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Closing Comments



Closing Comments


USDA’s weekly crop progress report indicated that 93% of the U.S. corn crop was mature as of October 19, up from 87% the previous week, but down slightly from the five-year average of 94%. Maturity progress in closely watched states vulnerable to an early winter is 96% in Iowa, 76% in Michigan, 92% in Minnesota, 94% in Nebraska, 84% in North Dakota, 91% in South Dakota and 75% in Wisconsin.

The agency reports that 31% of the crop was harvested as of October 19, up from 24% the previous week, but down from the five-year average for the week of 53%. Harvest progress in some key states was 43% in Illinois, 31% in Indiana, 19% in Iowa, 66% in Kansas, 10% in Michigan, 16% in Minnesota, 58% in Missouri, 28% in Nebraska, 7% in North Dakota, 23% in Ohio, 19% in South Dakota and 11% in Wisconsin.

The crop rated a condition index score of 389 (500=perfect crop), matching the past two weeks and 30 points above the previous year at this point. In fact, the past week’s index score is the highest since 2004, followed by 1994 and is the sixth highest on record for the week. I remain confident that the final corn yield will be at least 176, and likely 178 bushels per acre, up from USDA’s current estimate of 174.2 bushels per acre. That projects surplus stocks of better than 2.3 billion bushels, which is hardly bullish.

Money surged into the broader commodity and equity markets this morning when traders latched onto a Reuters’ story that the European Central Bank was considering a corporate bond buying program starting in December, something we’ve been warning of for some time. That weighed on the euro and strengthened the dollar today, which is normally bearish for commodities. However, some traders are speculating that it might encourage the Federal Reserve to move closer to another stimulus program when it meets next Tuesday and Wednesday, which would be expected to limit the dollar’s strength while pumping more money into commodities.

December corn topped its October 15 high of $3.5825 by ½-cent, settling just below its session high. The market is at a decision point on the charts. Fundamentally, the east is expected to slowly dry out over the next few days, with harvest progress rapidly increasing. Technicals can top that in the short-term, but we should see supply eventually overwhelm good demand to push prices lower. The primary question revolves around timing. The anticipated break may not occur until traders see the results of next week’s Fed meeting.


USDA reports that 95% of the U.S. soybean crop was dropping leaves as of October 19, up from 91% the previous week, but down from the five-year average for the week of 97%. Progress in key vulnerable states is 98% in Iowa, 99% in Minnesota, 100% in Michigan, North Dakota and South Dakota and 95% in Wisconsin.

Harvest progress reached 53% as of October 19, up from 40% the previous week, but down from the five-year average for the week of 66%. Progress in states of interest was 37% in Illinois, 31% in Indiana, 61% in Iowa, 31% in Kansas, 23% in Michigan, 85% in Minnesota, 25% in Missouri, 69% in Nebraska, 83% in North Dakota, 36% in Ohio, 88% in South Dakota and 42% in Wisconsin.

As you can see, it really mattered where you live and how much rain had been falling in regards to harvest progress. Rains continued to linger through the week in eastern areas, slowing the resumption of the harvest. This left soybean supplies flowing to processors very slow at a time when demand for soymeal on the export market is very strong due to problems in Argentina. Good crush margins provided incentive to process soybeans, but they have not been coming in. Soymeal futures rallied sharply as a result, supporting strength in soybeans as well.

The crop rated a condition index score of 386 for the third week in a row, compared to an index of 352 a year ago. The past week’s condition score is the highest in two decades for the end of the growing season and second only to 1992 and 1994. I continue to remain confident that the U.S. soybean yield is at least 48 and likely closer to 48.8 bushels per acre, which would be up from USDA’s October estimate of 47.1 bushels.

November soybeans probed above the 40-day moving average for the third time of the past week today. The previous two times prices broke to settle well-below the indicator. Today the contract settled just 1-1/2 cents below it, supported by strong soymeal prices. Cash sales over the next 24 hours could be key to indicating whether we are able to sustain the move or not. The next upside target would be $9.85, with $10 attractively close beyond that. Fundamentally, it’s difficult to argue for prices holding these levels if the rains continue to fall in previously dry areas of Brazil, but money flow and chart signals can dictate movement in the short-run.


USDA reports that 76% of the winter wheat crop was planted as of October 19, up from 68% the previous week, but down slightly from the five-year average of 77%. Progress was good over most areas, with the exception of Midwest soft red winter wheat fields. For example, Illinois was just 22% planted as of October 19, down from the five-year average for the week of 59%. Indiana was 37% planted, down 20 points from the normal pace, while Missouri was 24% planted, down from the typical pace of 40%. Ohio fared a bit better at 55%, down just 8 points from the five-year average.

Wheat emergence was pegged at 56%, up from 43% the previous week and up from the five-year average for the week of 50%. Emergence was obviously slow in eastern soft  red wheat areas, but more it should be noted that emergence was excelling in previously dry areas of the Southern Plains. Recent rains are getting the hard red winter wheat crop off to a great start this year.

Egypt bought 6.6 million bushels of wheat in its latest snap tender for late November delivery. U.S. exporters were limited in their ability to participate in the tender, as virtually all export slots are devoted to soybean and corn exports in that period. Even so, U.S. wheat would not have been very competitive. Wheat from France, Romania and Russia filled the order. Yet, it reflected a general increase in global wheat trade as end users seek to extend coverage before prices rise further.

Wheat was along for the ride today, led by speculative short-covering in Chicago. Meanwhile, Kansas City was only a penny or so higher. That doesn’t give me much confidence in the wheat market’s ability to sustain this rally. Yes, we will likely see acres lost for the 2015 soft red winter wheat crop, but Kansas City needs to lead the rally up front if it’s going to be sustainable.


December live cattle saw follow-through buying push the contract to a new high of $160.75 this morning, which beat the old contract high by 15 cents. However, profit taking ensued when buying interest dried up at that point, leaving a double-top on the charts. Selling accelerated, pushing prices sharply lower on bearish chart signals.

Ironically, the futures market is saying that the top is in, again. And it very well may be. However this week’s cash fundamentals remain strong, with packers reportedly searching for cattle that they can contract to avoid having to battle their competitors for a limited number of cattle on the negotiated market. A sharp break in the futures can lead to lower cash trade, but the fundamentals would currently suggest that the cash market should at the very least be well-supported this week.

Product movement Monday totaled 115 loads, up from 105 loads the previous day, but down from 151 loads the previous week. Choice cuts were up $0.68 to $249.84 per cwt, while Select cuts were up $0.39 to $235.17. This strengthened the Choice/Select spread to $14.67 per cwt, up from $14.38 the previous day and up from $11.90 the previous week. Movement at mid-morning today was again routine at best at 77 loads. Choice cuts were up $0.20, while Select cuts were up $0.39 per cwt.

Feeder cattle futures had weaker chart signals coming into today’s session, so they broke harder when the fat cattle market reversed lower, with some contracts trading the $3 daily limit lower at the end of pit trade. Fundamentally, I continue to see sale barn results above $250, and even above $260, per cwt, but the cash index has dropped to $241.84 per cwt. That’s down $1.48 from the previous day and down $2.20 from last week’s record high.


Cash hogs were down another $1 to $3 today as supply continues to exceed demand, despite profitable packer margins. Estimated margins today were at $11.80 per head, although that is down $7 from the previous day. The latest CME cash index came in at $106.78, down $1.43 on the day as losses accelerate. It was the seventh consecutive loss for the index, with losses over that period totaling $3.82 per cwt.

The product market is also collapsing. Movement Monday totaled 249 loads, up 5 from Friday and up from 231 loads the previous week. However, the composite pork product price was down $4.55 on the day to $106.46 per cwt, its lowest level since September 10. The composite price has been down the past 10 business days, with losses over that period totaling $17.99 per cwt. Movement at midday today was routine at 183 loads, but at sharply lower prices once again. The composite price was down another $3.27 to $103.19 per cwt.

December lean hog futures dropped to nearly eight-week lows on deteriorating fundamentals. The contract is already $18 below the cash index, but the cash market is showing signs of accelerating losses. As such, this market is vulnerable to considerable losses until traders see signs of the product market stabilizing and a return of balance between supply and demand in the cash hog market. Meanwhile, slaughter hog numbers are increasing while carcass weights rise.

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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