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Closing Comments

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Closing Comments

Corn

The Department of Energy reports that ethanol stocks rose to 17.7 million barrels in the week ending November 7, up from 17.2 million the previous week and up from 15.2 million barrels in the same week last year. Ethanol production rose to 946K barrels per day during the week, up from 929K the previous week and up from 927K barrels per day in the same week last year.

The data suggests that the industry used 100.4 million bushels of corn in the week ending November 7, up from 98.6 million the previous week and up from 99.8 million the previous year. Estimated corn usage to date for the marketing year totals 968 million bushels, up 23 million or 2% from the previous year. Corn usage to date fall short of the seasonal pace needed to reach USDA’s target by August 31 by 6 million bushels, down from a short fall of 5 million bushels the previous week.

There’s a great deal of difference of opinion about the Brazilian corn number this year. That’s because roughly two-thirds of the nation’s corn crop typically comes from the safrinha, or second crop corn, planted after the soybean crop is harvested. One local consultant is saying that safrinha corn area will be down 15 to 40% in Mato Grosso, depending on the area. Mato Grosso produces roughly 35% of Brazil’s safrinha corn.

However, another noted local consultant says, not so fast. It’s true that dry weather early in the growing season delayed planting of the soybean crop, but that merely pushes the crop’s harvest into a tighter window. That’s not a  problem if the weather cooperates, allowing enough dry weather in late February and early March to harvest soybeans and plant corn. If that occurs, Brazil should match last year’s area for corn production.

USDA-FSA notes that farmers have certified 85.842 million acres of planted and failed corn. That’s up more than 600K acres from October, but it still leaves quite a gap from USDA-NASS, which is at 90.9 million acres. Some gap is expected, as there are some farmers that do not certify. However, this year’s deadline was pushed back so far that we really don’t know the significance of the remaining gap this year and probably won’t until January. Regardless, it’s not bullish that the gap continues to close.

December corn traded to $3.89 today, which was its highest level since July 18. In fact, December 2015 corn pushed to $4.3225. Sustaining these levels will likely be difficult if/when soybeans break and South American weather turns adverse, but prices continue to march higher while those factors remain unknown.

Soybeans

USDA-FSA reports that farmers certified 81.392 million acres of soybeans thus far, up nearly 400,000 from the previous month. That’s still down from USDA-NASS’ 84.2 million acres, but the gap is slowly closing as more data comes in.

The National Oilseed Processors Association will release October crush data for its members on Monday. There’s been considerable debate about the scope of crush during the month. Crush margins were very strong, but supply was limited. As such, trade expectations for NOPA crush range from 127.5 million to 161 million bushels, with an average of 150.781 million bushels. My submitted estimate was 155.7 million bushels. Last year’s October NOPA crush totaled 157.1 million bushels.

The cash soymeal market remained strong early in today’s session, with basis largely unchanged from the previous day. That suggests that tightness remains a concern for the industry, which supported soymeal prices trading near recent highs.

However, the soymeal market couldn’t hold the strength into the close. Last week’s USDA weekly export sales report showed more than 300,000 metric tons of previous sales cancelled. We weathered that storm pretty well, but may not be able to do the same if tomorrow morning’s report shows more big cancellations as meal supplies begin to flow again at cheaper prices from Argentina. As such, some traders seemed to get cold feet ahead of tomorrow morning’s report.

I’m keeping an eye on those potential cancellations, as well as soymeal basis, for signs of this market confirming a top. In the meantime, soybean prices held onto modest gains on strong demand as processors and exporters fight over supplies amid slow farmer selling in the current tax year. First support of note for January soybeans is at $10.44, followed by $10.20.

Longer-term, the driver should be South American weather. Some are complaining that central Brazil crop areas are expected to dry out over the next couple weeks, but Commodity Weather Group remains confident that the rains will return beyond that period, with overall production potential remaining good.

Wheat

Follow-through buying lifted the wheat market again today, with impressive gains at times. This week’s cold weather threat provides the fundamental cover for traders to buy positive chart signals. Readings dropped to -10 to -20F in western Nebraska, with sub-zero readings dropping down into northeast Colorado and northwest Kansas as well.

Some damage was likely done, but we likely won’t know the scope of the damage for many weeks. As such, one has to question whether these prices will still be here after the headlines go away, particularly with U.S. wheat at a sizeable premium to most of our competition. USDA will be releasing its weekly export sales report tomorrow morning covering the week ending November 6. The trade expects it to show another slow week of sales between 9 and 15 million bushels.

Chicago December wheat pushed to fresh two-month highs today, with the next objective at $5.80. Kansas City December saw its gains slow today, with next resistance at $6.1575. My belief is that we are carving out a broader sideways trading range, with current strength based on cold weather headlines. Are there enough potential problems out there to sustain a rally? Yes, down the road, if the weather remains adverse here and in the Former Soviet Union, but historically it’s been very difficult to sustain rallies on these factors in November and December.

Beef

Live cattle futures pushed higher today, with expectations of firmer to higher cash trade supporting bull spreading. As a result, the lead December contract traded above $170 to $170.20 per cwt, with the February contract trading to $171.175 per cwt.

Cash prices have softened in recent weeks as record carcass weights have allowed packers to fill their needs with fewer animals. However, the current cold outbreak dramatically reduces weight gain and can actually take weight off animals. Packers have managed to keep supply and demand in a fine balance thus far, largely with the heavy carcasses. We could see fireworks in the cash market if that balance gets disrupted by too much weight loss, but see more weakness if their current strategy remains successful.

Feeder cattle futures followed the fat cattle market higher, despite stronger feed prices. The latest CME cash index came in at $240.86 per cwt, down $0.35 on the day. However, that is still at more than a dollar premium to the November futures contract and roughly a $6 premium to the January contract.

Boxed beef movement rose to 202 loads on Wednesday, up from 181 loads the previous day, but down from 205 loads the previous week. Choice cuts were up $1.47 to $251.44 per cwt, while Select cuts were up $0.32 to $238.75 per cwt. That strengthened the Choice/Select spread to $12.69 per cwt, up from $11.54 the previous day, but down from $13.12 the previous week. Movement at mid-morning today was good at 109 loads, with Choice cuts up another $0.49, while Select cuts were down $0.31 per cwt.

Packer margins are estimated at losses of $83 per head, which is about $10 better than the previous day and definitely better than the nearly $130 per head losses a couple of weeks ago.

Pork

Lean hog futures pushed higher once again today in follow-through buying from this week’s break above the recent trading range on the charts. However, it is yet to be seen whether the fundamentals will support a sustained rally from this point. Today’s Midwest cash market was mostly steady, although the cash index inched higher again. The latest CME 2-day index came in at $87.99, up $0.06 on the day.

However, that’s more than a $3 discount to the lead December futures contract with the cash market still not showing a great deal of desire to accelerate its gains. The February contract ran into resistance at $92 today, with next significant resistance at $94.

Product movement Wednesday was a robust 515 loads, up from 424 loads the previous day, but down from an even more impressive 593 loads the previous week. The composite pork product price dropped $0.32 to $95.28 per cwt. Movement at midday today was much slower at 143 loads. Picnics were strong at midday, but weakness in loin and ham prices pulled the composite price to $95.09, down $0.19 per cwt on the day.

Positive chart signals provided support for recent gains, but longer-term we need to see strength in the cash market to sustain those gains. I question whether we can do that until the product market shows signs of being able to mount a rally. So far, the best the product market has been able to do is stop the bleeding.

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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