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Closing Comments

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Closing Comments

Corn

The Fed announced at 1:00 pm CST that as expected, it would both end its current quantitative easing program and keep interest rates pegged at 0%-.25%. The Fed continues to see that “considerable time” will elapse between now and its first interest rate hike.

Corn continues its methodical mid-harvest march higher posting an impressive new high close for the month on technical buying by funds out weighing farmer hedging as patience has been rewarding the farmer on the rally. The rally has now brought the market definitively into the heart of the value price / congestion area from August. Commercial buyers continue to be surprised by this rally in the light of their low new crop purchases to date from farmers and continued impressive yields in many areas.

The 2014 EU corn crop is expected at 73.6 million metric tons up 9.3 MMT more than last season according to analysis from ADM Germany.

USDA Export sales will be released tomorrow morning at 7:30 am CST with corn expectations at 700k – 900k MT.

Corn posted an impressive last few minutes of trade after a mostly sideways day. December corn came to the bottom of the gap on July 21st while closing up 10 ¾ cents in both the December at 375 ½ at resistance with the next resistance at 3.83. The Dec 2015 contract participated higher settling up 7 ¾ at 416 ¼, just shy of resistance in the 4.17 – 4.23 area.

Soybeans

Meal continues to be the headline in the soy complex, however soy oil joined the story today with help from the Malaysian Palm Oil market announcing an expectation of reduced production and tightening of stocks. The meal market continues to find fund buying (and talk of large short covering of the crush spread) with transportation problems exacerbating an already tough situation for over-committed exporters.

While a rally in futures isn’t getting the barges and trains to move faster to the exporters who need it, it makes for great fodder for a market in blow off mode. Watch the calendar spreads in the nearby and deferred meal contracts to begin to reverse for a sign of weakness redeveloping.

Fear of the USDA raising its demand come November 10 without raising yield coupled with firm eastern Midwest soymeal basis continues to add to the story at hand.

Option volatility continues to grow as the market absorbs the uncertainty at hand and prepares for the USDA report on November 10th.

Forecasts for Brazil remain positive with rains expected to continue through the near term, helping soil moisture in areas that have struggled with hot/dry conditions.

January soybeans rallied to $10.49 per bushel today, settling just 2 cents from its high of the day and at a price target and resistance of $10.48.

Wheat

Wheat has been a reluctant follower in the October rally. However, positive technical indicators have aided the short covering of the funds who have been short wheat. Fundamentals such as the increased Australian weather concerns continue to support the market.

A slowdown of exports could continue to limit the upside for wheat as well as reports that the Argentinean wheat crop could be 14% larger than last year.

Slow planting in the east helped Chicago to lead the charge higher over KC, which has in turn been leading over Minneapolis over the past two weeks.

Longer term, if the market can’t turn the KC-Chi spread for higher it remains vulnerable to lower prices.

December Chicago closed up 7 ¼ at 5.38 ½ right near a price objective and resistance of 5.39 and December KC closed 4 ½ higher at 6.06 ½. .

Beef

It is looking like we will see a week where cash cattle trade will go into the late hours of the week before anything substantial is known.  Packers are mostly silent with a 168 bid in Kansas and talk of some bids surfacing in Nebraska as well, asking prices remain around 172-173 live in the south and 270 dressed in the north.  Packer margins are deep in the red and willingness to pay the high prices for cattle could be declining.  Fundamentals remain supportive, but techincals show that caution in this area is prudent.  Consumer demand is also a big question as boxed beef prices head higher. 

 

Boxed beef movement increased to 137 loads on Tuesday. Choice cuts were up $2.36to $251.56 per cwt, while Select cuts were up $3.11 to $239.10. This dropped the Choice/Select spread to $12.46 per cwt, down from $13.21 the previous day. Movement at mid-morning today was stronger than yesterday morning with 116 loads. Choice cuts were up another $2.49, while Select cuts were up $.96 per cwt.

October feeder cattle will come off the board tomorrow and we are seeing profit taking and repositioning into other months as we get to that expiration.  The CME index closed up .31 at 238.41 on October 27th.  November feeder cattle continue to shows signs of stress on the charts.

Pork

The cash hog market weakness spilled into the futures today with the December contract returning to the bottom of its recent trading range but moving back toward the middle of today’s range.

Lack of perceived PEDv risk continues to add pressure to the complex. The NAHLN laboratory tests continue to show some positives cropping up but the number of outbreaks compared to previous months is significant lower, beginning its decline in June. The market will be watching for virus return as cold weather now approaches.

The latest USDA Hogs and Pigs report showed a Sept 1 breeding herd that was 1.8% higher than a year ago. Sep-Nov and Dec-Feb farrowings were pegged at near 4% above a year ago. A decline in PEDv cases will improve that pigs per litter number although it will take time for a long term return. A short term concern for producers is the shortage of soy meal depending on their geography – but this will ease as product movement picks up.

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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Dean Heffta | WIN – Director
WATER STREET SOLUTIONS® | www.waterstreet.org
(309) 680-1200 | dheffta@waterstreet.org

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