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Closing Comments

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Closing Comments

Corn

Corn encounters increased selling interest near $4.00.

Grain and oilseed prices received a lift from the broader commodity indices early today as those baskets of commodities gapped higher once again on the charts. That pushed grain and oilseed prices into areas seen as selling targets by both producers and speculators, leading to prices pulling back from their early highs.

Additional weakness came when expectations for a bullish energy inventory report were rewarded by a bearish increase in supplies. That send energy prices tumbling from 10-week highs seen earlier in the session. Crude oil is a leading indicator for the broader commodity sector, leading the indices to erase early gains, and in some cases close chart gaps.

The major commodity indices erased early gains, but continued to follow the lead of crude oil. Crude oil showed some resiliency, leading to some resiliency in the broader commodity sector as well. Corn prices still face an uphill battle of bearish expectations near the $4 level until/unless prices can get above the $4.25 level and start to turn sentiment.

The Department of Energy reports that crude oil stocks rose 3.1 million to 461 million barrels in the week ending October 2. Those stocks are near levels not seen at this time of year for the past 80 years. Gasoline stocks increased 1.9 million barrels and are above the upper limit of the typical range for this time of year. Distillate stocks, which include diesel, fell by 2.5 million barrels and are in the middle of the typical range for this time of year.

Ethanol stocks remained largely unchanged on the week at 18.8 million barrels in the week ending October 2, although those stocks were up slightly from 18.7 million in the same week last year. Ethanol production during the week rose to 950K barrels per day, up from 943K barrels the previous week and up from 901K barrels per day in the same week last year.

The data suggests that ethanol producers utilized 99.9 million bushels of corn in the week ending October 2, up from 99.2 million the previous week and above the 95.6 million bushels used in the same week last year. Year-to-date corn use totals 500 million bushels, up 19 million or 4% from the previous year. Estimated corn use to date exceeds the seasonal pace needed to reach USDA’s target by August 31 by 12 million bushels, up from 10 million the previous week.

December corn continues to face active selling near $4.00, but if found good buying interest at previous resistance near $4.94. The charts still show a modest upward bias going into Friday’s report.

Soybeans

Soybeans prove resilient yet again.

Soybean prices followed the broader commodity sector higher early in today’s trading session. The lead November contract pushed above trend line resistance off the summer highs for the first time in the past several months. However, selling increased as the contract approached $9 and after the contract was unable to extend gains after probing above the previous day’s high. Additional selling came as crude oil prices broke, weakening support from the broader commodity sector.

Yet, soybean prices were resilient throughout the bulk of the trading session. The trade expects USDA to hike its yield estimate to 47.2 bushels per acre Friday, up from 47.1 bushels the previous month and just below last year’s crop of 47.5 bushels per acre. I do not believe that this year’s crop is bigger than last year’s, which if true, would appear to limit the risk of a bearish surprise on the yield side of the balance sheet Friday.

A surprise could come in the acreage data. The trade expects USDA to slash more than 600K acres from the crop on Friday. A more conservative reduction could be bearish, while the chances of a larger cut in the October report would appear unlikely at this point based on the FSA data seen thus far.

Even so, this market has been hit with a plethora of bearish chatter over the past couple months, yet it refuses to go lower. The charts continue to suggest that the market has priced in the bearish news and is ready to focus on increasing demand. Yet, traders want to see Friday’s USDA yield estimates before doing so. We’ll also have the chance to see another weekly export sales report on Thursday, which is again expected to show more strong buying by China.

Wheat

Wheat slides on profit taking after reaching chart objectives.

Wheat prices turned lower today, with Chicago posting double-digit losses at times. Additional weakness came as the broader commodity indices came under pressure this morning, with speculators also looking to sell a move of Chicago December to within a couple cents of the August spike high of $5.3325. That put the contract just below the 200-day moving average, currently at $5.33. Prices turned lower to test the bottom of the past month’s trading channel, but December held well-above Tuesday’s session low.

The bottom line once again is that current wheat stocks are big; both domestically and globally. However, that has been priced into the market. Meanwhile, risks for a short global 2016 crop are rising amid dryness worries for the U.S. winter wheat belt, Australia, Russia and Ukraine.

It’s too early to suggest a bull market on shrinking global stocks, but it’s not too early for fund managers holding large short (sold) positions to get nervous and unwind more of those positions on the possibility of a short crop next year. I’m also expecting wheat to get additional help from the corn market going forward, but much of that hinges on Friday’s crop report.

Beef

Futures surge higher, but now wait for the cash market.

Tuesday’s $3 daily limit move in cattle triggered follow-through buying today, with buy orders still left in the hopper. The lead October contract locked the expanded $4.50 daily limit higher frequently during the day, but still managed to trade from time to time. December cattle buying was not as aggressive, with traders wary of overhead resistance at $138 per cwt.

The board has essentially priced a $10 rise in cash trade into the market already. That could happen, considering we saw a $10 free fall the previous week, but it would be a stretch. As such, I look for traders to become a bit more cautious on Thursday until/unless they get some direction from the cash market.

Feeder cattle pushed higher on strong gains as well, but with a bit less energy than the fats. Selling emerged on the gains to cap the upward move, with the lead October contract going no higher than $186.75 per cwt. Feeding margins are still in trouble, limiting upside potential if corn prices continue to trend higher.

Packer margins remain near an estimated $100 per head, which is quite strong for this time of year. Yet, the supply of heavy cattle needing to come to town reduces the need for packers to get too aggressive. Today’s kill is pegged at 111,000 head of cattle, matching the previous week, but down 1,000 from the same day last year. Week-to-date kill is pegged at 331,000 head of cattle, down 2,000 from the previous week and down 11,000 from the same period last year.

USDA trade data released this week for the month of August showed that beef exports were down significantly in August, contributing to the oversupply of beef amid a strong dollar. Beef exports totaled 175.9 million pounds in August, down 23.9 million or 12% from the previous month and down 54.5 million or 24% from the previous year. The lead customers were Japan, Mexico, South Korea and Canada.

Beef imports totaled 313.6 million pounds in August, up 25.5 million or 9% from the previous month and up 68.2 million or 28% from the previous year. This again contributed to the oversupply of beef hitting the market during the period, thanks largely to a strong dollar. Top sources for the beef imports were Australia and Canada, followed by New Zealand.

Product movement on the spot daily market rose to 177 loads Tuesday, up from 147 loads the previous day, but down from 190 loads the previous week. Choice cuts firmed 20 cents to $204.17 per cwt, which was the first day the higher cuts posted a gain since September 9. Select cuts slipped another $0.18 to $198.87 per cwt. That pushed the Choice/Select spread to $5.30 per cwt, up from $4.92 the previous day and up from $1.62 the previous week. Movement at mid-morning was large at 190 loads, with Choice cuts down $0.81 and Select cuts down $1.13 per cwt.

Pork

Lean hogs fail to test recent highs amid a flood of cheap beef.

December lean hog futures pushed to a high of $67.475 early today, but selling emerged to take profits before the contract could test last week’s high for the move of $67.60 per cwt. Traders grew wary of pushing prices higher amid a flood of cheap beef hitting the market following recent losses in that sector. Retailers are facing some pretty tempting beef prices that could help draw customers in the store, even though this is National Pork Month. As such, this market is beginning to chop sideways until it gets more clarity.

Today’s cash market was mostly steady to 50 cents higher in the closely watched Iowa/Southern Minnesota market, while mostly steady to occasionally 50 cents higher elsewhere. The latest CME 2-day cash index came in today at a one-month high of $73.75 per cwt, up $0.37 on the day and up $1.74 per cwt on the week and up $1.94 over the past seven consecutive trading days.

Today’s kill is pegged at 433,000 head of hogs, up 4,000 head from the previous week and up 7,000 head from the previous year. Week-to-date kill is pegged at 1.301 million head of hogs, up 18,000 from the previous week and up 20,000 head from the same period last year.

Product movement rose to 338 loads Tuesday, up from 308 loads the previous day, but down from 395 loads the previous week. The composite pork product price slipped to $87.03 per cwt, down $0.14 on the day, but up $1.95 from the previous week. Movement at midday today was good at 263 loads, with the composite price down $0.66 to $86.37 per cwt.

Pork exports totaled 373.8 million pounds in August, down 21.3 million or 5% from the previous month, but up 22.8 million or 6% from the previous year. Top customers were Mexico, Japan and Canada. Imports during the month totaled 443.8K head (all from Canada), down 27 million from the previous month, but up 37.1 million from the previous year.

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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