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Closing Comments

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Closing Comments

Corn

Corn has been a reluctant follower in this fall’s rally, but it gained a little technical energy to create excitement early in today’s pit trade. A surge in soybean and wheat prices elevated corn as well, pushing the lead December contract into buy stops above $3.81. Buying emerged to push the contract to $3.85, with March coming within 2-1/2 cents of $4.00.

That triggered speculative and cash sales to start weighing on the market once again. The break also coincided with a collapse of the oilseed complex, which had largely been behind corn’s strength this fall. Double digit gains in wheat helped to keep corn in positive territory, but gains slowly eroded away late in the session.

The bulls didn’t give up without a fight, but the lead contract finished the day below the pivotal $3.81 level, leaving some reason to doubt. In the end, today’s rally started to increase the flow of cash corn. The feed grain likely needs continued support from wheat, and perhaps more importantly, renewed strength from soybeans to sustain the current rally.

Soybeans

Soymeal has been the driver of the grain complex this fall, and that will likely continue to be true over the next several months, although there will be times when the grains do their own thing. However, the soymeal market is still the canary in the coal mine for the grain complex.

Soymeal futures pushed to new contract highs early today, on a day when the CME Group raised margin requirements. Strength in the soymeal contract pushed the lead December contract to $417.60 per ton and January soybeans to $10.8625. The January soybean rally completed a 50% retracement of the late-summer collapse, which is a pivotal point for any market to reassess the fundamentals.

Soymeal prices broke hard this morning on trade chatter that at least two cargoes, and possibly as many as six, may be moving this way from Argentina. There are indications that farmer selling of soybeans has increased on the current rally in Argentina, even as the Bank of Argentina restricts credit to farmers in an apparent attempt to force them to sell.

We have been unable to confirm the soymeal cargoes moving north. There are 16 cargoes on the docket for loading with soymeal at Argentine ports the next several weeks. None are designated to move to the United States, but six were still undesignated. Of course, any cargo can be rerouted to the United States when there is financial incentive to do so, which appears to be the case. The math certainly seems to work out to bring soymeal north. However, there is still some question as to whether the soymeal would be sufficient to bring supply and demand into balance, which is why the market didn’t totally collapse today.

As I said yesterday, I can’t tell you for sure that this is the top, but when it occurs, this is what I would expect it to look like. Long-term, supply is expected to overwhelm demand as long as the weather remains favorable in South America. Rains are expected to focus on Brazil’s northern belt the next two weeks, before sliding south again, alleviating any concerns of any building dry or wet spots, and favorable for good yields of both corn and soybeans.

Wheat

Wheat prices exploded higher today, maintaining good strength into the close. Speculative short covering provided the strength, along with some traders jumping in to buy the recent break on weather concerns.

Arctic air spilling south across the Plains and Midwest raises concerns for the under-developed crop. Readings are expected to drop low enough to create a winterkill threat for roughly the northwestern Southern Plains hard red winter wheat crop, encompassing about 15% of the area. A third of the region has some snow cover, but remaining areas are at risk.

Furthermore, about a quarter of the Midwest soft red winter wheat crop will be sent into dormancy before it has established a root system, or in some cases before it has even emerged. This doesn’t guarantee a crop failure, but it certainly increases the risks.

While a legitimate threat, weather scares are generally difficult to sustain. The trade tends to forget about them once the cold no longer is making headlines.

Chicago rallied to a fresh two-month high today, but pulled back a few cents after encountering chart resistance at its October high. Kansas City gained several cents on Chicago, which was a positive sign for sustaining the rally, but we’re going to need supportive headlines to keep the trade focused on the problems, which is often difficult to do in November. Selling increased near $6 for Kansas City December wheat, with more significant resistance at $6.15.

Beef

Today was the fourth of the five-day Goldman roll when fund managers roll out of the lead futures position. That had February gaining on December as it prepares to take the lead. In fact, the strength allowed February to post a new contract high, although buying enthusiasm continues to be limited by the uncertainty of this week’s cash market. Even so, we must respect the fact that February is trading at a premium to December and gaining ground, but it will have more credibility if it continues the trend after the Goldman roll is completed.

This week’s cash trade is currently expected to be steady to $1 to $2 higher. That’s highly speculative though, as it all comes down to whether the packers have been able to acquire their needs with contracts already written. Even so, the expectation supported the lead December contract spending most of today’s session just below $168, where we traded cash cattle last week.

Feeder cattle felt the pain of higher corn prices early in the day, but then firmed with the fat cattle market as pulled back from its highs. The latest cash index came in at $241.21, down $2.83 from its October record high, but down $0.48 on the day.

Product movement reached 181 loads Tuesday, up from 128 loads the previous day, but down from 186 loads the previous week. Choice cuts were up $0.83 to $249.97, while Select cuts were down $0.72 to $238.43 per cwt. That strengthened the Choice/Select spread to $11.54 per cwt, up from $9.99 the previous day, but down from $11.65 the previous week. Movement at mid-morning was good at 111 loads, with Choice cuts up $1.70 and Select cuts up $0.43 per cwt on the day. Beef was also benefiting from firmer pork prices.

Pork

Lean hog futures found strength in the product market today, with the cash market showing signs of stability. Today’s cash market was mostly steady, although a few were moving in the closely watched Iowa/Southern Minnesota market at up to 50 cents lower. The latest CME cash index came in at $87.93 per cwt, up 1-cent from the previous day. The higher index broke a string of 22 consecutive trading days with lower prices, with losses over that period totaling $22.68 per cwt.

Product movement jumped to 424 loads Tuesday, up from 272 loads the previous day and up from 377 loads the previous week. The composite pork composite price came in Tuesday at $95.60 per cwt, up $1.81 on the day. Movement at midday today was good at 262 loads, with the composite price up another $0.36 to $95.96 per cwt on mixed prices in the cutout.

December lean hogs hit buy stops when it took out the top of the recent trading range at $90.65, supported by the above factors. It faces next resistance at a chart gap between $91.85 and $91.92 from mid-October. The February contract is now poised for a run to the $94 level.

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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