Home Market Market Watch Closing Comments

Closing Comments



Closing Comments


The Department of Energy reports that ethanol stocks dropped to 18.4 million barrels in the week ending October 10, down from 18.7 million the previous week, but up from 15.4 million the previous year. Ethanol production dropped to 885K barrels per day during the week, down from 901K the previous year, but up from 869K the previous year.

The data suggests that the industry used 93.9 million bushels of corn in the week ending October 10, down from 95.6 million the previous week, but up from 93.6 million the previous year. Estimated corn usage to date for the marketing year total 575 million bushels, up 21 million or 4% from the previous year. Corn usage to date exceeds the seasonal pace needed to reach USDA’s target by August 31 by 3 million bushels, but that is down from 4 million the previous week.

Cash basis was generally 2 to 5 cents lower today in the Midwest as harvest progress picks up as the weather forecast dries out. Processors need 90 to 100 million bushels per week, but they’re starting to get the corn they need. Supply is starting to exceed demand as harvest advances.

Yesterday’s rally topped at $3.5825, which was 40 cents off the harvest low to this point. Resistance is much stiffer near $3.60. Today’s trade was relatively quiet until the final minute, when a spurt of money injected into the broader commodity sector as the dollar dropped. Yet, it still left us 6 cents below yesterday’s high.

Look for pre-weekend harvest hedging to add some selling ahead of tomorrow’s close. Broader commodity market money flow is having an impact. The pendulum swung toward a weaker dollar and money inflow to the grains today after a non-voting member of the Fed stated that they may not end quantitative easing at the end of the month and that he could not rule out a QE 4 program.

That would likely be supportive for the commodity sector, but I’m still skeptical, unless the Ebola story really becomes dominant in the weeks ahead, which can’t be ruled out. Fundamentally, corn should have more downside risk ahead of it as storage fills up and soybeans respond to more favorable growing conditions in South America.


Soybean harvest progress last week was best in northwestern areas, where two-thirds of the crop was already in the bin. Many of those soybeans will travel to the Pacific Northwest, at least if locomotives can be found to move the soybeans. Harvest progress should slowly begin to gain momentum further to the south and east in the days ahead, adding to supplies flowing south to the Gulf, as well as supplying processors in the region. As a result, barge rates were rising on the Mississippi on expectations of increased demand for freight.

Hot dry conditions continue in the northern half of Brazil’s corn/soybean belt, but it is still very early in the planting season. Commodity Weather Group remains confident that soaking rains will come to the region by the middle of next week, allowing for rapid expansion of planting and establishment of the crop. An expansion of acreage in Brazil is expected to increase production by as much as 10% this year, adding to global supplies despite robust demand if the rains continue to fall through the growing season.

Soybeans faced additional factors as corn today, but responded with nearly three times the gains. Palm oil prices hit three-week lows overnight as competing oils increase, but soyoil rose with the rest of the broader commodity sector. Soymeal posted impressive gains again today as well due to strong global demand, but gains were also amplified by money flow into the broader commodity sector.

Soybean export demand is expected to occupy every available slot at export terminals as China absorbs our “cheap” supplies amid profitable crush margins. The sheer size of this year’s crop should eventually overwhelm that demand, with expectations that South American supplies will add to those surpluses, but for now, harvest remains slow enough in central and eastern areas to keep things in good balance. First significant resistance is at $9.70, just above today’s close, followed by $9.85 and $10. However, we are quickly drawing near to the time when South American growing conditions will be a primary driving factor.


Wheat prices have tried to put a bottom on the charts several times in recent months, but a rising dollar and falling corn prices made that difficult. However, the dollar is consolidating below its highs of a couple of weeks ago and corn prices are well off their lows, allowing wheat to attempt to confirm a bottom once again.

The possibility of a bottom continues to encourage short-covering. Fundamental support continues to come from dryness in Australia, where the southern quarter of the belt is expected to see significant yield loss. USDA is currently at 25 million metric tons or 920 million bushels for Australia, but local estimates are probing below 20 mmt or 735 million.

Those lost bushels are expected to directly positively impact demand for U.S. hard red wheat. As such, the hard wheat classes have been getting support from Australia’s dryness. Additional support came today from trade chatter that Brazil was back in the market shopping for hard red wheat. This is positive, as a sustain rally in wheat needs to be led by Kansas City. Chicago garners some support from planting delays, but current strength wouldn’t be near this large if the funds didn’t hold such large short (sold) positions, because carryover stocks of a 140-day supply will make up for many of those lost acres.


Cash cattle trade on Wednesday was much earlier in the week and stronger than the trade anticipated, reflecting the fact that the packer need for cattle above what they had already contracted was greater than expected. Cash cattle traded at mostly $164 per cwt on a live basis and $258 on a dressed basis, whereas the bulk of last week’s trade was at $162 to $165 per cwt.

Strength in the cash market provided the impetus needed to support a bounce in the live cattle futures market today. The strength was not enough to turn the charts, but solid buying through the bulk of today’s session was certainly encouraging. However, buying was limited by resumed weakness in the product market today.

Boxed beef movement Wednesday rose to 212 loads, up from 141 loads the previous day, but down from 228 loads the previous week. Choice cuts were up $1.08 to $250.49 per cwt, but Select cuts were down $0.64 to $235.44. This strengthened the Choice/Select spread to $15.05 per cwt, up from $13.33 the previous day and a one-month high.

Movement at mid-morning today was routine at best at 77 loads, but weakness in the Select cuts the past couple of days has spread to Choice cuts as well. Choice cuts were down $1.02 per cwt, while Select cuts were down another $0.12. Packer margins are estimated at losses of $54.90 per head. It’s too early to tell if the product market weakness is due to slower consumer demand or retailers worried about potential future consumer kickback as Ebola and Wall Street volatility occupy the headlines.

Feeder cattle futures bounced from their recent losses as well, supported by renewed buying in the fat cattle market, but also ongoing strength in the cash market. The latest cash index came in at a record $244.04 per cwt, up $0.55 on the day. It was the 24th trading day out of the past 27 with a record index, with gains over that period totaling $18.63 per cwt. Empty bunk space and cheap corn are fueling the demand.

December live cattle rallied throughout the bulk of today’s trade, taking out Wednesday’s high over the final hour. First support sits at $162, but this market may be setting up a broader trading range in the $160s as it works its well through the finely balance supply of cattle versus demand. Meanwhile, November feeder cattle were up the $3 daily limit today, but are still trading at a $7 discount to the cash index, which should limit losses as long as we continue to see good strength at the sale barn.


Lean hog futures broke below major chart support Wednesday as Wall Street collapsed. Chart damage was done, leading to follow-through selling today. However, today’s weakness had fundamental factors behind it as well. The cash hog market is weaker and losses in the product market are accelerating.

Today’s cash market was steady, to mostly $1 to $2 lower. The latest CME 2-day lean hog index came in at $109.54 per cwt, down $0.16 on the day. It was the fourth consecutive day of a lower index, with losses over the period totaling $1.06.

Product movement increased to 425 loads Wednesday, up from 387 loads the previous day, but down from 474 loads the previous week. The composite pork product price dropped another $0.24 to $116.99 per cwt. It was the seventh’s consecutive trading day with losses in the composite price, with losses over the period totaling $7.46 per cwt. Movement at midday today as routine at best at 170 loads, with the composite price down another $3.26 per cwt. Today’s big drop is largely due to sharp losses for loins, picnics and hams.

December lean hog futures finished the day near the bottom of the session’s trading range, with little help from the cash market or the product market. This market is vulnerable to extensive liquidation pressures until/unless we see some demand develop to strengthen market sentiment, with first significant support at $84, but we may be vulnerable to much lower levels than that if the industry is able to manage the PED virus problem this fall and winter.

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.




or 1-866-249-2528




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.

The information contained in this e-mail message is intended only for the personal and confidential use of the recipient(s) named above. This message may be an attorney-client communication and/or work product and as such is privileged and confidential. If the reader of this message is not the intended recipient or an agent responsible for delivering it to the intended recipient, you are hereby notified that you have received this document in error and that any review, dissemination, distribution, or copying of this message is strictly prohibited. If you have received this communication in error, please notify us immediately by e-mail, and delete the original message. Water Street Solutions is an equal opportunity provider. Water Street Solutions is an equal opportunity employer.