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Closing Comments

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Closing Comments

Corn

Exporters sold 18.8 million bushels of corn in the week ending October 30, down from 19.3 million the previous week and down from the five-year average for the week of 24.8 million bushels. U.S. corn is simply too expensive relative to competing supplies on the global market.

Marketing year sales total 757 million bushels, down 108 million or 12% from the previous year. Sales to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 19 million bushels due to big early sales, but that is down from 31 million the previous week.

Sales of grain sorghum remain strong, largely due to Chinese end users who prefer it above high-priced domestic corn, as port authorities block U.S. corn supplies. Exporters sold 7.1 million bushels of grain sorghum in the week ending October 30, up from 4.5 million the previous week and up from the five-year average for the week of 0.6 million bushels.

The past week’s total included 2.8 million bushels sold to Chinese end users and another 4.4 million bushels sold to “unknown destinations,” which will be presumed to be China. Marketing year sales to all destinations total 123 million bushels, up 63 million or 103% from the previous year.

Exporters typically sell 34% of the year’s final shipments by the end of October, whereas they had sold 29%. However, this year they’ve already sold 56% of USDA’s target for the year. As such, sales to date exceed the seasonal pace needed to hit USDA’s target by August 31 by 48 million bushels, up from 42 million the previous week.

The dollar surged to new four-year highs as the European Central Bank emphasized the region’s economic risks, but that wasn’t much of a factor today. Rather, soymeal again led the grain complex higher through much of the day session, based on strong export shipment that supported firming basis in the interior. However, corn was more of a reluctant follower, with prices ending the day on a weak note.

December corn settled 1-cent higher on the day and above the descending 100-day moving average, but I still didn’t like the way it closed. It’s a reluctant follower of soymeal with signs that market may be getting closer to tipping over as supplies increase and prices ration demand, but for today, we’re still creeping higher. The big picture is that USDA is still expected to reinforce expectations that surplus stocks will exceed 2 billion bushels this year when it updates its balance sheet on Monday morning.

Soybeans

Exporters sold 59.3 million bushels of soybeans in the week ending October 30, up from 48.7 million the previous week and up from the five-year average for the week of 28.8 million bushels. The total included 58.9 million bushels sold to China during the week, although that was partially offset by reductions of previous sales of 23.9 million bushels to “unknown destinations.”

Marketing year sales to all destinations total 1.310 billion bushels, up 89 million or 7% from the previous year. Exporters typically sell 54% of final soybean shipments by the end of October, whereas they had sold 74% by this point last year. However, this year they’ve already sold 77% of USDA’s target for the year that ends August 31. As such, sales to date exceed the seasonal pace needed to hit USDA’s target by 399 million bushels, up from 377 million the previous year.

It was soymeal demand that supported the October rally. Export demand surged in the weeks following Argentina’s default this summer to the point that they were roughly double the normal pace for the marketing year in early October. However, farmers were not delivering enough soybeans for processors to fulfill those orders. That is slowly changing as new-crop supplies become available.

Exporters actually shipped an impressive 307.6K metric tons in the week ending October 30. However, new sales were a net reduction of 122.9K tons, largely due to cancellations by “unknown destinations” of 306.8K metric tons. In other words, current prices are rationing new demand as we fulfill old demand. As such, the fundamentals of this market appear that they are starting to tip over, but we’re not quite there yet, as basis for soymeal continues to firm at some western Midwest locations.

Soymeal basis rose $10 in Kansas City, with more modest gains in a few other western Midwest locations, while mostly steady further east. The cash soymeal market continues to be tight as supply slowly rises to match this year’s strong demand. That’s supporting soybean prices, but the flow there is slowly increasing as well as the industry increasingly sees rising supplies relative to the strong demand.

January soybeans rallied to $10.405 on the soymeal rally, but settled more than 12 cents below that on selling interest on the rally. USDA should confirm surplus stocks above 400 million bushels on Monday, with weather now very favorable in South America for the next couple of weeks. Fundamentally, the longer-term risk to this market would still appear to be to the downside, and maybe significantly to the downside if the weather pattern remains favorable south of the equator.

Wheat

Exporters sold 9.8 million bushels of wheat in the week ending October 30, down from 16.3 million the previous week and down from the five-year average for the week of 14.3 million bushels. There were no new sales to Brazil during the week as harvest begins there. Marketing year sales total 566 million bushels, down 202 million or 26% from the previous year. Sales to date exceed the seasonal pace needed to hit USDA’s target by 10 million bushels, but that is down from 13 million the previous year.

Wheat export demand is weak and the strong dollar is making it worse. The supply pipeline is adequately filled, leaving wheat seasonally weak, despite strength in the other markets. The charts are looking increasingly weaker. Prices finished the day near their session lows, with Kansas City continuing to lose ground to Chicago.

Beef

We saw evidence of a sharp drop in beef demand last week, with just 735 loads of boxed beef moving out the back door of packers; a three-month low. Now we learn that some of that was due to lost export demand during the week. Exporters sold just 6.9K metric tons of beef in the week ending October 30, down from 20.1K the previous week and the lowest weekly total in four months. Actual shipments were still good at 13.9K tons, up from 13.0K the previous week.

Live cattle futures had a relatively quiet choppy day today, with the December contract hovering just above support at $165 as it waits for direction from this week’s cash market. Both the rib primal and loin primal cuts saw a jump in prices on Wednesday, as retailers begin to stock up for the holidays, but it really wasn’t enough to turn the complex higher.

Trade chatter suggests that we’ve seen a few cattle move in the northern feedlot belt at $262 to $263 per cwt on a dressed basis as packers pick up a few more head for next week’s slaughter. Packer inventory is believed to be a bit smaller after last week’s small acquisition. Overall, this week’s cash trade is expected to be steady to weaker, but futures are already at a discount to the cash market.

Product movement rose to 205 loads Wednesday, up from 186 loads the previous day and up from 188 loads the previous week. Choice cuts were up $1.10 to $251.24 per cwt, while Select cuts were down $0.37 to $238.12. That increased the Choice/Select spread to $13.12 per cwt, up from $11.65 the previous day, but down from $13.86 the previous week. Movement at mid-morning today was routine at 90 loads, with Choice cuts up $0.28, while Select was down $0.35 per cwt.

Feeder cattle futures firmed on the firmer fat cattle market today, despite stronger corn prices. Feeder cattle buyers still anticipate cheaper corn prices down the road. The latest CME cash index came in at $239.99 per cwt, down $0.18 on the day, but just $4.05 below last month’s record high. Demand for light-weight calves to feed out in the northern feedlot region remains strong.

Pork

Pork product movement totaled 1,763 loads in the final week of October, which was only slightly below the previous week that reached a five-month high. A surge in export demand accounted for some of the rise in demand. Exporters sold 28.4K metric tons of pork in the week ending October 30, up from 12.7K tons the previous week and a 12-week high. Actual shipments during the week totaled 26.3K tons, up from 17.3K the previous week and a three-month high.

Today’s cash market was mostly steady, although some moved in Illinois at steady to 50 cents lower. The latest CME 2-day lean hog index was $88.72 per cwt, roughly $1 above December futures. Today’s index was down $0.56 on the day. It was the 19th straight trading day with a lower index, with losses over the period totaling $21.88 per cwt.

Slaughter weights are running 2 to 3% above the previous year, but the gap is narrowing. The cash market is also showing signs of stabilizing. The rise in pork demand is showing signs of bringing supply and demand into closer balance, with prices starting to stabilize in the product market. I’m not convinced that the low is in this market, but the bleeding is slowing.

Product movement surged to a 2014 high of 593 loads Wednesday, up from 377 loads the previous day and up from 462 loads the previous week. The composite pork product price firmed $0.22 to $95.89 per cwt. Movement at midday today was decent at 201 loads, with weak belly and picnic prices pulling the composite price down $0.42 to $95.47 per cwt, which would be the lowest level since February 19 if it holds.

December lean hogs chopped within a relatively narrow trading range today; primarily below the pivotal $88 level. Next significant support is at $86, although the lead contract was testing the $88 level again early this afternoon. Keep in mind that livestock futures trade to 4 p.m. CST under their new hours.

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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