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Closing Comments

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Closing Comments

Corn

Exporters shipped 15.8 million bushels of corn in the week ending November 13, down from 20.8 million the previous week and down from the five-year average for the week of 27.4 million. Marketing year shipments total 306 million bushels, up 52 million or 20% from the previous year. Shipments to date fall short of the seasonal pace needed to reach USDA target by August 31 by 36 million bushels, versus short by 19 million the previous week.

Exporters shipped 7.0 million bushels of grain sorghum in the week ending November 13, up from 2.4 million the previous week and up from the five-year average for the week of 2.8 million bushels. All of the week’s shipments were destined for Chinese end users.

Marketing year shipments total 70.7 million bushels, up 40.3 million or 133% from the previous year. Exporters typically have shipped 23% of final grain sorghum shipments by this point in the marketing year, whereas they had shipped 14% by this point last year. However, They have already shipped 31% of USDA’s target for the current year as Chinese end users seek alternatives to high-priced domestic corn that is supported by subsidies. That should eventually pull more corn into Plains feedyards that had been using grain sorghum.

A Reuters’ survey of trade participants revealed expectations that this afternoon’s USDA weekly crop progress report will show that 87% of the U.S. corn crop was harvested as of Sunday, up from 80% the previous week. Farmers have been harvesting in the snow to get this year’s crop in the field.

U.S. corn is simply too expensive on the world market and we’re seeing enough move in the country to keep active domestic demand supplied. The futures market is anticipating that deliveries will increase in the new tax year, although many farmers will sell now on deferred payment plans. Today’s action doesn’t confirm a top yet, but it suggests that the market may be in the process of doing so. However, action in the soymeal/soybean pit will likely have something to say about that in the coming days as well.

Soybeans

Exporters shipped a record 114.4 million bushels of soybeans in the week ending November 13, beating the previous record of 102 million set just two weeks ago, which beat last year’s record 88.2 million bushels. The five-year average for the week is 68 million bushels, but that will obviously be rising.

Shipments to China accounted for 89.3 million bushels of the week’s shipments. Marketing year shipments to all destinations total 610 million bushels, up 90 million or 17% from the previous year. Exporters typically shipped 27% of final soybean shipments by this point in the marketing year, whereas they had shipped 32% by this point last year. However, they have already shipped 36% of USDA’s target for the current year. Shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 143 million bushels, versus 95 million the previous week.

The National Oilseed Processors Association reported that its members crushed 157.96 million bushels of soybeans in October, a record for the month and up from 99.97 million the previous month. The total was also up from trade expectations of 150.8 million bushels. I had submitted an estimate of 155.7 million bushels.

NOPA crush for the first two months of the soybean marketing year totals 258 million bushels, down 8 million from the previous year. NOPA crush to date falls short of the seasonal pace needed to reach USDA’s target by August 31 by 21 million bushels, versus short by 23 million the previous week. Profitable crush margins and an increase in the flow of soybeans should allow November crush to help close that gap, but we’ll have to wait until December 15 to see those numbers.

USDA’s daily export sales reporting system today indicated that china had purchased another 4.1 million bushels of U.S. current-year soybeans. However, 1.9 million bushels of the purchase were merely a shift away from sales already on the books to “unknown destinations.”

The trade expects USDA’s weekly crop progress report this afternoon to indicate that 95% of the nation’s soybean crop has been harvested, up from 90% the previous week. The trade for all practical purposes has moved beyond the growing season to focusing on demand and South American weather, which remains good over the next 30 days.

Both soymeal and soybeans broke below their ascending price channels early today, but then tried to pull back into the channel as export shipment and NOPA crush data became available. Soymeal basis continues to hold, which is a problem for the bears, but the data also suggests that the flow of soybeans and soymeal is starting to flow, which is a problem for the bulls. An additional big problem is South American weather, which currently looks quite good into mid-December.

Tomorrow’s follow-through will be interesting to watch. I saw a lot of uncertainty amid speculative traders today who really do not know supply and demand fundamentals. I currently do not see that the conviction is there to sustain this rally amid the big supply coming, but we’ll see. First significant upside objective for market bulls is $10.60, while this market would be expected to break sharply if $9.95 gives way.

Wheat

Exporters shipped just 5.1 million bushels of wheat in the week ending November 13, down from 11.1 million the previous week and down from the five-year average for the week of 15 million bushels. There were no new shipments to Brazil during the week as they focus on their own harvest. Marketing year shipments to all destinations total 419 million bushels, down 212 million or 34% from the previous year. Shipments to date fall short of the seasonal pace needed to hit USDA’s target by May 31 by 48 million bushels, versus being short by 39 million the previous week.

The trade expects USDA to peg winter wheat planting at 96% as of Sunday when it releases its data at 3 p.m. CST this afternoon, up from 93% the previous week. Keep in mind that the number moves closer to 100% either by advancing planting progress, or by declining expectations. The crop is expected to be rated 59% Good to Excellent, down 1 point on the week, while I wouldn’t be surprised if it comes in at 58%, simply because of how the ratings are done and the typical response to early November freezes in those ratings. It should still come in near or above the 10-year average for the period.

The cold weather still lingers, but the headlines about its potential impact on the wheat crop have largely disappeared. That’s typically what happens with November scares. The market will revisit the question if necessary in February and March. However, today’s pathetic export shipment data emphasizes the need to take prices lower to rebuild demand.

Beef

Cash cattle trade surprised some late on Friday, coming in at $170 to $172 per cwt on a live basis and $264 to $267 per cwt on a dressed basis. Live cattle futures pushed to new highs this morning as a result, but conviction for substantially adding to those gains simply wasn’t there. The futures market remains very cautious heading into turkey and holiday ham season, unwilling to project much of a premium or discount for the future, versus the cash market. In fact, December remains below its contract high of $171.975, while February didn’t hesitate to post a new high above $172.

Next week’s slaughter schedule should be shortened by Thanksgiving. That should help to support the product market as we head into the holiday period. Boxed beef movement at mid-morning today wasn’t all that heavy at 82 loads, but prices were higher. Choice cuts were up $254.19 per cwt, while Select cuts were up $1.53 to $239.82. That pushed the Choice/Select spread to $14.37 per cwt, which was a three-week high. Packer margins are estimated to be losses of $75.90 per head, versus $83.95 Friday and losses of $115.30 per head the previous week.

Feeder cattle futures found strength in cheaper corn and a firm fat cattle market. January feeder cattle remain below their contract high of $239.30 per cwt, but continue to creep closer to testing that level. The latest CME cash index came in at $239.83 per cwt, down $0.55 on the day and the fourth-day in a row of a lower index, with losses over that period totaling $1.86 per cwt.

Pork

Today’s cash hog market was mostly steady in the Midwest, with a few places in the eastern belt steady to 50 cents higher. The latest CME cash index came in at $88.25 per cwt, up $0.09 on the day. It was the fourth day in a row with a higher index, but gains over that period total just 33 cents. The market has stabilized, but there’s still no evidence that it can sustain a rally.

The same is true for the product market as well. While prices firmed modestly last week, ending a streak of five weeks of heavy losses, they haven’t shown an ability to sustain a rally yet. Product movement at midday today was soft at 162 loads, with the composite pork product price up just 2 cents to $95.95 per cwt.

December lean hogs added modestly to Friday’s gains, but traders were reluctant to go much above Friday’s highs. February turned modestly lower when it failed to test Friday’s session high early in today’s trading session. The charts still suggest that the market wants to move higher, but the near-term fundamentals still do not provide a reason for doing so. In the end, the industry’s ability to manage the PED virus over the next several months will be pivotal.

Last week’s hog slaughter is currently estimated at 2.219 million head after a big Saturday slaughter of 132,000. If it holds, that would be down 13,000 from the previous week. Even so, last week’s estimated slaughter is up 179K or 8.8% over the past eight weeks, which is a period when the industry expected a hole in supplies due to losses from the PED virus earlier in the year.

Some of the increase appears to be due to producers fearing even lower prices are pulling hogs forward. Carcass weights started trending lower last week, falling to less than 2% above the previous year’s level, versus the 5 to 6% above through much of the summer. That’s helping to offset the added production that comes from the larger numbers.

The latest production data currently available is for the week ending November 8, when 465.1 million pounds of pork were produced, up 21.7 million or 4.9% over the past five weeks. Pork production for the year to date is down 6% from the previous year’s pace due to the PED virus.

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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