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Closing Comments



Closing Comments


Corn futures sink following neutral USDA stocks data.

Crude oil stocks rose 4.0 million to 457.9 million barrels in the week ending September 25. Supplies remain near their highest level of the past 80 years for late September. Gasoline stocks increased 3.3 million barrels during the week and are near the upper limit of the typical range for this time of year. Distillate stocks (includes diesel) slipped by 0.3 million barrels and are in the middle of the typical range for this time of year.

Ethanol stocks slipped to 18.8 million barrels in the week ending September 25, down from 18.9 million the previous week, but matching those seen in the same week last year. Ethanol production rose to 943K barrels per day during the week, up from 938K the previous week and up from 881K barrels per day in the same week last year.

The data suggests that ethanol processors utilized 99.2 million bushels of corn in the week ending September 25, up from 98.7 million the previous week and up from 93.5 million in the same week last year. Year-to-date corn use for the new marketing year is estimated to be 400 million bushels of corn, up 15 million or 4% from the previous year. Corn use to date exceeds the seasonal pace needed to reach USDA’s target by August 31 by 10 million bushels, up from 6 million the previous week.

USDA pegged September 1 corn stocks at 1.731 billion bushels, up 499 million bushels from the previous year, but down 8 million from the average pre-report trade estimate. The total was also just 12 million bushels below my submitted estimate. The data showed that off-farm supplies of corn stood at 65.7% of available stocks, up from 62.5% previously. This should support firmer basis tendencies in some of the production deficit states like Illinois, Indiana and Ohio. Implied fourth-quarter usage came in at 2.72 billion bushels, up 10 million from the previous year as we fed cattle to heavier weights and fed more than 10 more hogs during the period than the previous year.

December corn rallied within a half-cent of the September high of $3.95 this morning, before pulling back following the USDA stocks data release. Traders were not willing to push prices above that level without stronger support from the yield data. Unfortunately, that leaves a double-top on the charts, which needs to be overcome to avoid rebuilding bearish sentiment.

The focus now shifts to USDA’s October 9 crop report. Market bulls need to see USDA reduce its yield estimate by a significant 2 to 3 bushels to feed the mantra that the crop is getting smaller. Anecdotal yield data being reported appears to support such, but fund managers need to see that confirmed by USDA.


USDA shrinks the size of the 2014 crop, while confirming strong demand.

USDA pegged September 1 soybean stocks at 191 million bushels, up 99 million from the previous year, but down 14 million from the average pre-report trade estimate. On-farm supplies stood at 50 million bushels, up 133% from the previous year. Implied fourth-quarter usage stood at 436 million bushels, up 39% from the previous year amid strong demand for soymeal; both domestically and on the export market.

The agency also adjusted the size of last year’s crop as well, revising 2014 production to 3.93 billion bushels, down 41.7 million from the previous estimate. USDA dropped last year’s planted area by 425K acres, while cutting the harvested area by 470K acres. It also cut its 2014 soybean yield estimate by 0.3 bushel to 47.5 bushels per acre.

The above revisions have implications for this year’s crop as well. This year’s yields have been good, but not as consistently high as last year’s reported yields. As such, it casts doubts about whether this year’s crop might be smaller than USDA’s current estimate of 47.1 bushels per acre. Furthermore, USDA used final FSA data to cut last year’s acres, with this year’s FSA data suggesting at least a 450K-acre reduction. It may make that acreage cut on October 9, spread it out over several months or find a way to justify a smaller or larger cut.

Today’s report was not bullish, but it was supportive, feeding the narrative that the market has already priced in the most bearish scenario. Keep in mind that USDA was projecting 2014-15 soybean ending stocks to be 475 million bushels a year ago. We found out this morning that they were actually 191 million bushels. The agency currently projects 2015-16 soybean ending stocks at 450 million bushels. It’s September ending stocks estimate proved to be too high in 13 of the past 19 years by an average of 101 million bushels.

November soybeans surged to their highest level since August 21 this morning when a positive private sector jobs report spurred active fund buying of the major commodity indices of which soybeans are a part. That pushed the contract above the top of the recent predominant trading range at $8.90. The contract surged again to $9.0225 following the friendly stocks report from USDA.

However, selling returned to the market on the push above $9, with many in the market still believing that longer-term soybean fundamentals remain bearish. They see moves above $9 as a selling opportunity. The contract still finished the day in positive territory with constructive chart signals, but also still lacking confirmation of a breakout to the upside. November soybeans now need to establish the ability to hold above $8.90 per bushel.


Wheat stocks fall short of expectations as USDA confirms a smaller crop.

USDA pegged September 1 wheat stocks at 2.089 billion bushels, up 182 million from the previous year but down 60 million from pre-report trade expectations. The reasons for the shortfall come from production and estimated consumption. The final 2015 wheat production estimate was pegged at 2.052 billion bushels, down 84.3 million from its August estimate. The hard red winter wheat crop fell by 29 million from August, while soft red winter lost 30 million and hard red spring dropped 22 million bushels. However, that all suggests that feed usage was about 24 million below expectations.

The above data suggests that current-year wheat stocks fall to 846 million bushels, down 29 million from the previous estimate, but up 93 million from the previous year. As such, it was a friendly report, but by no means was it bullish.

Psychologically, the report though may shift a bit more focus on dryness developing in the Plains, Australia, Argentina, Ukraine and Russia. It’s tough to keep the market focused on these dry areas when both domestic and global stocks are so large with a strong dollar making it difficult for us to compete. As such, I still believe that wheat needs help from corn beyond today’s initial report reaction to sustain a rally longer-term.


Cattle fall the expanded limit lower as supply overwhelms demand.

We’ve seen quite a string of daily limit moves in the cattle market, with the bulk of them being to the downside. October live cattle locked the expanded $4.50 per cwt daily limit lower today after being the $3 daily limit lower on Tuesday.

Packers have sped up the chain speed the past couple weeks, attempting to get current with all the heavy cattle on the Corn Belt side of the feedlot region. That has pushed more beef on the market at a time when retailers are focusing on pork and the consumer has already made the shift. It also corresponds with a strong dollar that has supported a resurgence in beef imports.

Today’s kill is pegged at 111,000 head of cattle, up 1,000 from the previous week, but down 3,000 head from the previous year. Week-to-date kill is estimated at 333,000 head, down 3,000 from the previous week and down 13,000 head of cattle from the same period last year.

Deeply negative feeding margins are impacting demand for feeders at the sale barn as well. The latest 7-day cash index was down to $189.87 today, down $0.59 on the day, down $6.97 over the past week and down $15.46 over the past 12 consecutive trading days.

Product movement rose to 190 loads on the spot daily market Tuesday, up from 151 loads the previous day and up from 185 loads the previous week. Choice cuts were down another $1.63 to $209.31, while Select cuts were down $1.73 to $207.69 per cwt. That moved the Choice/Select spread to $1.62 per cwt, up from $1.52 the previous day, but down from $5.98 per cwt the previous week. Movement at mid-morning today was good once again at 144 loads, but Choice cuts were down another $0.82, while Select cuts were down $2.77 per cwt.


Cash hogs firm on good packer demand, but futures pull back on profit taking.

Today’s cash market was mostly steady in the closely watched Iowa/Southern Minnesota market, but mostly $1 higher elsewhere. Packers operating on good margins near $25 per head are pulling hogs forward, but they’re also not lacking for hogs to slaughter.

Today’s kill is pegged at 429,000 head of hogs, up 5,000 head from the previous week and up 10,000 from the previous year. Week-to-date kill is put at 1.283 million head, up 13,000 on the week and up 67,000 head of hogs from the same period last year. The latest CME 2-day lean hog index came in at $72.01 per cwt, up $0.15 on the day and up $0.58 over the past week.

December lean hogs pushed to a new high for the move today at $67.60 per cwt, with significant resistance at $70. Overhead resistance comes amid fears of softening demand as retailers shift their focus more to beef and turkey for the month of November as carcass weights trend higher. Slaughter numbers are expected to decline, but thus far they continue to exceed expectations.

Product movement rose to 395 on Tuesday, up from 303 loads the previous day and up from 380 loads the previous week. The composite pork product price slipped to $85.08 per cwt, down $0.06 on the day, but up $1.58 on the week. Movement at midday today was good at 250 loads, while the composite price was up $0.08 to $85.16 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(r) | www.waterstreet.org
(316) 729-4599 | asuderman@waterstreet.org

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