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Closing Comments



Closing Comments


USDA’s weekly crop progress report held few surprises for corn this past week. The agency reported that 87% of the U.S. corn crop had reached maturity as of October 12, up 10 points on the week and down just 2 points from the five-year average for the week. Maturity ratings in closely watched northern states stood at 90% in Iowa, 62% in Michigan, 85% in Minnesota, 89% in Nebraska, 76% in North Dakota, 87% in South Dakota and 66% in Wisconsin.

Corn harvest progress was pegged at 24% on October 12, with rains slowing overall progress, but farmers focused on soybean harvest where dry weather allowed. Harvest progress in closely-watched states stood at 35% in Illinois, 25% in Indiana, 10% in Iowa, 56% in Kansas, 7% in Michigan, 7% in Minnesota, 51% in Missouri, 19% in Nebraska, 2% in North Dakota, 17% in Ohio, 12% in South Dakota and 7% in Wisconsin.

The crop rated a condition index score of 389 for the week (500=perfect crop), unchanged on the week. The condition score was the sixth highest on record for this late in the season and the highest since 2004. Crop ratings dropped 1-point in Indiana and Wisconsin, while the index fell 2 points in Michigan, Minnesota and South Dakota, but they were steady to 5 points higher in every other state.

USDA’s Farm Service Agency released its October data dump of certified acres on Wednesday. The data suggests that farmers certified another 370,000 acres of corn or so over the past month. Based on historical relationships, that still leaves about a million acres at play that we can’t account for yet. In other words, we could see USDA drop corn planted acreage another million acres, but we simply do not know because we know that some farmers simply haven’t certified yet.

It’s October; the month known for big breaks in the stock market & in the beef market. We haven’t had a major correction in the stock market for more than two years. Recent economic data out of Europe suggest that the region may be on the cusp of another recession. That would be expected to be a drag on China’s economy as well, which is the largest buyer of our commodities.

Several economic data releases this morning were negative. That combined with confirmation that another healthcare worker in Dallas had contracted the Ebola virus to trigger fear on Wall Street. Wall Street fears that consumer panic will cause them to stop flying, going to the mall to shop or to movies, etc. The Dow Jones Industrial Average plummeted 370 points early in the session. Money initially flowed into government securities and into the broader commodity sector as the dollar absolutely collapsed. Those markets eventually stabilized.

Chatter on Wall Street started to focus on expectations that the Federal Reserve would consider a fourth round of quantitative easing to stimulate the economy at its next meeting at the end of this month. However, selling returned late day when a member of the Fed stated that there was no need for another QE program, with money flowing at that point out of both the commodity and equity sectors. The DOW has been down as much as 460 points at press time with fears dominant.

December corn briefly took out Tuesday’s high, posting a session high of $3.5825. It settled at $3.475, which was just a penny off its session low. That’s technically bearish, but the primary driver will be Wall Street emotions over the next day or two. Fundamentally, the weather is looking much better for the Midwest harvest, although the midday GFS model was wetter for late this month.


USDA weekly crop progress report showed that 91% of the U.S. soybean crop was dropping leaves as of October 12, indicating that the crop is safe from frost, or in some cases has already frozen. The past week’s progress was up 8 points on the week and matched the five-year average for the week. Progress in closely watched states is 91% in Illinois, 94% in Indiana, 95% in Iowa, 96% in Michigan, 97% in Minnesota, 82% in Missouri, 97% in Nebraska, 99% in North Dakota, 93% in Ohio, 100% in South Dakota and 90% in Wisconsin.

Harvest progress surprised the trade at 40% as of October 12, up 20 points on the week, but still below the five-year average for the week of 53%. The range of trade expectations going into the report stretched from 25 to 40% due to wet weather in central and eastern areas, with the average at 31%. Progress varied widely be weather conditions, with the greatest progress in western areas. For example, Missouri was just 16% harvested and Illinois 29% harvested, while South Dakota was at 66% and North Dakota at 64%.

The crop rated a condition index score of 386, unchanged from the previous week. The score is the highest for this late in the growing season in 20 years and is second only to 1992 and 1994 for the period. Crop condition scores dropped 6 points in Arkansas, 3 points in Michigan and 1-point each in Illinois, North Carolina, Tennessee and Wisconsin.

As a result, I’m still expecting USDA to post a soybean yield north of 48 bushels per acre. It’s interesting to note that USDA yield increases in the months following the October report in big crop years of 1994, 2004 and 2009 were 1.4, 0.2 and 1.6 bushels respectively.

FSA acreage data showed that producers certified another 198K acres since the September data dump. That still leaves between 7-800K acres unaccounted for based on seasonal patterns. In other words, we could still see USDA reduce planted acres by that amount, but it’s really too soon to know, since there are still some farms that have not yet certified. As such, it would presumptuous to make any significant acreage adjustments based on this data. It also would not be enough of an adjustment to shift a bearish supply and demand balance sheet bullish if one were to see the entire acreage adjustment.

The National Oilseed Processors Association released crush data for its members for the month of September this morning. NOPA September crush totaled just 99.97 million bushels of soybeans, down from 110.6 million the previous month and down from 108.7 million the previous year. The trade was looking for something just over 107 million bushels.

Crush margins were very strong during the month of September, so the assumption is that processors simply could not find enough soybeans to push through their plants. The September total falls 24 million bushels below the seasonal pace needed to reach USDA’s target for the year ending August 31. As such, I expect profitable margins and increased supplies to result in sharply higher crush totals for October and November to meet the demand created by a decline of capacity in Argentina.

Soybeans faced similar dynamics to corn and the other markets today. November pushed above chart resistance at $9.70 early today, but finished the day at $9.525; less than 2 cents from the session low after trading nearly a 28-cent range. It’s an emotional market. Fundamentally, I still see more harvest pressure as long as forecast rains come to northern Brazil next week, but Wall Street emotions will also be a factor.


USDA reports that 68% of the winter wheat crop was planted as of October 12, up 12 points on the week and 1-point above the five-year average for the week. The trade was looking for progress to be at 69%. The data confirmed that planting delays are becoming significant in the southern and eastern Midwest where rains have delayed field work. Most notable delays were seen in Illinois and Indiana. Illinois was 15% planted on October 12, down from the five-year average of 41%, while Indiana was 28% planted, down from the seasonal pace of 37%.

Emergence was pegged at 43% on October 12, up 15 points on the week and up 6 points from the five-year average. Good soaking rains over the past 10 days should support good emergence and establishment in the Plains hard red winter wheat belt, establishing a good stand for the 2015 crop. As such, I’m looking for a modest increase in acreage in the Plains. Midwest soft red winter wheat planting will likely see a modest decline in acreage due to delays, but that class of wheat has a large 140-day surplus from this past year’s crop.

Wheat prices broke above key chart support early in the day, tripping preset buy stops that accelerated gains. As such, wheat was one of the only bright spots in the commodity sector this morning. However, weakness from the other markets eventually made traders afraid to be long (bought) wheat, leading to late-session weakness that pulled Chicago back into negative territory. The good news is that the Kansas City/Chicago spread gained 5 cents today, which is what will be needed if this market is going to have legs longer-term.


Live cattle futures turned weaker early today on follow-through selling, but that weakness gave way to panic selling when the stock market collapsed on wall Street. A sharp break in the equity markets is seen as a warning sign that the consumer is losing confidence as well. That can lead to declining interest in eating steaks in restaurants or buying steaks for preparing at home. Those fears are not seen played out in current beef fundamentals, but a futures market tries to anticipate them. Additional fears come from the reputation that October has for major tops in the beef market.

Feeder cattle took the biggest hit today, with most contracts settling the $3 daily limit lower. The charts would suggest that at least a near-term high has been put in place. We have yet to see whether that will translate into a sharp break in the cash market. The latest CME cash index came in at a record $243.49 per cwt, up $0.91 on the day, with signs that it may go higher. The index posted a new record in 23 of the past 26 days, with gains over that period totaling $18.08 per cwt.

Boxed beef movement dropped to 141 loads Tuesday, down from 151 loads the previous day and down from 171 loads the previous week. Choice cuts were up another $1.10 to $249.41 per cwt, while Select cuts were down $0.33 to $236.08. This widened the Choice/Select spread to $13.33 per cwt, which was nearly a three-week high. Packer margins were estimated at losses of $56.55 per head.

Product movement at a routine 96 loads at mid-morning today. Choice cuts were up another $1.59 per cwt, while Select cuts were up $0.67.

Live cattle futures came off their lows on reports that modest cash cattle sales were taking place in the Plains at mostly $164 per cwt on a live basis and $258 per cwt on a dressed basis. Those prices were slightly off last week’s highs, but within the range of prices that moved cattle last week. However, late-day selling in the equity markets ruled the day in the end, pulling futures lower again.


This morning’s collapse of the stock market pulled lean hog futures below key chart support, tripping sell stops that accelerated losses. December lean hogs broke below their recent trading range of primarily $93 to $96 per cwt, with all the contracts through next August trading at the $3 daily limit lower at the close of trade. The charts suggest that we are vulnerable to additional technical selling if we don’t see a quick recovery.

Fundamentally, weakness came from today’s cash hog market trading steady to $1 lower at Midwest terminals. The latest CME 2-day lean hog index came in at $109.70 per cwt, down $0.22 on the day. It was the third consecutive trading day with a lower index, with losses over the three days totaling $0.90 per cwt. Packer margins are profitable at an estimated $17.95 per head, but that is down from $31.30 last Friday.

Product movement increased to 387 loads Tuesday, up from 231 loads the previous day and up from 321 loads the previous week. The composite pork product price though was down sharply at $117.23 per cwt, down $4.34 on the day. On a sharp drop in loin, ham and belly prices. Movement at midday today stood at 241 loads, with the composite price bouncing $1.22 to $118.45 per cwt.

The tone is shifting negative for the meat complex, based on fears that the consumer will be reluctant to spend money at the meat counter, or at local restaurants. A shot of confidence is needed to convince consumers that the threats are over-stated and that health agencies have Ebola under control.

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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