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Closing Comments



Closing Comments


USDA’s weekly crop progress report showed the corn harvest at 65% as of November 2, up 19 points on the week, but still eight points behind the five-year average for the week. The week’s progress surprised the trade, including myself, considering the multiple interruptions of light showers in central and eastern areas. Progress in some closely watched states was Illinois, 77%, Indiana 58%, Iowa 61%, Kansas 86%, Michigan 31%, Minnesota 71%, Missouri 78%, Nebraska 60%, North Dakota 48%, Ohio 52%, South Dakota 61% and Wisconsin 33%.

Private production estimates continue to come out for the corn crop ahead of Monday’s USDA crop report. FCStone pegged the crop at 178 bushels per acre late Monday, while Informa put the crop at 174.4 bushels on Tuesday. I have found FCStone’s survey methodology to do a good job of identifying trends in the country over the past 10 to 15 years. FCStone put Illinois at 218 bushels per acre, which is well above USDA’s estimate of 200 bushels. I look for USDA to move closer to 176 with its yield on Monday, while it go top 178 in January.

Crude oil prices dropped to three-year lows today after Saudi Arabia slashed prices for oil destined for the United States in an apparent attempt to break the fracking industry here. The drop in crude oil prices below $76 per barrel helped facilitate a broad-based sell-off in the commodity sector, amplifying losses in the grain and oilseed markets that were seeing a shift in the fundamentals.

Corn harvest exceeded trade expectations over the weekend. Storage is filling up, pushing more corn into piles at local elevators. End users are no longer worried about chasing the market and the increase in private production estimates provided a reminder to speculative fund managers that big crops get bigger.

December corn broke below the 100-day moving average at $3.70 overnight, extending the losses through much of today’s trading session. The market could find modest support near $3.60, but the next rally will likely be more actively sold by farmers. Ultimately, I see soybeans as the leader and they are increasingly taking their cue from South American weather, where rains and production prospects are improving dramatically as we head into the weekend. As such, I see this market trending lower into December, and possibly mid-January, if rains continue to fall in South America.


USDA reports that 83% of the soybean crop was harvested as of November 2, up from 70% the previous week and matching the five-year average for the week. Progress in closely watched states was Illinois 83%, Indiana 73%, Iowa 91%, Kansas 72%, Michigan 71%, Minnesota 98%, Missouri 64%, Nebraska 95%, North Dakota 97%, Ohio 72%, South Dakota 99% and Wisconsin 80%.

Private production estimates continue to suggest that this year’s crop will get bigger as the bushels come in. FCStone pegged the soybean crop at 48.4 bushels per acre, while Informa reportedly pegged it at 47.9 bushels. I believe that we could see USDA move closer to 48 bushels per acre on Monday, followed by a move to 48.8 bushels in January.

Trade chatter emerged today that Argentina may be imposing new credit rules on farmers to try to push them to sell soybeans. The 35% soybean export tax pays for the majority of Argentina’s social programs, while also providing greenbacks for paying bond holders financing the country’s debt. However, farmers have refused to sell because the peso is falling in value faster than soybeans in storage.

Argentina has been looking for a strategy to force farmers to quite “hoarding” soybeans for some time. They hope this strategy works. If so, it could increase export competition for both U.S. soybeans and soymeal, adding downward pressure to prices.

January soybeans followed soymeal lower overnight, and gain this morning. Prices consolidated higher just above $10 as soymeal found some buying interest. Both are at risk of dropping to new lows ahead of Monday’s USDA crop report, with losses likely accelerating if/when we break below $10. I continue to believe that lower lows area ahead for both if the rains continue to come to production areas of Brazil.


USDA reports that winter wheat planting as of November 2 reached 90%, up from 84% the previous week and up from the five-year average for the week of 89%. Progress remains good in most areas outside of the Midwest, where a slow harvest has slowed the turn to plant soft red winter wheat. Progress in closely watched states (5-yr avg) includes Illinois 69% (83%), Indiana 82% (85%), Michigan 91% (93%), Missouri 56% (67%) and Ohio 90% (89%).

The crop rated a condition index score of 359 (500=perfect crop), down from 360 the previous week, down from 365 the previous year, but up from the 10-year average for the week of 354. The trade was expecting a rise in conditions, as was I.

Condition scores in closely watched states were (change from previous week) Arkansas 362 (+5), Colorado 349 (+3), Illinois 361 (-5), Indiana 385 (-3), Kansas 369 (-1), Michigan 381 (+1), Missouri 360 (-4), Nebraska 385 (-2), Ohio 382 (+1), Oklahoma 336 (-7) and Texas at 343 (+2).

Plains hard red winter wheat was slow to develop as the rains came late. Midwest winter wheat has been slow to develop due to late planting amid a delayed harvest and cool wet conditions. That doesn’t mean that we will have poor yields next spring. However, the crop will be more vulnerable to winterkill this winter if we see severe cold drop down over the belt in the absence of snow cover, similar to the situation in Russia this year.

Along that line, a cold push is expected to push into the northern United States over the next couple weeks, nudging one-quarter of the Midwest crop into dormancy a two to three weeks early, before it’s had a chance to establish a good root system. Two-thirds of the Illinois crop appears to be at risk.

Chicago December wheat continues to consolidate below $5.40 per bushel. Export demand is poor at current price levels, with the strong dollar adding to our problems. Yes, planting and development delays here and in Russia are a concern, but historically it’s been difficult to sustain a rally on those concerns until February/March. The Kansas City/Chicago spreads continue to suggest that wheat is going to find it difficult to sustain this short-covering rally and that we may be carving out a near-term high.


Feeder cattle buyers love the cheaper corn prices; at both the sale barn and on the board. Empty bunk space and cheap corn stimulate optimism in the cattle feeding industry. The latest CME cash index came in at $240.25, up $0.30 on the day and nearly $4 above the November futures contract. The cash index has been higher on six of the past seven trading days, but we’re up less than a $1 over that period.

The deferred live cattle futures contracts moved modestly higher on the  strength in feeder cattle, but the December and February contracts posted modest losses on ideas that the highs may be behind us. The bears point to last week’s big decline in boxed beef movement, indicating that consumers are backing away from beef at current price levels. That’s a real fear with competing pork prices tumbling.

Traders expected a much bigger showlist this week, after the packers took such a small number last week (second smallest of the year). However, yesterday’s showlist release was surprisingly small, down on the week. Packers are said to again be aggressively seeking to lock in “tops” $1 to $2 over in the Southern Plains. That allowed for lower negotiated prices at smaller volumes last week.

Boxed beef movement dropped to 125 loads Monday, down from 150 loads on Friday, but up from 107 loads the previous week. Choice cuts were down $0.47 to $250.73 per cwt, while Select cuts were up $0.77 to $239.40. This dropped the Choice/Select spread to $11.33 per cwt, down from $12.57 the previous day and a one-month low. Movement at mid-morning today was good at 111 loads. Choice cuts were down another $0.65, while Select cuts were steady. Packer margins remain in the red at estimated losses of $112.45 per head.


Today’s cash market was mostly steady at Midwest terminals once again. However, the cash index continues to slide lower. The latest CME 2-day index came in at $90.06 per cwt, down $1.32 on the day and at its lowest level since February 19. The index has been lower on each of the past 17 trading days, with losses through the period totaling $20.54 per cwt.

Product prices are still trending lower, but the rate of decline has slowed, allowing estimated packer margins to again top $20 per head. However, the supply of hogs continues to trend higher, so they haven’t had to chase the market. Last week’s slaughter is estimated at 2.193 million head, up 52,000 or 2.4% from the previous week, even as carcass weights continue to trend higher.

Product movement rose to 278 loads Monday, up from 242 the previous day, but essentially matching the previous week. The composite pork product price rose $0.43 on Monday to $97.94 per cwt. However, the price dropped $1.76 at midday today, led by a sharp $10.98 per cwt drop in belly prices, with overall movement at a mere 196 loads.

December lean hogs have largely traded $88 to $90 over the past couple of weeks, although they dipped below that range late last week. Fundamentally, hogs are weak near-term, at least until we see a significant shift of demand away from beef toward pork to push demand. The industry is still waiting to see if it will be able to manage the PED virus as the trade expects this winter. Thus far, the lack of loss reports is encouraging.

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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