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Closing Comments

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Closing Comments

Corn

Exporters sold 23.0 million bushels of corn in the week ending October 23, including 19.3 million bushels of current-year production. The current-year sales were down from 40.6 million bushels sold the previous week. Marketing year sales total 738 million bushels, down 63 million or 8% from the previous year. Sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 31 million bushels, down from 38 million the previous week.

Exporters sold a net 4.5 million bushels of grain sorghum in the week ending October 23. The total was the sum of new sales to Chinese end users of 6.7 million bushels, while previous sales to “unknown destinations” were reduced by 2.2 million. The week’s net total was down from 9.2 million bushels sold the previous week, but up from the five-year average for the week of 3.5 million bushels.

Marketing year sales to all destinations total 116 million bushels, up 56 million or 94% from the previous year, largely due to Chinese end user buying. Sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 42 million bushels, up from 41 million the previous week.

The U.S. ethanol industry has been hampered by lobbying interest battling an increase in the blending rate. The EPA raised the blending cap to 15% for newer cars, but the lack of pure clearance has created roadblocks toward increasing usage.

Meanwhile, Brazil has cleared expansion of the blending limit to 27.5%, indicating it sees little evidence of engine problems or performance. Ironically, that means that we will likely see a surge in Brazilian imports of U.S. ethanol in the current marketing year, following a shortfall in Brazil’s sugarcane crop due to adverse weather.

This morning’s daily export reporting service reported that “unknown destinations” bought another 4.4 million bushels of U.S. grain sorghum. The buyer will be assumed to be China, but we likely won’t know until the actual shipments are made.

The dollar rallied again today following the Fed’s hawkish monetary statement Wednesday afternoon. Data showing third quarter gross domestic product growth of 3.5%, down from 4.6% in the second quarter, but still pretty good. These factors worked to support a firmer dollar today, along with the equity markets, but money flowed out of the broader commodity sector.

December corn held relatively well today, considering all the other bearish factors at play. The contract rallied to its August high of $3.81, before turning back. A late sell-off in the grain sector pulled it into the red, but the contract still held above the 100-day moving average of $3.72. Fundamentally, it’s difficult to justify prices at this level, but the charts still have not confirmed a near-term high. Longer-term, soybeans will likely prove to be the leader, based on growing conditions in South America.

Soybeans

Exporters sold 48.7 million bushels of soybeans in the week ending October 23, down from 79.6 million bushels the previous week. The total included 38.6 million bushels of soybeans sold to China during the week.

Marketing year sales to all destinations total 1.253 billion bushels of soybeans, up 69 million or 6% from the previous year. Exporters typically have sold 52% of final soybean shipments by this point in the marketing year, whereas they had sold 72% by this point last year. However, this year they have already sold 74% of USDA’s target for the year ending August 31.

As such, sales to date exceed the seasonal pace needed to reach USDA’s target by 377 million bushels, up from 376 million the previous week. We’ll likely start seeing that gap drop in the weeks ahead, although this year’s sales will still on pace to exceed USDA’s target for the year.

Soymeal export sales in the week ending October 23 totaled 147.9K metric tons, up from 23K the previous week, despite reductions of previous purchases by Egypt and “unknown destinations” totaling 115.5K tons. Actual shipments during the week totaled 150.6K metric tons, despite rail logistics problems.

The big surge in soymeal demand that processors are trying to fill came in the weeks following Argentina’s default at the end of July. As such, soymeal sales to date already are at 53% of USDA’s target for the year ending September 30. Sales by this point are typically at 30% of final shipments, whereas they were at 41% last year.

This morning’s daily export reporting service indicated that China bought another 4.85 million bushels of U.S. soybeans in the past 24 hours. China continues to be an aggressive buyer of U.S. soybeans.

It’s very difficult to sustain a rally without a corresponding growth in open interest, or the number of open contracts in the market. Open interest dropped dramatically on Friday as November options expired, but it dropped another 30,836 contracts in the following three days as traders continue to exist positions ahead of first notice day for delivery against the November contract. Traders would frequently simply roll those positions forward if they are bullish, so their exit suggests that they lack bullish conviction.

Soymeal is the leader of the oilseed complex currently. December soymeal turned lower when it came within $3 of its contract high of $411.40 per ton overnight. Profit taking encouraged selling at that point, with added pressure from an increase in margin requirements. That pulled soybeans lower, with added pressure from a surge in farmer selling, particularly in the west, along with broad-based selling in the commodity sector.

January soybeans traded to $10.5925 overnight, before settling nearly 30 cents below that level. It’s too soon to confirm that a near-term high is behind us, but the downside risk would certainly appear to be significant at this point as supplies begin to increase, especially if the funds decide the rally is over.

Wheat

Exporters sold 16.9 million bushels of wheat in the week ending October 23, including 16.3 million old-crop bushels. The old-crop sales were up from a dismal 11.0 million the previous week. The past week’s total included another 2.1 million bushels sold to Brazil during the week; mostly hard red winter wheat.

Marketing year wheat sales total 556 million bushels, down 197 million or 26% from the previous year. Sales to date exceed the seasonal pace needed to reach USDA’s target by May 31 by 13 million bushels, up from 9 million the previous week.

Harvest is nearly complete in Parana, Brazil while it’s just starting to gain momentum in Rio Grande do Sul. These two provinces account for most of Brazil’s wheat production. Persistent rains hurt the quality of the early harvest in Parana, but later harvested fields have come in much better. Even so, local reports suggest that the crop will end up smaller than the initial 147 million bushels forecast for the region. Final numbers aren’t in yet, but that may account for why Brazil continues to buy U.S. hard red winter wheat.

Chicago wheat rallied to the 100-day moving average at $5.455 overnight, before turning lower. Late selling in the grain complex, along with strength in the dollar, added to late selling in wheat. Kansas City led Chicago lower, which provides another bearish sign for the wheat market. Good rains are expected in the Southern Plains next week, which should boost winter wheat ratings ahead of dormancy.

Beef

Exporters sold a net 20.1K metric tons of beef in the week ending October 23, up from 7.6K the previous week and the highest weekly total since early April. The surge in export demand corresponds with aggressive packer activity that pushed cash sales to $170 per cwt on a live basis across much of the Plains feedlot region during the same week. Actual shipments during the week totaled 13.0K metric tons, down from 14.6K the previous week and a seven-week low.

The strong export demand provides support for the product market, easing packer losses somewhat. Packers are reportedly still working the formula market to acquire supplies, with negotiated trade waiting to late this week. Packers don’t want to give up market share without a fight amid tight supplies, even though that means $100+ losses on each head they slaughter.

Slaughter numbers are generally running 7 to 9% below year ago levels. Carcass weights are running generally 2 to 3% above year ago levels. The net impact has been for total beef production to run 5 to 7% below year ago levels. Consumer confidence continues to rise though, keeping domestic demand strong, with export demand also rising. The futures market behavior suggests that traders are skeptical that demand will hold, which is a legitimate concern when competing pork prices are falling hard. Yet, they are firmer today on expectations of firmer cash prices near-term.

Boxed beef movement Wednesday rose to 188 loads, up from 137 loads the previous day, but down from 233 loads the previous week. Choice cuts were up $2.07 to $253.63 per cwt, while Select cuts were up $0.67 to $239.77. This firmed the Choice/Select spread to $13.86 per cwt, up from $12.46 the previous day, but down from $15.93 the previous week. Movement at mid-morning today was routine at 95 loads, with Choice cuts down 2 cents and Select down 3 cents.

Feeder cattle futures were cautiously higher on strength in the fat cattle market, although late-day weakness in corn helped add to those gains. Even so, the charts remain worrisome. The latest cash index came in at $238.83 per cwt, up $0.32 on the day, but still down from this month’s record high of $244.04 per cwt.

Pork

Exporters sold a net 12.7K metric tons, down from 19.7K the previous week and a nine-week low. The drop corresponds with a sharp drop in product prices as demand fell off, rather than a stimulate of demand by the lower prices. Actual shipments in the week totaled 17.3K metric tons, down from 18.4K the previous week and a three-week low.

The cash market was mostly steady to $1 lower in the Midwest today. The latest CME 2-day lean hog index dropped another $1.98 to $94.61 per cwt, its lowest level since February 25. The cash index has dropped in each of the past 14 trading days, with losses over that period totaling $15.99 per cwt.

The product market had been in a free-fall for about three weeks, but it’s become a lot more choppy of late, posting higher moves in two of the past three trading days. The composite pork product price rose $1.63 to $99.35 per cwt on Wednesday on strong demand for loin and belly cuts. Movement Wednesday rose to 462 loads, up from 410 loads the previous day and up from 435 loads the previous week. Movement at midday today was good at 209 loads, but the composite price was down $1.45 to $97.90 per cwt.

Trading continues until 4 p.m. CDT in the lean hog pit, but prices remain weak in the futures trade today, reflecting weak fundamentals. Selling accelerated after the lead December contract dropped below chart support at $88 per cwt. Supplies have been bigger than the trade anticipated, and at heavier weights. This suggests that this market remains vulnerable to at least another $10 of weakness.

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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