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Closing Comments



Closing Comments


The Department of Energy reports that ethanol stocks rose to 17.2 million barrels in the week ending October 31, up from 17.0 million the previous week and up from 15.2 million barrels the previous year. Ethanol production dropped to 929K barrels per day during the week, down from 937K barrels per day the previous week, but up from 902K in the same week last year.

The data suggests that the ethanol industry used 98.6 million bushels of corn in the week ending October 31, down from 99.5 million the previous week, but up from 97.1 million in the same week last year. That brings estimated corn usage to date for the current marketing year to 868 million bushels, up 22 million or 3% from the previous year. Estimated corn usage to date falls short of the seasonal pace needed to hit USDA’s target by August 31 by 1 million bushels, versus matching the pace the previous week.

Ethanol producers continue to enjoy profitable margins; not as good as the remarkably high margins they had earlier in the year, but still large enough to provide incentives to run close to full capacity. Recent strength in the ethanol market adds to those margins. We should also see increased gasoline consumption as prices fall below $3 per gallon over a larger portion of the country, increasing demand for ethanol for blending, in addition to good export demand.

December corn probed below support at $3.60 overnight on a strong dollar, but found few sell-stops at that point. That allowed corn to ease off its lows as the dollar pulled back from fresh four-year highs in profit taking. Buying increased as traders saw support at $3.60 hold, pushing into positive territory.

Farmers get bullish when they see prices move higher. We certainly saw that in the month of October, and they were rewarded for it. However, a look at the supply and demand fundamentals would suggest that rallies in this market are meant to be sold as long as this crop continues to get bigger and as long as the rains are falling in South America, as they’ve now begun to do.

A Reuters survey revealed trade expectations for USDA to peg the corn crop at 14.551 billion bushels on a yield of 175.2 bushels per acre on Monday, up from a 14.475 billion-bushel crop on a yield of 174.2 bushels in October. I look for USDA to move closer to 176 bushels per acre in this report, with additional gains in January. The trade expects USDA to peg corn ending stocks at 2.135 billion bushels Monday, up from 2.081 billion last month, while I’m looking for 2.227 billion bushels. That’s a lot of corn.


The soymeal and soybeans markets started to tip over late last week as supplies started to flow once again. Tight soymeal supplies and logistics problems will likely be a factor for the next four to six months, but the tightness is improving. Yet, the dynamics will provide periodic periods of support.

January soybeans dropped into the $9.95 to $10 support range overnight, but like corn, bounced when sell-stops failed to push the market lower. This is not surprising. Many speculative traders do not understand many of the intricacies of supply and demand fundamentals, but they do understand chart moves. The overnight losses dropped January soybeans to $9.9525, the bottom of the support range and 64 cents off last week’s high. As such, they saw the break as a buying opportunity.

The farmer is still not bearish the grain complex, so we’re still not seeing the heavy selling of rallies. That will eventually come. I expect to see chart support give way as harvest moves forward in the days ahead and contracted supplies are delivered, with that break likely coming ahead of Monday’s USDA crop report. Losses will likely accelerate once that chart support gives way.

The trade expects USDA to peg the soybean crop at 3.967 billion bushels on a yield of 47.6 bushels per acre, up from 3.927 billion on a yield of 47.1 bushels per acre in October. I’m expecting USDA to draw closer to a 4.003 billion-bushel crop on a yield of 48 bushels per acre in this report, with another modest upward adjustment in January.


Egypt released yet another snap tender to buy wheat following the close on Tuesday. The tender was for wheat to be delivered in mid-December. It announced this morning that it purchased 8.6 million bushels of French and Ukrainian wheat, with U.S. wheat not even in the picture. The October rally priced U.S. wheat out of the market, with a strong dollar adding to its lack of competitiveness. Unfortunately, export slots are largely dedicated to soybean and corn exports the next several months anyway.

The Egyptian tender refocused the trade on how low competing global supplies are, especially with the dollar moving higher. Prices fell to double-digit losses on the strength of the dollar, although they came off their lows as the dollar came off its highs. Even so, the wheat market is increasingly looking like it has set the top of the trading range for the weeks ahead.

Most troubling, the hard wheat charts are looking increasingly bearish. That doesn’t mean that wheat drops to new lows, although that can’t be ruled out, but suggesting that it’s going to be difficult to sustain a move to new highs without help from the Kansas City market. One can point to various potential problems with the global wheat crop, but it’s simply difficult to sustain rallies on those factors at this time of year. Most of those issues tend to carry more weight in February and March.


There’s little question that beef supplies will be at historically low levels over the next several months. That’s not been a secret. Packers have been trying to position for the shortfall for months, while getting aggressive with basis contracts, etc. to lock in a supply to keep their chains moving in recent weeks. Sometimes those cattle were purchased and then put back on cheap corn to be fed to heavier weights to increase the supply as slaughter numbers drop.

That strategy worked to drop cash prices last week, aided by a low slaughter total of 553,000 head. Product movement dropped to three-month lows last week, although it is bouncing back a bit this week. Retailers are looking at comparative prices of beef and pork and appear to be stocking up to feature the cheaper pork to draw consumers into their stores, ahead of the holiday turkey season.

This shift in demand has futures traders wary of holding prices at recent levels, fearing that this market might tip over. Tight supplies provide support, but December live cattle showed interest in breaking support at $165 today, suggesting additional weakness is possible in the days ahead, with expectations that we will see further erosion in the cash market this week.

Feeder cattle tried to hold the line early on cheap corn prices, but selling accelerated as corn rebounded and fat cattle losses increased. Even so, cheap corn prices in the northern Plains continues to support strong demand for light-weight cattle. The latest CME cash index came in at $240.17 per cwt, down $0.08 on the day and down just $3.87 from last month’s record high.

Boxed beef movement rose to 186 loads Tuesday, up from 125 loads the previous day and up from 137 loads the previous week. Choice cuts were down another $0.59 to $250.14, while Select cuts were down $0.91 to $238.49 per cwt. This firmed the Choice/Select spread to $11.65 per cwt, up from $11.33 the previous day, but down from $12.46 the previous week. That dropped estimated packer margins to losses of $115.35 per head. Product movement at mid-morning today was good at 126 loads, with Choice cuts up 40 cents and Select cuts up 29 cents per cwt.


Lean hog futures broke lower once again today, falling away from the $88 level that has been significant for the December contract. The futures contract is no longer at a massive deficit to the cash market, giving it the freedom to fall and the cash price slides. Weak chart signals and a strong dollar provide additional selling incentive. Next significant support for December lean hogs is at $86, but we could see this market drop below $80 if the product market continues to slide.

Today’s cash market was mostly steady, but the closely watched Iowa/Southern Minnesota market was steady to 50 cents weaker, while Illinois was steady to $1 lower. The latest CME 2-day lean hog index came in at $89.28 per cwt, down $0.78 on the day. It was the first time the index dropped below $90 since February 19. The index has been down for 18 straight trading days, with losses over the period totaling $21.32 per cwt. The drop keeps packer margins profitable; currently estimated at $14.75 per cwt, although that is down from $20.65 the previous day and $15.25 the previous week.

Product movement reached 377 loads on Tuesday, up from 279 loads the previous day, but down from 410 the previous week. The composite pork product price dropped another $2.27 to $95.67 per cwt, which is its lowest level since February 19. Movement at midday today was typically strong for a Wednesday at 365 loads. The composite price rose $1.04 to $96.71 on good strength in demand for loin, rib and picnic cuts, while ham prices were down more than $3.

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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