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Closing Comments

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Closing Comments

Corn

Corn futures consolidate higher just below key chart resistance at $3.95.

Exporters sold 31.5 million bushels of corn in the week ending September 24, including 29.5 million current-year supplies. The current-year sales were up from 16.8 million bushels sold the previous week, but were down from the five-year average for the week of 31.2 million bushels. There were no sales to China of note during the week, with Mexico again the biggest buyer at 25.1 million bushels.

Marketing year sales to all destinations total 414 million bushels, down 158 million or 28% from the previous year. Exporters typically sell 34% of the marketing year’s final corn shipments by this point, whereas they had sold 31% by this point last year. However, they have only sold 22% of USDA’s target thus far this year. As such, sales to date fall short of the seasonal pace needed to reach USDA’s target by August 31 by 211 million bushels, down from being short by 223 million the previous week.

Exporters sold 6.4 million bushels of grain sorghum in the week ending September 24; all of it for current-year supplies. The sales were up from 2.3 million bushels sold the previous week and up from the five-year average for the week of 1.6 million bushels. Chinese end users bought 13.0 million bushels of grain sorghum during the week, but 6.6 million of that total was a shift from previous sales to “unknown destinations.”

Marketing year sales to all destinations total 137 million bushels, up 39 million or 40% from the previous year. Exporters typically sell 27% of final grain sorghum shipments by this point, whereas they had sold 28% by this point last year. However, they have already sold 32% of USDA’s target in the current year. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 22 million bushels, up from 21 million the previous week.

USDA reports that the ethanol industry processed 445.2 million bushels of corn in August to make the fuel. The total was down slightly from 448.0 million bushels utilized in July. The industry produced 1.943 million tons of distillers dried grains and solubles in August, down a bit from 2.001 million tons the previous month.

December corn finished the day fractionally higher being 3 to 5 cents higher for much of the session. It wasn’t a bad day, considering the time of year and broad-based selling of the commodity indices. Prices pushed to $3.93 this morning, where selling emerged just below resistance at $3.95. Buying tended to emerge whenever prices dropped below $3.90 on disappointing yields, but end of the day selling was able to get the market to hold below that level at the closing bell.

Soybeans

Soybeans give way to increased sales just below chart resistance.

Exporters sold 92.2 million bushels of soybeans in the week ending September 24, including 92.1 million bushels of current-year soybeans. The current-year sales are up from 48.4 million bushels sold the previous week and are more than twice the five-year average for the week of 40.2 million bushels. The current-year total includes 43.3 million bushels sold to China, with another 30.4 million bushels sold to “unknown destinations, which is also believed to be largely Chinese end users.

Outstanding sales listed as destined for China for the current crop are currently listed at 293 million bushels, down from 598 million bushels for the previous year at this point. Please note that the above current-year total still does not include most of the 484 million bushels bought by China when its trade delegation visited Des Moines last month. We just still do not know how many of that 484 million bushels will be demand for this year’s crop and how many for next year’s crop. By the way, outstanding sales to “unknown destinations” currently total 310 million bushels, most of which will likely go to China, up 70 million from this same time last year.

Marketing year sales to all destinations total 759 million bushels, down 298 million or 28% from the previous year. Exporters typically sell 44% (10-year average) of final soybean shipments by this early point in the marketing year, whereas they had sold 58% by this point last year, 60% the year before and 66% the year before that. Thus far this year they have sold 44% of USDA’s target, matching the 10-year average pace. As such, sales to date fall short of the seasonal pace needed to reach USDA’s target by 7 million bushels, down from being short by 49 million bushels the previous week.

USDA’s daily export reporting service included additional demand to China this morning. China bought another 4.4 million bushels of U.S. current-year soybeans in the past 24 hours, which was likely yet another segment of the 484 million bushels purchased last month as the details get worked out.

Another indicator is soymeal. Soymeal prices are breaking as domestic end users wait for prices to come to them as the harvest increases supplies. Yet, soymeal export demand remains strong. Old-crop sales in the week ending September 24 for the year that ended September 30 totaled a seasonal 17.6K metric tons, while new-crop sales were a strong 246.4K metric tons. Actual shipments during the week were 60% above the seasonal pace at 179.9K metric tons.

USDA reports that the crush industry processed 160.9 million bushels of soybeans in August, down from 172 million bushels crushed in July. The data is the first to be released after USDA decided to jumpstart the old census crush report that had be stopped several years ago on budget cuts.

The industry has been dependent on data released by the National Oilseed Processors Association in the interim, with its members representing roughly 95% of crush activity. NOPA previously reported August crush by its members at 135.3 million bushels, down from 145.2 million the previous month. The difference is partially why Wednesday’s quarterly stocks report showed smaller soybean stocks than previously expected.

Soybean prices pushed higher on the demand news, but then turned lower as farmer sales picked up just below trend line resistance off the July and August highs. That also coincided with buying of the major commodity indices drying up resulting in a mid-morning sell-off of the broader commodity sector. Selling accelerated as prices fell below the previous day’s low, with the market settling near its session low, suggesting vulnerability to another retest of recent support near $8.60.

Wheat

Wheat posts gains in the face of very weak exports and a broad commodity sell-off.

Exporters sold a pathetic 2.8 million bushels of wheat in the week ending September 24, down from a weak 10.4 million the previous week and down from the five-year average for the week of 22.5 million bushels. The total included 261K bushels of hard red winter wheat, along with 367K bushels of soft red winter and 1.75 million bushels of hard red spring wheat. Brazil took 404K bushel of hard red winter, which was partially offset by reductions in previous sales to “unknown destinations.” China took 198K bushels of hard red spring wheat.

Marketing year sales to all destinations total 408 million bushels, down 91 million or 18% from the previous year. Exporters typically sell 53% of final wheat shipments by this point in the year, whereas they had sold 58% by this point last year. However, this year’s sales total just 45% of USDA’s target. As such, sales to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 68 million bushels, versus being short by 50 million the previous week.

USDA’s current export target of 900 million bushels is up from 854 million the previous year, but is otherwise the fourth smallest of the past four decades. The slow pace to this point suggests that USDA will need to make further cuts to its target on October 9. The smallest export total of the past four decades was 850 million bushels in the 2002-’03 marketing year.

Yet, prices held in the green throughout the bulk of today’s trading range. Prices rallied on chart signals to their highest level since August 11 and then held on as the broader commodity sector sold off mid-morning. Fundamentally, one can point to dryness in the winter wheat belt, Australia, Russia and Ukraine. It’s still too soon to know whether we will see meaningful losses from these regions in light of large global and domestic supplies, but wheat traders will gladly grab onto it to justify this chart-driven rally for the time being.

Beef

Cattle market slaughter continues.

October live cattle have lost $20 in the past 15 days. Cash cattle have been tumbling $4 to $6 in each of the past three weeks. Carcass weights are 20 points above the previous year and 43 pounds above two years ago. A strong dollar slashed exports nearly in half in the latest week reported, while encouraging imports. This comes at a time when demand is soft due to a shift to pork and due to seasonal tendencies.

Exporters sold a six-week low of 8.8K metric tons of beef in the week ending September 24, down from 16.5K the previous week when the dollar had broken and down from 12.0K tons in the same week last year. Actual shipments during the week were 11.0K metric tons, down from 12.3K tons the previous week and down from 13.7K tons in the same week last year.

Fear is driving the market now. That tends to drive the market beyond levels justified by the fundamentals, resulting in a rebound in prices, but from what level? Catching a falling knife is risky. Product prices are trending lower, but are generally expected to find value here soon. As for cash trade, thus far we’ve seen movement in the Plains at $124, down from $128 to $130 last week.

Boxed beef movement on the spot daily market jumped to 243 loads Wednesday, up from 190 loads the previous day, but down from a one-year high of 253 loads the previous week. Choice cuts were down $0.69 to $208.62 per cwt, down roughly $38 since August 19. Select cuts were down another $3.49 to $204.20 per cwt and down roughly $32 over that same period of time. The Choice/Select spread rose to $4.42 per cwt, up from $1.62 the previous day and up from $4.38 the previous week. Movement at mid-morning today was routine at best at 86 loads, with Choice cuts up $0.57 and Select cuts down $0.02 per cwt.

Today’s kill was pegged at 112,000 head of cattle, down 1,000 from the previous week, but matching the same period last year. Week-to-date kill is pegged at 445,000 head of cattle, down 4,000 head on the week and down 13,000 head from the same period last year.

Feeder cattle futures followed the fat cattle market lower. Losses were less on ideas that the fats will bounce at some point, but the market remained under pressure nonetheless. October feeder cattle traded as low as $174.65 per cwt. The latest cash index came in at $188.93 per cwt, down $0.94 on the day, down $6.82 on the week and down $16.40 over the past 13 consecutive trading days.

Pork

Lean hogs break on profit taking despite firmer cash.

Today’s cash market was mostly $0.50 to $1 higher across the Midwest. The latest CME 2-day lean hog index came in at $72.23 per cwt, up $0.22 on the day, up $0.42 over the past three days and up $0.49 over the past week.

Packer margins remain near $20 per head, providing incentive to have large kills. That’s pulling hogs forward to control the seasonal rise in carcass weights. However, the number of hogs is not lacking either. Today’s kill is pegged at 433,000 head of hogs, up 8,000 from the previous week and up 10,000 from the same period last year. Week-to-date kill is pegged at 1.716 million head, up 21,000 from the previous week and up 77,000 head from the same week last year.

Product movement on Wednesday was 396 loads, up from 395 loads the previous day, but down from 447 loads the previous week. The composite pork product price slipped to $84.86 per cwt, down $0.22 on the day, but up $2.23 on the week. Movement at midday today was good at 216 loads, with the composite price up another $1.49 to $86.35 per cwt on good belly demand. We love our bacon.

December lean hogs traded as high as $66.625 this morning, before falling to test the 100-day moving average near $64. Prices bounded off that area of support to finish the day near $65 per cwt. Traders are worried about whether the recent rally is sustainable into December considering the large supply that continues to exceed USDA numbers, with demand expected to soften over the next several weeks.

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

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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