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Closing Comments

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Closing Comments

Corn

The dollar traded firmer on expectations of greater stimulus in Canada early in the day, but an attack in Canada’s capitol with shooting in the Parliament Building increased the terrorism factor as the day progressed. The attack reportedly took place shortly after ISIS chatter about hitting Canada increased.

This eventually reversed money flow that had been coming into the broader commodity sector, with traders selling both commodities and equities until more is known about today’s attack on Canada. The outward movement of money accentuated concerns that the rally in corn and soybeans both stopped short at areas of chart resistance.

The Department of Energy reports that ethanol stocks dropped to 17.9 million barrels in the week ending October 17, versus 18.4 million the previous week and 15.5 million barrels in the same week last year. Ethanol production rose to 896K barrels per day during the week, up from 885K the previous week, but down slightly from 897K barrels per day in the same week last year.

Estimated corn usage during the week for the production of ethanol rose to 95.1 million bushels, versus 93.9 million the previous week and 96.6 million bushels in the same week last year. That brings estimated corn usage to date for the current marketing year to 670 million bushels, up 20 million or 3% from the previous year. Corn usage to date for the marketing year matches the seasonal pace needed to reach USDA’s target by August 31, but it had exceeded the pace by 3 million bushels the previous week.

The lead December corn contract probed resistance at $3.60, but found selling interest at that point, reinforcing resistance at that level. Look for today’s late-day weakness to increase cash sales this afternoon and speculative selling this evening, especially if the dollar remains strong overnight. Price movement the remainder of the week will also be influenced by developing news out of Canada.

Soybeans

Soybean futures found ongoing support overnight and into today’s session as processors and exporters battled over cash soybean deliveries. Export demand for whole soybeans and soymeal is strong, but new-crop deliveries by farmers harvesting the crop remains slow. The result is a strong soymeal market, which in turn provides strength for soybeans as well. In fact, soybean basis at some Midwest processors was reported to be a dime higher today as deliveries still fell short of robust demand.

That demand remained strong today as well, with USDA’s daily export reporting system reflecting additional buying. China bought another 15.4 million bushels of the current crop, while “unknown destinations” bought another 4.2 million.

Strong demand lifted soybeans, with help from broad-based money flow into the commodities early. However, that money flow reversed out of the commodities late in the trading session, correlating with a break in soymeal futures as well. Soybean futures followed, setting up a bearish reversal on the charts.

November soybeans rallied to chart resistance before pulling back early in today’s session. A rally this morning pushed the lead November contract to chart resistance near $9.82, before buying interest dried up. Strong soymeal continued to keep soybeans well-supported through much of the session, but increased harvest activity combined with broad-based selling late in the day to reverse futures lower, led by soymeal contracts.

It should be noted that December soymeal $4.90 lower after trading sharply higher early in the day. The market has ignored such signals at times in recent weeks, but today’s reversal needs to be respected until the market can show that it can push through chart resistance to make new highs.

Wheat

Wheat benefited again today from generally positive chart signals, with a bit of fundamental support. Similar fundamentals would have been ignored if the charts were bearish, so caution is advised, but they are currently being pointed to as reasons for sustaining current market strength.

The southern quarter of Australia’s wheat belt remains dry, with production prospects working lower. Harvest delays  in the U.S. Midwest will likely reduce soft red winter wheat acreage for 2015 on soybean acres. A sharp cold wave this week will likely end the fall growing season prematurely in Russia and parts of Ukraine, not allowing wheat to get properly established before winter.

The planting delay story encouraged more short-covering by fund managers holding large short (sold) positions, but there is little evidence yet that they have the courage to build large long (bought) positions. Besides, any sustained rally in the wheat market likely needs to be led by Kansas City, which continues to struggle to build on recent price strength. The market is likely trying to set up a broad sideways trading pattern until more is known about the 2015 crop.

Beef

Live cattle futures firmed again today, despite this week’s bearish double-top. Fundamental strength in the cash market provided the support, with talk that we could see cash trade emerge yet today at $1 to $3 above the previous week’s level. There were trade rumors of a major packer offering $260 per cwt on a dressed basis in eastern Nebraska today, up mostly $2 from the previous week. That’s in addition to reports earlier this week of packers offering $2 above tops in cash trade.

The product market continues to stagnate, leaving packer margins at an estimated $60 to $70 per head loss. However, packers are doing what they can amid a limited supply of cash cattle to maintain market share and the current thinking is that means firmer cash trade this week.

Boxed beef movement rose to 136 loads Tuesday, up from 115 loads the previous day, but down from 141 loads the previous week. Choice cuts were unchanged on the day at $249.84 per cwt, while Select cuts were down $0.24 to $234.93. That strengthened the Choice/Select spread to $14.91 per cwt, up from $14.67 the previous day and up from $13.33 the previous week. Movement at mid-morning today was strong at 154 loads, with Choice cuts up $0.92 and Select cuts up $0.72 per cwt.

December live cattle are largely trading a $165 to $170 range, with the recent contract high of $169.75. Market bears will continue to point to the double-top at that level until/unless the market is able to take out that top. Feeder cattle were cautiously higher as well today, following the lead of the fat cattle market. The recent rally in corn prices has raised concerns in the feeder cattle market. The latest cash index came in at $2.40.80 per cwt, down $1.04 on the day and down $3.24 from last week’s record high.

Pork

Lean hog futures bounced to correct an oversold market condition today, but the fundamentals remain weak. December lean hog futures found near-term support this week at $88, but we could see another $10 to $15 drain out of the market if the fundamental picture does not change.

Today’s cash market was mostly $1 to $2 lower today, although some markets saw greater losses and some were essentially unchanged on the day. The latest CME 2-day lean hog index came in at $105.45 per cwt, down $1.33 on the day and down $5.15 from this month’s high set less than two weeks ag. The cash market is still $16 above the lead futures contract, but the gap is narrowing and fundamental support remains elusive.

Product movement increased to 400 loads Tuesday, up from 249 loads the previous day and up from 387 loads the previous week. The composite pork product price dropped $2.42 to $104.04 per cwt, its lowest level since September 8. The composite price has been lower for the past 11 trading days, with losses over that period plummeting $20.41 per cwt. Movement at midday today a decent 275 loads, but the composite price was down another $2.71 to $101.33 per cwt.

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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