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Closing Comments

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Closing Comments

Corn

Exporters shipped 28.3 million bushels of corn in the week ending October 16, down from 37.3 million the previous week, but up from the five-year average for the week of 26.9 million bushels. Marketing year shipments through the first 46 days of the year total 224 million bushels, up 76 million or 51% from the previous year. Shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 9 million bushels, unchanged on the week.

More impressive were grain sorghum shipments. Exporters shipped 12.1 million bushels of grain sorghum in the week ending October 16, up from 5.1 million the previous week and up from the five-year average for the week of 3.6 million bushels. Shipments to China accounted for 12 million of the 12.1 million-bushel total.

Marketing year shipments to all destinations total 49 million bushels, up 24.3 million or 98% from the previous year. Exporters have typically shipped 16% of final grain sorghum shipments by this point in the year, whereas they had shipped 12% by this point a year ago. However, this year they’ve already shipped 22% of USDA’s target for the year that ends August 31. As such, shipments to date exceed the seasonal pace needed to reach USDA’s target by 15 million bushels, up from 9 million the previous week.

USDA is scheduled to release its weekly crop progress report this afternoon at 3 p.m. CDT. A survey of market participants revealed expectations that USDA will report corn harvest progress as of October 19 at 34%. My submitted estimate was 32%. Crop ratings are generally expected to be unchanged at recent high levels.

Ebola news today was positive, in that 48 people came off the watch list following their suspected exposure to the disease more than three weeks ago. Europe started a fresh bond-buying program, but it had little significant impact on currency trade, as it was largely anticipated. As such, outside market influence was minimal, allowing grain and oilseed prices to focus more on the fundamentals again.

We will likely see brief showers in Iowa and Minnesota later this week, with the same true in the eastern Midwest in the 6- to 10-day period. Otherwise, harvest progress should be good over the next 10 days, increasing the flow of corn into the system.

December corn dropped to $3.42 this morning, before firming through much of the day to settle near its session high. The contract finished the day near Friday’s close after a weak start. Harvest pressure is expected to limit gains and leave the contract vulnerable to fresh weakness in the days ahead, particularly as harvest progress gains momentum in central and eastern areas.

Soybeans

Exporters shipped 73.2 million bushels of soybeans in the week ending October 16, up from 53.2 million the previous week and up from the five-year average for the week of 55.7 million. Shipments to China accounted for 49 million bushels of the past week’s total.

Marketing year shipments to all destinations total 218 million bushels, up 42 million or 24% from the previous year. Exporters have typically shipped 11% of final soybean shipments by mid-October, whereas they had shipped 11% a year ago. However, this year they have already shipped 13% of USDA’s target, which is up 3% from last year’s final shipments. As such, shipments to date exceed the seasonal pace needed to hit USDA’s target by August 31 by 27 million bushels, versus 14 million the previous week.

The trade expects USDA to peg soybean harvest at 55% this afternoon, up from 40% the previous week. That matches my submitted estimate. Progress is most advanced in northwestern areas, where two-thirds of the crop was already harvested a week ago. However, that progress is slowly working east now, increasing the flow for processors and exporters.

November soybeans bounced just above the 20-day moving average today, allowing it to firm with corn. However, the more advanced state of the soybean harvest kept the oilseed in negative territory and subject to additional weakness.

The fact that it finished the day lower after seeing such large export shipments reflects the fact that traders are clearly more focused on supply here and in Brazil. Dry areas of Brazil are expected to see rains beginning today. About 15% of the belt may get missed, but the trend is shifting wetter and Mato Grosso rains are expected to be quite good.

Wheat

Exporters shipped 17.7 million bushels of wheat in the week ending October 16, up from 16.8 million the previous week, but down from the five-year average for the week of 19 million bushels. Shipments to Brazil accounted for 1.5 million bushels of the total.

Marketing year shipments to all destinations total 386 million bushels, down 188 million or 33% from the previous year. As such, shipments to date fall short of the seasonal pace needed to hit USDA’s target by May 31 by 21 million bushels, versus being short by 22 million the previous week.

This afternoon’s USDA weekly crop progress report is expected to show that 78% of the winter wheat crop was planted as of Sunday. My submitted estimate was 76%. Progress should be greatest in the Plains, with slowest progress in the eastern Midwest.

Plains’ wheat received good moisture last week and the pattern is drying out in the Midwest. Good rains are also falling in the FSU belt, although southern Australia remains dry. Yet, global wheat supplies are quite adequate, making it difficult to sustain strength in the face of anticipated weakness in corn. Europe began a bond-buying program this week, which should keep pressure on the euro as the region sits on the cusp of another recession, and that tends to be bearish U.S. wheat.

Beef

Live cattle futures led the complex higher this morning, tripping the $3 daily limit higher early in the session. Fund buying pushed the lead December contract upward with expectations that we will test recent contract highs. Traders believe that packers are short on cattle and will have to bid higher on the negotiated cash cattle market to fill their needs in order to maintain market share. That doesn’t mean that we will move to new highs, but today’s action suggests a desire to test recent highs in the absence of fresh bearish news on Wall Street.

Feeder cattle futures pushed sharply higher as well on the strength in the fat cattle market combined with weaker corn prices. However, this market is further from its recent highs, with more strength needed to give confidence to retesting those highs. The latest CME cash index came in at $243.82 per cwt, down $0.49 on the day and down $0.72 from last week’s record high.

Fund buying in the fat cattle market was ignited by reports that packers were calling early this week, already on the phone early this morning, offering up to $2 over futures to secure cattle. Packers are clearly worried that the supply available to the negotiated market will be tight this week and they had better get out there early if they are going to get the cattle that they need.

Boxed beef movement this past week dropped to 748 loads, down from 890 loads the previous week and the lowest movement level in 11 weeks. That would suggest that we may be seeing some rationing take place, with export sales also softening. Prices were higher on the week, but softened late. Choice cuts finished the week at $249.16 per cwt, up $1.49 on the week. Select cuts finished the week at $234.78 per cwt, up $0.04 on the week. However, Select cuts were down Tuesday through Friday, all but erasing gains made on Monday. The Choice/Select spread ended the week at $14.38 per cwt, up $1.45 on the week. Movement at mid-morning today was routine at 68 loads, with Choice cuts up $0.64, while Select cuts were down $0.11 per cwt.

Packer margins are estimated at losses of $71.50 per head, near last week’s levels. We’re going to need another run at firmer product prices to support higher cash cattle prices. Packers will do what they can to hang onto market share, but product price receptivity by the consumer will in the end be the determining factor of the level at which we bring demand into balance with tight supplies. Weaker hog prices will play a role in that rationing as well.

December live cattle finished the day at the $3 daily limit higher of $168.05, which is within a stone’s throw of the contract high of $169.60 per cwt. That sets up a possible test of the contract high. However, the rally in the November feeder cattle contract stopped short at Thursday’s high of $237.15 per cwt. Next significant objective if it is pulled higher is $241, but there was definitely more caution in the feeder cattle pit today.

Pork

Cash hogs were mostly 50 cents to $1.50 lower at Midwest terminals today, setting a bearish tone for the hog complex. The latest CME 2-day lean hog index came in at $108.21 per cwt, down $0.89 on the day. It was the sixth straight trading day with a lower index, with losses over the period totaling $2.39 per cwt, with additional weakness expected.

Lean hog futures continued last week’s weakness, with chart signals turning increasingly bearish. Last week’s slaughter was 2% higher than the previous week, with carcass weights moving seasonally higher. Packer margins are profitable at an estimated $18.80 per head as cash prices fall faster than product prices, with the packers sitting back and allowing the supply to come to them without having to pay up.

Product movement rose to 1,565 loads in the latest week, up from 1,500 loads the previous week and a three-week high. However, maintaining that demand did require lower prices. The composite pork product price dropped $11.62 during the week to $111.01 per cwt. The composite price has been lower nine trading days in a row, with losses over that period totaling $13.44 per cwt. Movement at midday today was slow at 119 loads, with the composite pork product price down another $1.66 to $109.35 per cwt.

December lean hogs traded to its lowest level since August 26 today. Charts are bearish, but losses have slowed as the market is already at a $19 discount to the cash index. Lower prices are likely, but traders have slowed the selling to make sure that the cash will follow. However, the increase in supply relative to demand suggests that the cash will be following the market lower.

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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