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Closing Comments

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Closing Comments

Corn

The world is full of uncertainty heading into the three-day holiday weekend, with Russia invading Ukraine and Britain raising its terror threat due to developments in the Middle East. Yet, one thing is becoming more certain. We’re likely to harvest a big crop and traders assume that big crops get bigger.

Corn prices tried to find support from the Ukraine uncertainty, but traders eventually focused on the big crop certainty. There were no deliveries posted against the September contract, as expected, with farmers holding tight to remaining supplies on hopes of higher prices after harvest. That means greater storage problems for the 2014 crop.

Yields in southern Texas, where there’s been much more heat this year, are running generally from 140 to 160 bushels per acre, in an area that typically yields 120 bushels per acre. Arkansas harvest results suggest that 200+ bushel yields are the norm this year, vs its record state yield of 187 bushels per acre last year. USDA currently puts Arkansas at 180 bushels per acre.

December corn turned lower today as the dollar began to rally once again to finish the day near 13-month highs. The contract managed to hold above support at $3.61, with the contract low at $3.58. Prices are vulnerable to probing below those support levels for sell-stops early next week if the yields continue to come in high in the southern Midwest.

Soybeans

Basis offers for old-crop soybeans continue to be all over the place, with some locations offering more than $3 per bushel over the November contract. Huge swings in basis occur as truck loads appear and then supplies dry up once again. That supports the September soybean contract, but big swings are seen there as well in the thinly traded contract. No delivery notices were posted against the September contract as expected this morning.

November soybeans become the lead contract from this point forward, with cash prices virtually all based off of it already. Prices have been chopping sideways in recent days in a relatively wide pattern as traders wait for the first harvest results, but the bigger picture continues to show a bearish down-trending pattern based on expectations of a big crop.

November soybeans were weak for much of the day today, although they held above the contract low of $10.1975. Pre-weekend profit taking lifted prices in the final minute of trade as traders took profit home with them rather than leave them on the trading room floor for the three-day holiday weekend. However, they remain vulnerable to probing for sell stops at new lows Monday night and Tuesday.

Traders will also be watching for Tuesday afternoon’s USDA crop ratings, delayed a day due to the Labor Day holiday. A sharp increase in Sudden Death Syndrome reports in the southern Midwest this week have largely been ignored by the market because traders do not think that losses will be enough to significantly change the balance sheet currently showing ending stocks above 400 million bushels. Crop ratings over the next two weeks should provide greater insight on whether that belief is valid.

Wheat

The trade was surprised to see 800 contracts posted for delivery against the Kansas City September contract this morning, while Chicago delivery notices were much smaller at 58 contracts. The trade is discounting the risk of exports being blocked from the Black Sea, with Russia talking up a potentially record large wheat crop. As such, prices sold off going into the weekend, with corn prices leading the way lower as well.

A generally wet pattern has developed over the Plains, including central and southern areas where winter wheat planting has begun. This should enable early wheat planting and establishment, reducing concerns for now about the 2015 crop.

Longer-term, wheat’s biggest nemesis may prove to be corn prices. Wheat prices will have a lot easier time stabilizing if corn can carve out a bottom, but we continue to see downside price risk for the feed grain. Ukraine remains the largest unknown that could firm prices further, but the risk of events there altering supply and demand fundamentals for the food grain remain low.

Beef

It’s ironic that the August live cattle futures contract traded at the highest level ever for an expiring fat cattle contract as it went off the board. It’s ironic, because the mood on the trading floor has largely been bearish in recent weeks. Yet, the October contract was trading at roughly a $5 discount, reflecting the trade’s bearish expectations for the weeks ahead.

Futures received a boost to close out the week after cash cattle began moving in central Nebraska at $155 per cwt on a live basis, steady with last week’s trade. Expectations were that we could see firmer prices traded yet this afternoon. Yet, trade thus far has been near that $155 level on a live basis in Kansas and Nebraska, with $244.50 to $245 per cwt on a dressed basis.

Futures have followed the cash market at a substantial discount for much of the past month. Recent strength suggests changing dynamics, although we’ll have to monitor action in the new lead October contract in the week ahead to know if this is change that is going to stick.

Product movement dropped to 180 loads Thursday, down from 232 loads the previous day, but up from 159 loads the previous week. Choice cuts were down another $0.52 to $246.89 per cwt, while Select cuts were down another $2.33 to $235.27. This seasonally widened the Choice/Select spread to $11.62, its highest level since May 8. Boxed beef movement at mid-morning today was very strong at 159 loads, with Choice cuts down $0.90 and Select down $0.49 per cwt.

Feeder cattle followed the fat cattle market lower today, but with less enthusiasm as falling corn prices kept optimism alive. The latest CME cash index came in at $218.23 per cwt, up $0.88 on the day.

Pork

The latest CME 2-day lean hog index came in at $98.86 per cwt today, down $1.48 on the day and down $35.31 from this summer’s record high. In fact, the index is at its lowest level since March 3rd. Yet, today’s Midwest terminal prices were mostly steady, suggesting that the market may be carving out a bottom.

Lean hog futures surged higher on bargain-hunting buying on ideas that we may be poised for a short-term run as the market anticipates a larger hole in supplies later in September due to losses caused by the PED virus earlier this year. Gains accelerated when the lead October contract pushed above the 200-day moving average, currently at $97.33. The market will attempt to establish whether that move is sustainable on Tuesday following the Labor Day holiday.

Product movement slowed to 293 loads Thursday, down from 432 loads the previous day and down from 341 loads the previous week. Prices showed some signs of stabilizing, with the composite pork product price up $0.44 to $100.62 per cwt. Movement at midday today was slow at 134 loads, with the composite price up $1.00 to $101.62 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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