. Those who would ordinarily buy the grains simply stepped back to allow prices to come to them.

Exporters shipped 31.9 million bushels of corn in the week ending September 24, up from 29 million the previous week and up from the five-year average for the week of 26.5 million bushels. Less than 20K bushels of U.S. corn were destined for China during the week. Japan was the featured destination at 10 million bushels, while Mexico took another 5.7 million bushels.

Marketing year shipments to all destinations total 108 million bushels, down 16 million or 13% from the previous year. Exporters typically ship 7% of final shipments by this early date in the new marketing year, which also matches what they had done by this point last year. However, this year they have only shipped 6% of USDA’s target thus far. As such, shipments to date fall short of the seasonal pace needed to reach USDA’s target by August 31 by 22 million bushels, versus short by 19 million the previous week.

Exporters shipped 13.3 million bushels of grain sorghum in the week ending September 24, up from 9 million bushels the previous week and up from the five-year average for the week of 4.9 million bushels. The past week’s total included 12.1 million bushels destined for end users in China.

Marketing year shipments to all destinations total 29.3 million bushels, up 4 million or 17% from the previous year. Exporters typically ship 9% of final grain sorghum shipments by this early point in the marketing year, whereas they had shipped 7% by this point last year. Thus far this year they have shipped 7% of USDA’s target by this point as well. As such, shipments to date fall short of the seasonal pace needed to reach USDA’s target by August 31 by 10 million bushels, unchanged from the previous week.

USDA is scheduled to release its weekly crop progress report at 3 p.m. CDT this afternoon. The trade expects it to show crop conditions unchanged at 68% Good to Excellent, while looking for harvest progress to be up 11 points to 21% as of Sunday.

Corn prices came under pressure from broad-based selling of the major commodity indices due to global economic concerns focused on China. However, selling also came as the December corn contract approached chart resistance at $3.95 ahead of an USDA quarterly stocks report scheduled for Wednesday morning that is known for its surprises that produce daily-limit moves. As such, many traders would prefer to take profits rather than lean too far one way or the other ahead of that report.

Soybeans

Soybeans turn lower on global economic concerns focused on China.

Exporters shipped 19.5 million bushels of soybeans in the week ending September 24, up from 18.5 million the previous week, but down from the five-year average for the week of 22.5 million bushels. The past week’s total included 6.1 million bushels destined for China.

Marketing year shipments to all destinations total 52.5 million bushels, down 2.6 million or 5% from the previous year. Exporters typically ship 4% of final soybean shipments by this point in the new marketing year, which matches last year’s pace at this point as well. Shipments this year also are at 3% of USDA’s target for the year. As such, shipments to date fall short of the seasonal pace needed to reach USDA’s target by August 31 by 4 million bushels, versus being short by 1 million bushels the previous week.

We are starting to see more details emerge from last Thursday’s big record deal with China via USDA’s daily export reporting system. The agency reported this morning that China bought 36.7 million bushels of next year’s crop, while “unknown destinations” (believed to be China) bought 9.1 million bushels of the current crop. We can account for roughly a tenth of the deal, but have yet to hear the details on the other 90%, leaving uncertainty in the market.

The trade expects USDA to peg the crop at 63% Good to Excellent this afternoon, unchanged from the previous week. It expects the agency to peg harvest progress as of Sunday at 18%, up from 7% the previous week.

Soybean prices posted double-digit losses today amid a global sell-off in the broader commodity sector. The oilseed is particularly sensitive to concerns about China due to its dependency on exports to that nation. Traders simply lacked sufficient data to argue otherwise at this point. Yields are highly variable, but generally good overall to this point. There’s good reason to believe that last week’s big deal with China closed the gap on the demand, but we don’t have the data to show such yet at this point.

Furthermore, November soybeans finished trade on Friday at chart resistance. The contract has largely been contained within a range of $8.65 to $8.90 over the past month. Today’s news certainly was not going to support a move through the top of that range, so traders saw it as an opportunity to target the bottom of the range. As such, today’s action really doesn’t tell us that much either.

Wheat

Wheat proves resilient amid global sell-off as weather concerns increase.

Exporters shipped 23.9 million bushels of wheat in the week ending September 24, up from 22.5 million the previous week, but still below the five-year average for the week of 25.3 million bushels. The past week’s shipments included 4.2 million bushels of largely hard red wheat destined for China.

Marketing year shipments to all destinations total 275 million bushels, down 51 million or 16% from the previous year. Exporters typically ship 35% of final wheat shipments, whereas they had shipped 38% by this point last year. However, they have only shipped 31% of USDA’s target thus far this year. As such, shipments to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 45 million bushels, versus being short by 47 million the previous week.

The trade expects USDA to show that 35% of the winter wheat crop was planted as of Sunday, up from 19% the previous week. Traders will be particularly interested in planting progress in dry areas of the Plains, where soils have been too dry for planting in many areas.

Wheat prices struggled in negative territory for the bulk of today’s trading session. The food grain continues to find rallies difficult to sustain without help from corn. However, wheat erased the bulk of its losses, with Minneapolis moving positive ahead of tomorrow’s Stats Canada report, as corn came well off its lows as well.

Beef

Front-end beef supply keeps pressure on the cattle market.

October live cattle came under pressure once again today as traders began to sell the late-week rally that was a response to its mid-week collapse. Surging imports combined with heavy carcass weights to simply dump too much beef on the retail market. Packers increased chain speeds over the past couple of weeks to try to clean up the heavy carcass weights, but that’s adding to the product supply.

Product movement over the past week totaled an 11-month high 970 loads of beef on the spot daily market as retailers respond to the collapse of the market. The total was up from 864 loads the previous week, but still down from the 1,064 loads that moved on the spot daily market in the same week last year.

Choice cuts finished the week at $212.23 per cwt, down $$2.62 on the day, down $14.07 on the week and down $32.67 over the past five weeks. Select cuts finished the week at $209.80 per cwt, down $1.82 on the day, down $9.46 on the week and down $25.64 over the past six weeks. The Choice/Select spread finished the week at a two-month low of $2.43 per cwt, down $0.80 on the day, down $4.61 on the week and down $9.25 over the past three weeks.

Movement at mid-morning today was good for a Monday at 84 loads, but at weaker prices. Choice cuts were down another $0.91 to $211.32 per cwt, while Select cuts were down $0.57 to $209.23.

Packer margins remain in the black, although well off their recent highs. Today’s kill is pegged at 112,000 head of cattle, down 1,000 head from the previous week and down 4,000 from the same period last year.

December live cattle are consolidating just below $138, with the next objective about $2 above that level if the market is able to find some footing here. However, this market remains vulnerable. October feeder cattle found modest support today from their $7 discount to the cash market, but the deferred contracts were all under pressure from feeding margins deep in the red. The latest 7-day cash index came in $191.33 per cwt, down $3.48 on the day, down $6.71 on the week and down $14.00 over the past 10 consecutive trading days.

Pork

Lean hogs remain well supported after Friday’s USDA data release.

Today’s Midwest cash hog market was mostly steady with packers seeking a few more hogs for this week. However, they still are not lacking for hogs coming to town. The latest CME 2-day lean hog index came in today at $71.81 per cwt, down $0.02 on the day.

Packer margins continue to be profitable generally between $20 and $25 per head. Today’s kill is expected to be 431,000 head of hogs, up 15,000 on the week and up 58,000 head from the same period last year.

December lean hogs traded largely inside Friday’s trading range, which means that it also probed briefly above the 200-day moving average for the second consecutive day. The charts are positive and cash is showing some signs of stability. Supply is big, but demand is as well. The question is whether demand can stay big enough to absorb the supply as carcass weights rise seasonally as temperatures cool and retailers begin looking beyond National Pork Month in October?

Product movement slowed to 1,623 loads over the past week, down from 1,895 loads the previous week, but up from 1,568 loads in the same week last year. The composite pork product price firmed to $83.94 per cwt, up $1.52 on the day and up $1.04 on the week, but down dramatically from $118.63 per cwt in the same week last year. Movement at midday today was routine at best at 164 loads, but the composite pork product price was up $1.10 to $85.04 per cwt.

Closing Market Snapshot

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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(r) | www.waterstreet.org
(316) 729-4599 | asuderman@waterstreet.org

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