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Closing Comments

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Closing Comments

Corn

Exporters shipped 36.8 million bushels of corn in the week ending October 9, up from 34.9 million the previous week and up from the five-year average for the week of 23.8 million bushels. Marketing year shipments total 196 million bushels, up 80 million or 69% from the previous year through the first 39 days of the 2014-15 shipping season. Shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 9 million bushels, up from 3 million the previous week.

Shipments of grain sorghum during the week reached 5.1 million bushels, down from 6.9 million the previous week, but up from the five-year average for the week of 1.8 million bushels. The weekly total included 4.8 million bushels destined for China. Marketing year shipments to all destinations total 37 million bushels, up 16 million or 77% from the previous year. Shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 9 million bushels.

The USDA – Farm Service Agency is scheduled to release its updated acreage data tomorrow. Traders will be watching to see if another month yielded enough additional data to change acreage expectations. However, the data dump appears to be coming with less drama at this point than the anticipation around the September report, since USDA adjusted acreage last Friday, allegedly accounting for differences.

It’s been a wild trading environment in October, with big price swings. Today was no exception. December corn tested the 50-day moving average just above $3.49 early this morning, but was unable to sustain a move through it. That triggered selling, but the longs (bought) came in to defend their positions over the noon hour.

This time they were successful at tripping buy stops above the indicator on active short-covering, pushing prices strongly higher in technical trading, aided by computer trading that was pushing to test for preset stops. The result was the opportunity to see December corn at its highest level in more than a month, even though we are the most expensive corn on the global market.

Fundamentally, traders pointed toward harvest delays. Harvest has been active in northwestern areas of the belt, but muddy fields continue to keep combines parked in central and eastern areas. The region will slowly dry out with limited rains for much of the remainder of the month, but current delays provided cover for high-frequency traders to move the market.

USDA is scheduled to release its weekly crop progress report at 3 p.m. CDT this afternoon. A Reuters’ survey reveals expectations that corn ratings will be unchanged at 74% Good to Excellent. The trade expects corn harvest to reach 25% as of Sunday, up from 17% the previous week. My submitted estimate was 24%. The range of trade expectations was from 23 to 28%.

December corn finished the day near its session high of $3.575 with double-digit gains. More significant resistance sits near $3.60 on the charts. I wouldn’t be surprised if the computer traders try to test for stops around that level as well. Fundamentally, we still have a big crop coming to town, which should eventually renew selling interest.

Soybeans

Exporters shipped 52.5 million bushels of soybeans in the week ending October 9, up from 36.4 million the previous week and above the five-year average for the week of 45.1 million. The weekly total included 38.8 million bushels of soybeans destined for China.

Marketing year shipments to all destinations total 144 million bushels, up 30 million or 26% from the previous year. Shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 14 million bushels, up from 7 million the previous week.

The Buenos Aires Grain Exchange projects that farmers will plant 20.6 million hectares of soybeans in the coming growing season, up from 20.35 million produced in the previous year. That translates into 50.9 million acres, up 1% from 50.35 million the previous year. The shift from corn is rather modest, considering expectations that high input costs would force a large movement in planting intentions.

Fundamentally, the strength in the soybean market has been in strong export demand; both for whole soybeans and for soymeal. Supply is expected to eventually overwhelm that strong demand, but for now, harvest delays are keeping supplies tight. This was evidenced by today’s expiration of the October soymeal contract up $22.60 per ton on the day.

An impressive technical rally pushed November soybeans to a test of resistance at $9.695 this morning. Failure to sustain a move above that level led to active selling. Big gains evaporated quickly, but buyers returned to defend their positions when soybeans tried to go negative on the day. Strength in the corn market late in the day combined with strength in the soymeal market to support late-day strength.

The trade expects USDA to confirm soybean condition ratings at 73% Good to Excellent this afternoon, unchanged on the week. Furthermore, the trade expects harvest progress as of Sunday to come in at 31%, within a broad range of 25 to 40%. My submission was 28%.

November soybeans fell short of testing its early morning high of $9.705 in the late-day rally, but still finished just below that level with some impressive gains. Today’s session high becomes the first upside objective for the bulls, who are trying to turn the market at a time when they still have harvest delays and Brazil dryness on their side. Both of those issues are expected to turn more favorable as we move into next week, which could return pressure to prices.

Wheat

Exporters shipped 15.6 million bushels of wheat in the week ending October 9, down from 25.3 million bushels the previous week and down from the five-year average for the week of 17.9 million. Shipments to Brazil accounted for 1.9 million bushels of the past week’s total.

Marketing year shipments to all destinations total 367 million bushels, down 186 million 34% from the previous year. Shipments to date fall short of the seasonal pace needed to hit USDA’s target by May 31 by 22 million bushels, versus short by 20 million the previous week.

The trade expects USDA to show the winter wheat crop at 69% planted as of Sunday, up from 56% the previous week. Good rains across previously dry areas of the Southern Plains are expected to boost emergence and establishment over the next couple of weeks.

Kansas City led the wheat market higher today, providing a positive sign for the wheat complex. Increased competition from Russia and Europe pressured Chicago soft wheat early in the day, but Kansas City followed corn and soybeans higher late in the session, pulling Chicago and Minneapolis along for the ride.

Wheat continues to attempt to confirm a bottom in the market, although the jury is still out whether it will be able to do so. Chicago December wheat finished the day just below key chart resistance at $5.10, with Kansas City testing resistance just above $5.90. Historically, it’s been difficult to sustain rallies this time of year without a strong fundamental story, which wheat currently does not have. Australia’s crop will likely be smaller than currently projected, raising demand for U.S. hard red winter wheat, but I see that played out more in the basis market than in the futures.

Beef

The latest CME feeder cattle index came in at a record $242.58 per cwt, up $3.23 on the day. It was the 22nd trading day out of the past 25 with a new record index, with gains over that period totaling $17.17 per cwt. In fact, the data suggests that the index will push even higher, with light-weight cattle going for $250 to nearly $270 at several markets.

Yet, last week’s bearish reversal after the November contract hit $245.75 has fund managers scared that the high may be in, at least for now. The market has been trying to consolidate in recent days, but active selling emerged today after recent lows gave way, with sell-stops sending prices the $3 daily limit lower in most contract months.

Feeder cattle dragged the live cattle complex lower as well, dragging the December contract to its lowest level since October 1. Support comes from the cash market, where tight supplies are expected to support this week’s negotiated trade. However, there is still some uncertainty over the number of cattle that packers will need to purchase from the negotiated market this week.

Negotiated cattle numbers reached an 11-week high last week, but uncertainty remains whether they’ll need to be as aggressive this week. This week’s slaughter is expected to rise to 570K head, up from 562K the previous week, but that’s still low enough that it should maintain support beneath the product market.

Boxed beef movement rose to 151 loads Monday, up from 127 loads on Friday, but down from 167 loads the previous week. Choice cuts were up another $0.64 to $248.31 per cwt, while Select cuts were up $1.67 to $236.41. This narrowed the Choice/Select spread to $11.90 per cwt, down from $12.93 the previous day and down from $11.98 the previous week. Movement at mid-morning today was routine at 74 loads, with Choice cuts up another $0.95 and Select cuts up $0.30 per cwt.

Pork

The cash hog market was again mostly steady today at Midwest terminals, reflecting good balance between supply and demand. The latest CME 2-day lean hog index came in at $109.92 per cwt, down $0.44 on the day. The index has been chopping around on both sides of unchanged for much of this month.

October lean hogs gained support from the cash index as it slipped quietly into expiration today. The deferred contracts were under pressure early in the session. Prices tested the bottom of the recent trading range, but then rallied back into positive territory after the bottom of the range held. I’m still concerned about the longer-term health of this market, fearing that rising supplies will exceed demand as we get deeper into the winter.

Product movement rose to 231 loads Monday, up from 199 loads on Friday and up from 210 loads the previous week. The composite pork product price dropped another $1.06 to $121.57 per cwt. It was the fifth consecutive trading day when the composite price dropped after reaching a seasonal high of $124.45 per cwt last week. Movement at midday today was routine at best, with the composite price down another $1.98 per cwt. That’s expected to erode packer margins, which were estimated at $26.50 today.

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

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