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Closing Comments

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Closing Comments

Corn

Exporters sold 95.8 million bushels of corn in the week ending October 9, showing that big crops yield big sales. A breakdown of the sales shows that 75.7 million bushels of the total were for delivery in the current marketing year, while the remainder was for the 2015 crop. A previously known sale to Mexico accounted for the bulk of the total, including 42.2 million bushels of the current crop and 20.1 million bushels of next year’s crop.

The current year sales to all destinations were up from 30.9 million bushels the previous week and up from the five-year average for the week of 34.2 million. Marketing year sales total 678 million bushels, which is believed to be near sales seen at this point a year ago, but USDA didn’t report sales at this point last year due to the government shutdown. As such, sales to date exceed the seasonal pace needed to reach USDA’s target for the year by August 31 by 25 million bushels.

Net grain sorghum export sales for the week ending October 9 totaled 2.1 million bushels, down from 2.6 million bushels sold the previous week and down from the five-year average for the week of 3.0 million bushels. The past week’s net sales were a sum of new sales to China totaling 4.6 million bushels, while reductions of previous sales to “unknown destinations” totaled 2.3 million bushels. There were also very small reductions to Japan.

Marketing year sales 102 million bushels, which is roughly twice the previous year’s pace at this point. We don’t know for sure, since USDA didn’t report export sales data a year ago due to the shutdown. However, sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 34 million bushels, largely due to sales to Chinese end users trying to avoid paying $9 to $10 for reserve corn in China.

Informa pegs next year’s corn crop at 87.8 million acres, down from 90.9 million this year. The premise is based on expectations that soybean prices will remain strong relative to corn, stimulating an additional shift of acres toward the oilseed, which also has lower input costs. However, I fear that the shift may not be as big as the trade is anticipating if the rains fall in South America as projected amid larger acreage there. That could spell much weaker prices for soybeans, reducing the incentive to shift acreage here in the United States next spring.

December corn firmed above Thursday’s high overnight as the dollar sank lower. However, comments made by Fed Chair Janet Yellen early this morning sent the dollar pushing higher off its low and into positive territory. That reversed money flow that had been going into the broader commodity sector and corn prices turned negative. Additional weakness came from pre-weekend harvest hedging. The contract finished the day near its session low, suggesting follow-through selling Sunday night, but traders will also be listening for additional comments from Federal Reserve members for direction.

Soybeans

Exporters sold a net 34.4 million bushels of soybeans in the week ending October 9, up from 33.9 million the previous week and up from the five-year average for the week of 28.7 million. The past week’s total included new current-year sales to China of 26.1 million bushels, which were partially offset by reductions of previous sales to “unknown destinations” of 8.5 million.

Marketing year sales to all destinations total 1.125 billion bushels. USDA didn’t report sales a year ago due to the government shutdown, but basic analysis would suggest that sales to date are roughly 18 to 19% above year ago levels. Exporters typically have sold 46% of final soybean shipments by this point in the marketing year, whereas we believe they had sold 65% a year ago. Current data shows that exporters have already sold 66% of USDA’s current target. Sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 340 million bushels, but that number is expected to fall.

Exporters also sold 196K metric tons of soymeal in the week ending October 9, down from the five-year average for the week of 221.7K tons. However, marketing year sales remain very strong as customers move from Argentina to U.S. supplies. Exporters typically have sold 26% of final shipments by this early date of the marketing year, whereas last year they had sold 36%. However, they’ve already sold 52% of USDA’s current target for the 2014-15 marketing year and that target is up 4.3% or 500K tons from the previous year.

This strong export demand for soymeal, combined with strong export demand for whole soybeans continues to support both crush margins and cash basis due to this year’s harvest delays in central and eastern areas of the belt. However, we expect a pickup in the harvest pace to eventually overwhelm that demand, causing both to weaken. Yet, there are concerns that our nation’s export capacity will be insufficient to meet all of the export commitments, leading to penalties against shippers.

Informa pegs 2015 soybean acreage at 88.5 million acres, up from 84.2 million this year. The assumption is based on expectations for soybean prices to remain elevated relative to corn, with lower input costs as well. However, I fear that relationship may break down if South America has a good growing season, expanding surplus supplies of soybeans, even amid robust demand.

November soybeans rallied above both Thursday’s high and above the 40-day moving average overnight, but then turned lower after Fed Chair Janet Yellen’s comments made headlines and the dollar started to rally. Prices fell back into negative territory, with additional selling coming late in the day due to pre-weekend harvest hedge pressure.

The lead contract finished the day near its session low and just above Thursday’s low of $9.4925. I still see this market as vulnerable to new lows if the Fed stays on course, harvest picks up speed as expected in central and eastern areas of the Midwest and rains fall as expected in dry areas of Brazil, all of which are currently expected.

Wheat

Exporters sold 18.2 million bushels of wheat in the week ending October 9, including 16.7 million old-crop bushels. The old-crop sales were up from 13.7 million bushels the previous week and are up from the five-year average for the week of 14.9 million bushels. The past week’s total included 1.3 million bushels of hard red winter and 0.7 million bushels of hard red spring wheat sold to Brazil. Both wheat classes found support Thursday from rumors that Brazil was shopping for more. Persistent rains in southern Brazil are believed to have hurt the quality of its maturing wheat crop.

Marketing year sales to all destinations total 529 million bushels. We don’t know what sales were at this time last year, due to the government shutdown. Yet, the data would suggest that sales to date exceed the seasonal pace needed to reach USDA’s very low export target this year by 14 million bushels.

Wheat continued to find support today from positively changing chart signals amid expectations that dryness in southern Australia and persistent wetness in southern Brazil will increase demand in the coming weeks and months. Hard red wheat is best positioned to benefit from that demand, but we’ll also likely see a decline in soft red winter wheat acres due to slow soybean harvest progress in the Midwest. Yet, strength in wheat is likely limited if the dollar resumes its upward trend and corn its downward trend.

Beef

Feeder cattle futures fell out of bed today, in a repeat of this week’s roller coaster action. A number of contracts traded the $3 daily trading limit, although prices frequently bounced off the low, allowing contracts to trade. It’s difficult to read too much into this volatility in a thinly traded market other than that it reflects high emotions when a commodity is trading at record levels amid great uncertainty on Wall Street. Ironically, the expiring October contract is trading about $5 below the cash index, while the November contract is at roughly a $9 discount.

Weakness in the feeder cattle market proved a drag to the fat cattle market, but prices held better at that level. Contracts are trading near this week’s cash level. Traders are watching demand for rib primal cuts, which seasonally tend to support the fat cattle market in the fourth quarter. The rib market rallied $16 over the past couple of weeks and typically peaks in early December. Supplies are expected to be at historically tight levels this year.

Boxed beef movement totaled 139 loads Thursday, down from 212 loads the previous day and down from 197 loads the previous week. However, prices are beginning to break. Choice cuts were down $1.57 to $248.92 per cwt, while Select cuts were down $0.52 to $234.92. That narrowed the Choice/Select spread to $14.00 per cwt, down from $15.05 the previous day, but up from $12.21 the previous week. Product movement at mid-morning today was slow at 68 loads, with Choice cuts down another $0.01 and Select cuts down $0.39 per cwt.

Exporters sold a net 8.0K metric tons of beef in the week ending October 9, down from 14.1K tons the previous week. The drop in export sales suggest that overseas buyers are starting to pull back due to high prices, suggesting that overseas rationing is greater than what it currently is here at home. Actual shipments of previous sales during the week totaled 14.4K tons, up from 14.0K tons the previous week.

November feeder cattle finished the day at the $3 daily limit lower. Yet, December fat cattle were able to firm off their lows late in the day. December held above the 20-day moving average today, which was another plus. The indicator is currently at $164.

Pork

The cash hog market was mostly $1 to $4 lower today, as weakness accelerates at Midwest terminals. The latest CME 2-day lean hog index came in at $109.10 per cwt, down $0.44 on the day. It was the fifth consecutive trading day with a lower index, with losses over that period totaling $1.50 per cwt. Cash prices are falling amid ample supplies and falling product prices, yet packer margins remain near $20 per head.

Product movement totaled 279 loads down from 425 loads the previous day and down from 296 loads the previous week. The composite pork product price dropped $3.27 to $113.72 per cwt, a four-week low. Movement at midday today was routine at 144 loads, but again at weaker prices. Strength in picnics and hams were more than offset by big losses in loans, ribs and bellies. This dropped the composite price another $0.96 to $112.76 per cwt.

Exporters sold a five-week low of 18.5K metric tons of pork in the week ending October 9, down from 22.5K tons the previous week, but still a solid total nonetheless. Actual shipments during the week totaled 18.0K tons, up from 16.5K the previous week.

December lean hogs traded largely within Thursday’s broad trading range, capped by the 200-day moving average. Most contracts tried to bounce today, but the bounce was largely technical in nature, with both cash hog and product prices trending lower.

December lean hogs finished the day steady with the previous session. The contract basically traded inside the previous day’s session, capped on the top by the 200-day moving average at $91.43 and supported by Thursday’s low of $89.40. However, the chart signals and fundamentals remain weak, leaving this market vulnerable. Support comes from the fact that December is already at a $19 discount to the cash.

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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