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Closing Comments

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Closing Comments

Corn

Exporters sold 30.9 million bushels of current-year corn in the week ending October 2, up from 25.1 million the previous week and up from the five-year average for the week of 29.4 million. Marketing year sales total 602 million bushels of corn, down 27 million or 4% from the previous year. Sales to date fall short of the seasonal pace needed to reach USDA’s target by August 31 by 8 million bushels, versus falling short by 5 million the previous week.

Grain sorghum sales in the week ending October 2, totaled 2.6 million bushels, with all of them going to China. This brings marketing year sales to all destinations to 100 million bushels, or 50% of USDA’s target for the year ending August 31. That’s up 52 million or 106% from the previous year, largely due to China. Typically, exporters have sold 28% of final grain sorghum shipments by this point in the season, whereas the pace was 23% at this point last year.

Heavy rains are expected in the southern half of the Midwest the next couple of days, with another round of rain early next week, before a somewhat drier pattern returns. That provided support for corn today, along with short-covering among some traders believing that USDA will make significant acreage reductions tomorrow. We disagree with that notion.

The dollar reversed higher as the Fed vice-chair suggested that interest rates may go higher as early as mid-2015; much earlier than thought Wednesday afternoon. Money quickly reversed its previous direction, flowing out of the broader commodity and equity markets. This limited gains in the corn pit.

The trade expects USDA to peg ending stocks near 2.13 billion bushels tomorrow. The first reaction to the USDA data will be by the computer traders, with the human factor then responding to the numbers next. We continue to believe that downside price risk remains significant.

Soybeans

Exporters sold 33.9 million bushels of current-year soybeans in the week ending October 2, up from 31.9 million the previous week and up from the five-year average for the week of 23.3 million. Sales to China accounted for 7.2 million bushels of the week’s total.

Marketing year sales to all destinations total 1.093 billion bushels, up 83 million or 15% from the previous year. Exporters typically have sold 44% of final soybean shipments by this point in the marketing year, whereas last year they had sold 61% of final shipments by this week of the year. However, they’ve already sold 64% of USDA’s target for the current year that ends August 31. As such, sales to date exceed the seasonal pace needed to reach USDA’s target by 352 million bushels, although that is down from 358 million the previous week.

More impressive is the strength of soymeal sales amid Argentina’s ongoing problems. The soymeal marketing year started October 1. Advanced sales have brought sales to date through October 2 to 6.026 million tons, which is 50% of USDA’s target for the entire year ahead of us. Typically, exporters have sold 24% of USDA’s target by this early date. This is something that we’ve been warning you about over the past several months, which is expected to raise overall soybean demand beyond current USDA projections. Unfortunately, we still expect supply to still overwhelm this increased demand.

Soybean prices reacted to many of the same factors as corn today. However, soybeans also have strong demand, including demand for soymeal. Yet, gains were limited by expectations that South America will produce a huge crop in a few months.

Some support today came from ongoing heat and dryness in the northern half of Brazil’s soybean belt, where its equivalent to mid-April in our growing season. Some models call for a significant increase in rainfall in these dry areas late this month, while other models remain hot and dry for the period. A return of a wetter pattern by November would allow for normal soybean yields.

The trade is looking for USDA’s ending stocks estimate to come in at 472 million bushels tomorrow. I believe that number could actually top 500 million bushels, either in this report or the November report.

Wheat

Exporters sold a disappointing 13.7 million bushels of wheat in the week ending October 2, down from 27.2 million the previous week and down from the five-year average for the week of 21.8 million. Sales to Brazil accounted for 1.4 million bushels of the total; mostly hard red winter wheat, with a dab of soft red winter thrown in as well. Local reports suggest that heavy rains have damaged the crop in Parana.

Marketing year sales to all destinations total 512 million bushels, down 193 million or 27% from the previous year. Sales to date exceed the seasonal pace needed to reach USDA’s target by May 31 by 27 million bushels, but that is down from 32 million the previous week.

Sales in the week ending September 25 were strong because U.S. wheat was competitive. As a result, prices rallied on speculative short-covering, pricing us out of the market once again. As a result, sales for the week ending October 2 were very weak. Furthermore, terminals in France are refusing delivery because they’re full, highlighting European competition that we face. In addition, Russia has a record large wheat crop to sale.

Strength in the dollar facilitated a reversal of money flow, with traders selling the broader commodity sector today. That outflow accelerated losses in the wheat pit, producing double-digit losses. The charts suggest that we could soon see a retest of this fall’s contract lows, unless USDA has a surprise up its sleeve in tomorrow’s crop report.

Beef

Beef export sales remain solid, despite a strong dollar. Sales for the week ending October 2 were a net 14.1K metric tons, up from 12.0K the previous week and up from 10.4K in the same week last year. Actual shipments during the week totaled 14.0K metric tons, up from 13.7K the previous week and up from 8.4K in the same week last year.

Live cattle futures pushed to new all-time highs early in today’s session on bullish optimism. Yesterday’s fat cattle auction activity in the Northern Plains yielded prices $5 to $7 higher than the previous week, suggesting that packers might be more aggressive in the negotiated market this week than was previously believed. Strength in the fat cattle market lifted feeder cattle as well, with demand for light-weight cattle remaining strong on expectations USDA will confirm a massive corn crop tomorrow.

However, the dollar erased overnight losses, pushing sharply higher off its lows this morning. That sent the stock market tumbling, with the Dow Jones Industrial Average down more than 330 points over the noon hour. The VIX, Wall Street’s fear index, surged more than 20% at one point as traders worried about the health of the U.S. and global economy. Crude oil dropped to 22-month lows.

Traditionally, meat demand struggles when the economy isn’t good. This year’s meat market performed well because consumer demand remains amazingly strong at high prices, but that was with a strengthening economy. What happens if the economy turns down again?

These are thoughts that traders process when prices reach record high levels. Such was the case this morning, causing a sharp sell-off late morning. Prices rebounded modestly from the lows, but then collapsed again in the final minutes of trade, suggesting that we may be seeing yet another topping action.

Product movement rose to 228 loads Wednesday, up from 171 loads the previous day, but down from 251 loads the previous week. Choice cuts were up another $2.67 per cwt to $246.55, while Select cuts were up $2.22 to $234.48. This increased the Choice/Select spread to $12.07 per cwt, up from $11.62 the previous week and up from $10.96 the previous week.

Boxed beef movement was again solid at mid-morning today at 140 loads. Choice cuts were up another $0.58 per cwt, while Select cuts were up $0.53. The stronger prices are strengthening packer margins, which are estimated at losses of $38.85 per head, which is an improvement from losses of $91.20 per head in late September.

The latest CME feeder cattle index came in at a record $238.01 per cwt, up $0.44 on the day. The index has posted a fresh record high in 19 of the past 22 days, with gains over that period totaling $12.60 per cwt.

Pork

Pork export demand continues to impress, amid a strong U.S. dollar, particularly in light of Russian sanctions. Net sales for the week ending October 2 totaled 22.5K metric tons, down slightly from 22.8K the previous week, but up from 8.6K in the same week last year. Actual shipments during the week totaled 16.5K tons, down from 23.2K the previous week, but nearly twice the 8.4K shipped in the same week last year.

Lean hog futures tried to push higher outside its recent trading range for the second time this week. Once again, the market wasn’t able to hold the move above $96 in the December contract, settling just below that level. However, it was impressive to see lean hog prices hold in positive territory when beef prices were collapsing, along with the equity and energy markets. This suggests a bias toward moving higher, but we need to see stronger fundamental support.

Today’s cash market was again mostly steady. The latest CME 2-day lean hog index came in at $110.46 per cwt, up $0.55 on the day and still at a premium to the expiring October contract. That provided support for the lead contract.

Product movement rose to 474 loads Wednesday, up from 321 loads the previous day and up from 414 loads the previous week. However, prices continue to show signs of topping. The composite pork product price dropped $0.22 to $123.53 per cwt. This pulled estimated packer margins to $27.60 per head, down from $29.40 the previous day, but still up from $24.70 the previous week. Movement at midday today was a meager 169 loads, with the composite price down another $1.09 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® | 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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