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Closing Comments

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Closing Comments

Corn

This week represents a transition as I depart Water Street for a new opportunity as Chief Commodities Economist for the global financial services firm INTL FC Stone. I look forward to an ongoing friendship with Water Street Solutions and for future partnership opportunities such as this winter’s Water Street EDGE meetings. I feel deep gratitude to the team at Water Street that I have been able to work alongside. I’m also very appreciative to each of you who have followed my commentary over the past three years. -Arlan

We are excited for Arlan with his new position and thankful for the opportunity that we have had to work alongside him. Arlan has been a good friend before coming to Water Street Solutions three years ago and we look forward to continuing that relationship long into the future. You will continue to receive daily market updates in his absence. For questions, comments or thoughts please contact any of us at 309.680.1200 or waterstreet@waterstreet.org. -Darren Frye, CEO

Corn rebounds late as crude oil rallies.

The broader commodity sector has been in a malaise the past several days, ever since the crude oil rally ended at the 200-day moving average. That malaise pulled the rug out from under the soybean rally that had been leading the grain sector higher. Yes, one can point toward fundamental factors to justify the move, but the stronger correlation of late has been the money flow in the broader commodity indices.

Unfortunately, that malaise allowed corn prices to slip through areas of chart support, doing damage. That’s good for livestock and ethanol producers, but leaves corn producers at risk until/unless the market begins to focus on the relatively snug global stocks amid a near-record El Nino expected to wane next year.

Exporters sold 25.9 million bushels of corn in the week ending October 8, including 23.6 million bushels of the current-year crop. The current-year sales were up from 20.5 million bushels sold last week, but were still below the pace needed to close this year’s deficit pace. Mexico was the featured buyer at 7.2 million bushels, while China was largely absent.

Marketing year sales to all destinations total 458 million bushels, down 220 million or 32% from the previous year’s pace. Exporters typically sell 38% of final corn shipments by this point, whereas they had sold 37% by this point last year. However, they have only sold 25% 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 249 million bushels, versus being short by 227 million the previous week.

Exporters sold a net 0.3 million bushels of grain sorghum in the week ending October 8, up from 0.2 million the previous week and down from the five-year average for the week of 3.0 million bushels. Chinese end users bought 4.5 million bushels during the week, but 4.1 million of the total was merely a transfer of previous sales made to “unknown destinations.”

Marketing year sales to all destinations total 138 million bushels, up 35 million or 34% from the previous year. Exporters typically sell 31% of final grain sorghum shipments by this point whereas they had sold 29% by this point last year. Thus far this year they have sold 32% of USDA’s target. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 4 million bushels, but that is down from 15 million the previous week.

December corn appeared to benefit from the unwinding of spreads put on earlier this week when soybeans were rallying. It garnered upward momentum when crude oil pushed higher late in the grain-trading session. The combination allowed corn to post a reversal on charts, finishing near session highs. That doesn’t guarantee higher prices from this part, but certainly provides better signals going into next week than would have a poor finish.

Soybeans

Soybeans slide as rain chances improve for Mato Grosso

Exporters sold 54.3 million bushels in the week ending October 8, up from 47.2 million the previous week and up from the five-year average for the week of 29.1 million bushels. China bought 42.0 million bushels during the week, although 20.5 million of that was a transfer from previous purchases by “unknown destinations.” That left “unknown destinations” with net reductions of 7.5 million bushels for the week.

Marketing year sales to all destinations totals 860 million bushels, down 263 million or 23% from the previous year. Exporters typically sell 49% of final soybean shipments by this point, whereas they had sold 61% by this points last year. This year they have sold 51% of USDA’s target thus far. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by 43 million bushels, up from 29 million the previous week.

China had booked 569 million bushels of soybeans by this point last year. Thus far this year they have booked 290 million bushels that we know of, but much of the big September deal still has not worked its way through the system to be counted yet. Sales to “unknown destinations” totaled 232 million bushels by this point last year. Thus far this year they total 313 million bushels. Soybean sales to “unknown destinations” generally, but not always, turn out to be sales to China.

Soymeal demand remains solid, although below last year’s robust pace. Sales for the week ending October 8 totaled 225.8K metric tons, up from 217.2K tons the previous week and above the 10-year average for the week of 223.8K tons. Actual shipments totaled 139.7K tons, up from the 10-year average for the week of 132.9K tons.

Demand is good, which should continue to provide support for the oilseed market, but soybeans came under pressure along with the rest of the commodity complex in the latter half of the week. Money flow improved for much of the rest of the commodity sector late in the day, but soybeans remained soft as rain chances improve for Mato Gross at the end of the month. I would have felt better if November soybeans would have settled above $9, as its weak close leaves the market vulnerable near-term.

Wheat

Wheat loses support from the other markets, with added pressure from improved Central Plains forecasts.

Exporters sold 16.9 million bushels of wheat in the week ending October 8, up from 10.6 million the previous week and above the five-year average for the week of 14.7 million bushels. Sales by individual class included 5.0 million bushels of both hard red winter and hard red spring wheat and 3.2 million bushels of soft red winter wheat. “Unknown destinations” bought 4.2 million or a quarter of the week’s total, split fairly evenly between the three major classes.

Marketing year sales to all destinations total 435 million bushels, down 94 million or 18% from the previous year’s pace. Exporters typically sell 57% of final wheat shipments by this point, whereas they had sold 62% by this point last year. Thus far this year they have sold just 51% of USDA’s target for the year and that target is tied for the lowest total of the past 44 years. As such, sales to date fall short of the seasonal pace needed to reach that low target by May 31 by 46 million bushels, versus being short by 47 million bushels the previous week.

Wheat prices continue to struggle when they lack support from the other markets. However, a wetter outlook for next week in the central Plains added pressure to the Kansas City market. Losses fell through chart support, adding to losses, with the hard wheat market losing ground to Chicago and Minneapolis.

Chicago December wheat found support near $4.90 today, which has been an area of support in the past. Kansas City charts don’t hold as significant support near current levels, leaving the hard wheat market somewhat vulnerable rain chances between now and when the winter wheat crop enters dormancy next month.

Beef

Cattle surge late on cash trade rumors.

Cash cattle traded at mostly $126 to $127 last week, leading to additional strength in the board this week on expectations of another strong upward move. The board softened midweek as some traders lost the faith. Packers were offering $125 per cwt on a live basis, while feeders were asking mostly $135, up to $140 per cwt. The board surged to lock the $3 daily limit higher late in the session to close out the week on word from the country that packers had boosted their bids to $128, followed by $130, with feeders believing they would see trade open up at $132 to $135 later in the day.

Exporters sold a net 14.0K metric tons of beef in the week ending October 8 as the dollar weakened. The total was up from 8.3K tons sold the previous week and up from 8.0K tons sold in the same week last year. Actual shipments firmed slightly to 11.7K tons, up from 11.6K tons the previous week, but down from 14.4K tons shipped in the same week last year.

Beef imports slide to a four-week low of 19,974 metric tons in the week ending October 10 as the dollar slid to a three-week low. The total was down nearly 1,000 tons from the previous week and were down 109 tons from the same week last year. Year-to-date imports total 946,644 metric tons, up 26.4% from the previous year, but of course that pace is slowing finally as the dollar trends lower.

Product movement on the spot daily market slowed to 149 loads Thursday, down from 166 loads the previous day and down from 247 loads the previous week. Choice cuts traded at $211.22 per cwt, up $0.61 on the day and up $8.22 this week. Select cuts traded at $207.23 per cwt, up $1.61 on the day and up $9.77 over the past five consecutive trading days. That pushed the Choice/Select spread down to $3.99 per cwt, down from $4.99 the previous day and down from $6.15 the previous week. Movement at mid-morning today was slow at 77 loads, with Choice cuts down $0.01 and Select cuts down $1.06 per cwt.

Today’s kill is pegged at 108,000 head of cattle, up 2,000 from the previous week and up 5,000 from the previous year. The Saturday kill is estimated to be 23,000 head, up 10,000 on the week and up 5,000 from the previous year. That would put the week’s kill at 576,00 head, tying the previous high for the year set in September and up 19,000 on the week and up 12,000 from the same week last year. Year-to-date kill is pegged at 22.521 million head, down 6% from the previous year.

December live cattle had a strong finish at the $3 daily limit, suggesting expanded limits on Monday, perhaps depending on where cattle end up trading later today. Next significant resistance is near $142 per cwt. Feeder cattle followed the fats higher. That continues to put both at a premium to the cash market. The CME cash index finished the week at $188.01 per cwt, up $0.65 on the day and up $3.72 on the week.

Pork

Lean hogs break lower on demand fears.

Estimated packer margins remain just below $30 per head, providing incentive for big kills. As such, packers are expected to kill better than 180,000 head Saturday, leading to another big slaughter week. Yet, they haven’t had trouble finding the hogs, with producers worried about lower prices as carcass weights rise and demand wanes seasonally next month.

The CME 2-day lean hog index finished the week at nearly a six-week high of $74.98 per cwt, up $0.04 on the day and up $0.23 on the week. However, it is expected to slip negative next week as today’s cash market was mostly $1 lower.

Today’s kill was pegged at 434,000 head of hogs, up 4,000 on the week and up 26,000 on the year. The Saturday kill is estimated to be 192,000 head, up 68,000 on the week and up 128,000 on the year. That would put the week’s total kill at an estimated 2.318 million head of hogs, up 28,000 from the previous week and up 134,000 on the year. Year-to-date kill is pegged at 90.049 million head of hogs, up 6.745 million or 8.1% from the previous year’s pace.

Exporters sold a solid 23.8K metric tons of pork in the week ending October 8, up from 14.8K tons the previous week and up from the 18.5K tons sold in the same week last year. The bulk of the past week’s sales were destined for China. Actual shipments totaled 18.0K metric tons, up from 17.2K tons the previous week, but matching the same week last year.

Pork imports surged to 9,923 metric tons in the week ending October 10, despite a weaker dollar, as Canadians took advantage of firmer prices south of the border. The total was up 811 metric tons from the previous week, but down 7% from the same week last year. Year-to-date pork imports total 345,242 metric tons, up 7% on the year.

Product movement slid to 294 loads on Thursday, down from 393 on Wednesday and down from 326 loads the previous week. The composite pork product price slide to $87.96 per cwt, down $0.47 on the day and down $0.86 on the week. Movement at midday today was slow at 151 loads, but the composite price had rebounded $1.42 to $89.24 per cwt on good demand for loin, rib and belly cuts.

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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