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Closing Comments



Closing Comments


USDA’s weekly crop progress report late Monday afternoon reported that 96% of the nation’s corn crop had reached maturity by October 26, which is near the five-year average of 97% for the week. More significantly, maturity progress in vulnerable states was 99% in Iowa, 85% in Michigan, 97% in Minnesota, 96% in Nebraska, 93% in North Dakota, 97% in South Dakota and 83% in Wisconsin.

Harvest progress on October 26 was 46%, up from 31% the previous week, but down from the five-year average for the week of 65%. Progress in states of interest was 59% in Illinois, 44% in Indiana, 36% in Iowa, 78% in Kansas, 21% in Michigan, 41% in Minnesota, 68% in Missouri, 40% in Nebraska, 22% in North Dakota, 36% in Ohio, 34% in South Dakota and 20% in Wisconsin.

The crop rated a condition index score of 389 (500=perfect crop) for the fourth consecutive week. The condition score is the sixth higher final crop rating on record and the highest in 10 years for the crop in late October. Condition scores dropped 1 point in Iowa and Tennessee and 2 points in Wisconsin, while 2 point gains were seen in Ohio, Pennsylvania and South Dakota.

Harvest was slowed again today in the eastern Midwest as showers crossed the region. However, progress remains active in western areas. Corn processors firmed by 1 to 5 cents where corn movement has been slow, while Blair, Nebraska cut its bid by 10 cents late Monday as storage facilities begin to fill up.

It’s difficult to sustain a rally without growth in open interest that suggests that the market is drawing in additional money. Today’s data is still not available, but open interest dropped by more than 21K contracts over the past four trading days prior to today. This continues to suggest that the recent price strength has had more to do with chart signals triggering short-covering than it has new money coming into the market.

December corn came about 2 cents away from its 100-day moving average in overnight trade, while the continuous corn chart actually probed above it briefly, before selling of the strength returned. It’s positive that December corn worked its way into the $3.60 to $3.80 range, but the market continues to find active selling interest whenever it does so. The 100-day moving average, currently at $3.735, is a significant obstacle for this market to overcome. December 2015 saw selling return at resistance at $4.15 per bushel.


USDA reports that soybean harvest reached 70% as of October 26, up from 53% the previous week, but still below the five-year average pace for the week of 76%. Progress in closely-watched states was 63% in Illinois, 50% in Indiana, 81% in Iowa, 52% in Kansas, 44% in Michigan, 94% in Minnesota, 46% in Missouri, 87% in Nebraska, 93% in North Dakota, 50% in Ohio, 96% in South Dakota and 59% in Wisconsin.

Soybean harvest was again slowed by rain today, while some elevators in the western belt indicated that they were not taking deliveries because they were full after four to five days of active harvest. Storage is starting to fill up.

Demand for soymeal remains strong, but lines have been short for farmers delivering soybeans. Processors complain that they can’t originate enough soybeans from farmers. I expected storage problems to force delivery a lot sooner, but still see it happening. Those soybeans eventually need to come to town. Soymeal basis was mostly steady today, although Lafayette, Indiana was said to be another $5 higher, with that area up $25 over the past week.

Rains are falling in previously dry areas of Brazil. It’s still early in the growing season, but we have to assume a good crop at this point. If so, then we have to be concerned about lower soybean prices in the months ahead, even though soybean demand is very strong. A bit of that reality was seen in today’s November 2015 contract that was trading at significant losses while current-year contracts were trying to hold onto gains. Strength in the market is in near-term tightness rather than longer-term fundamentals until/unless a significant weather problem emerges in South America.

Statistically, it’s difficult to sustain a rally in the absence of rising open interest, or the number of open contracts in the market. Soybean open interest is down nearly 105K contracts over the past six trading sessions leading up to today. The bulk of that loss is related to November soybean option expiration, but the trend is still true. This market isn’t attracting a lot of new players/money to the market, despite its impressive rally.

January soybeans rallied to $10.41 per bushel early in today’s session, before settling at $10.15. Gains are currently more difficult to hold above $10, with open interest on decline. Weakness in the fundamentals as supply exceeds big demand is probably best illustrated by the November 2015 contract, which settled at $9.905 today, down $0.0775 on the day.


USDA reports that 84% of the winter wheat crop is in the ground, up from 76% the previous week and matching the five-year average pace for the week. That would seem to say that all is well with the crop, but a breakdown of the data suggests otherwise.

This fall’s rains in previously dry areas of the Plains hard red winter wheat belt has boosted planting and emergence in that area, while saturated soils that have slowed soybean harvest have slowed wheat planting in the Midwest soft red winter wheat belt. Planting deficits were most pronounced in Illinois and Missouri, where planting trailed the typical pace by 34 and 17 points respectively. Farmers there are re-assessing their interest in planting wheat at this point, suggesting that soft red winter wheat acreage will decline some.

The crop rated a condition index score of 360 (500=perfect crop), near the 363 seen at this point last year and just above the 10-year average for the week of 355. However, the trade was looking for much stronger ratings this year, considering rains in the Plains. Condition scores of key wheat production states were 370 in Kansas, 343 in Oklahoma, 341 in Texas and 346 in Colorado, showing lingering effects of the drought. However, Nebraska was at 387, reflecting better moisture further north. In the Midwest, Illinois was at 366, Indiana 388, Ohio 381, Missouri 364 and Michigan at 380.

The weaker-than-expected crop ratings encouraged additional short-covering in the wheat pits today, supporting the food grain at a time when gains were eroding away in the corn and soybean markets. The Kansas City/Chicago wheat spread still did nothing to suggest that this rally is sustainable, with Chicago December wheat still facing stiff resistance at $5.40.


Fat cattle traders remain skeptical of the fundamentals, and will likely remain that way as long as the bearish double-top exists at $169.75 on the December chart. Feeder cattle traders are even less enthusiastic, considering the more than 50-cent rally in corn futures. As a result, both spent the bulk of today’s trade in negative territory, with feeder cattle futures showing the greatest vulnerability.

Yet, the industry was amazed at last week’s $170 cash cattle trade, with product prices showing signs of bottoming this week. That needs to happen, with packer margins estimated at losses near $115 per head.

Boxed beef movement dropped to 107 loads Monday, down from 234 loads Friday and down from 115 loads the previous Monday. However, Choice cuts were up $1.79 to $249.20 per cwt, while Select cuts were up $3.28 to $235.99. This dropped the Choice/Select spread to $13.21 per cwt, down from $14.70 the previous day and down from $14.67 the previous week. Movement at mid-morning today was routine at 79 loads. Choice cuts were up another $2.40, while Select cuts were up $3.21 per cwt.

December live cattle have first support at $166.50 per cwt, but the charts remains concerning. Feeder cattle charts are showing signs of breaking lower from a bear flag posted over the past week. Packers appear to be fighting over a limited supply of cash cattle, while futures trader action suggests that they believe the squeeze is about over. We’ve been down this road several times in recent months. They will eventually be correct, likely once the consumer makes the switch to cheaper pork supplies.

Demand for feeder cattle has eased somewhat with the higher corn prices. Strength may return once corn prices break, based on our expectations. However, we’re also getting later in the fall. USDA data shows a dramatic northward shift in feeding toward South Dakota and Minnesota, leaving this market increasingly vulnerable to a weather scare this winter, should one occur.

Keep in mind that livestock futures now trade to 4 p.m. Chicago time Monday through Thursday, so trading is still ongoing. Traders appear very afraid of building ownership right now, even with what appears to be supportive fundamentals.


Today’s cash hog market was mostly steady to $2 lower, although some hogs reportedly went for $5 cheaper. The latest CME 2-day lean hog index dropped below $100 for the first time since September 8. The index came in at $98.40 per cwt, down $1.95 on the day. It was the 12th straight trading day with a lower index, with losses over that period totaling $12.20 per cwt.

The cash market has narrowed its premium to the December lean hog contract to $8.20 per cwt, after having roughly a $20 premium earlier this month. The cash market continues to slide, while the futures market bounces off support at $88. However, I question whether we’ll be able to hold that support, with indications that we may fall at least $10 below that level.

Product movement dropped to 277 loads Monday, down from 326 loads on Friday, but up from 249 loads the previous Monday. The composite pork product price bounced Monday after 14 straight down days on strength in the ham and picnic cuts. The composite price finished at $100.11 per cwt, up $1.86 on the day.

However, the composite price dropped sharply again this morning. It came in at $97.50 per cwt, down $2.61 from Monday, led by weakness in hams and loins. Movement was decent at 200 loads.

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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