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Closing Comments

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Closing Comments

Corn

Note: I will be off for the next 10 days, returning December 1st. Daily commentary will be covered by advisory staff. Best wishes and have a great Thanksgiving.  Sincerely, Arlan

USDA’s weekly crop progress report indicated that 89% of the U.S. corn crop was harvested as of November 16, up from 80% the previous week and above the five-year average for the week of 88%. However, concerns lingered for states still having corn in the field, covered with snow. Progress in states of particular interest included 94% of Illinois, 84% of Indiana, 92% of Iowa, 96% of Kansas, 59% of Michigan, 95% of Minnesota, 91% of Missouri, 91% of Nebraska, 85% of North Dakota, 92% of South Dakota, 81% of Ohio and 64% of Wisconsin corn.

The main concerns are with corn in Wisconsin and Michigan, where remaining unharvested corn accounted for 2% of the national crop as of November 16. Another 2% of the national crop was still in the field in Indiana and Ohio. There are concerns for Minnesota and South Dakota as well, but remaining corn there totaled less than 1% of the national crop. However, cold is expected to remain entrenched in that area, keeping snow in place. This is particularly a problem for end rows capturing larger drifts.

Corn futures trended lower throughout the day, breaking below the bottom of an ascending channel that had held the market since the first week of October. The bottom of that channel will be at $3.75 on Wednesday. Bounces are possible, but this market is showing signs of turning over, with renewed focus on expectations of big stocks this year, aggravated by good growing conditions in South America.

Soybeans

USDA reports that soybean harvest progress reached 94% of the national crop as of November 16, up 4 points on the week, but still lagging the five-year average for the week of 96%. Harvest progress in closely watched states included 96% in Arkansas, 95% in Illinois, 93% in Indiana, 98% in Iowa, 92% in Kansas, 92% in Michigan, 99% in Minnesota, 89% in Missouri, 100% in Nebraska, 93% in Ohio, 100% in North Dakota and South Dakota and 93% in Wisconsin.

USDA’s daily reporting system today included more demand news for soybeans. “Unknown destinations” bought another 3.7 million bushels of current-year U.S. soybeans. That will be presumed to be China, but we probably won’t know until the soybeans are actually shipped.

Soymeal basis continues to hold strong, indicating that supplies remain tight amid strong demand. In fact, basis was quoted at $7 higher at Claypool, Indiana, showing a bit more tightness there. Otherwise, most markets were steady across the Midwest at recent strong levels.

Meal stocks are tight enough, that additional price surges can’t be ruled out. We still haven’t seen confirmation of supply overwhelming demand in the basis market yet, leaving the possibility open. However, rallies are becoming more difficult to sustain, with speculative traders needing to be convinced that this market can stay strong longer-term, with a big South American crop possibly on the horizon. Weather south of the equator remains favorable for good soybean yields.

First significant support for January soybeans is in the $10.14 to $10.20 range, but a much larger sell-off becomes possible if the market breaks below support seen at $9.95 to $10.00. South American weather should increasingly become the focus going forward, particularly if we continue to see cancellations of previous soymeal purchases on the export market.

Wheat

USDA reports that 95% of the nation’s winter wheat crop was planted as of November 16, up 2 points on the week, but behind the five-year average for the week of 97%. We saw progress in most states, but cold weather entrenched across much of the belt will leave little opportunity for emergence of the newly seeded wheat, let alone establishment of a healthy root system ahead of harsh winter cold. That doesn’t guarantee a short crop next spring, but it does raise the risk of problems. I’m most concerned about 1.25 million acres in Kansas and a similar amount scattered across the Midwest, with nearly half that total in Illinois.

The crop rated a condition index score of 363 (500=perfect crop), unchanged on the week, down 2 points from the same week last year, but 12 points above the 10-year average for the week. The trade rightly expected a decline in crop ratings following the previous week’s insurgence of Arctic air across much of the belt, but that wasn’t the case.

Condition index scores for states of interest were 365 in Kansas, 385 in Nebraska, 348 in Oklahoma and Texas, 346 in Illinois, 374 in Missouri, 381 in Indiana and 379 in Ohio. Crop ratings dropped in Idaho, Illinois, Kansas, Michigan, Missouri, Montana, Oregon and South Dakota, were unchanged in Colorado, Nebraska and Ohio and increased in Arkansas, California, North Carolina, Oklahoma, Texas and Washington.

Reuters reported this morning that a ship was preparing to load 1.7 million bushels of French feed wheat for shipment to the United States. French storage facilities are full of cheap low-quality wheat due to persistent rains at harvest. The shipment would be the first large shipment of wheat from France in 12 years, but it also emphasizes the problems that U.S. wheat fundamentals have at current price levels. U.S. wheat is priced too high on the global market.

Wheat prices gave way to follow-through selling today, with reports of French wheat coming to U.S. shores adding to the bearish tone. Lingering support can be seen from the delayed planting/development of the winter wheat crop. That leaves the crop vulnerable this winter in Kansas and the Midwest. Similar threats exist in China, Russia and Ukraine. However, such threats are difficult to sustain rallies ahead of the February/March time period. In the meantime, our prices are losing business overseas and attracting imports of cheaper supplies to U.S. shores.

Beef

Futures traders seem to have given up near-term on trying to anticipate the direction of the cash market. Prices rallied Monday to catch up to Friday’s cash market values, but pulled back modestly today in eerily quiet trade as we traders wait for fresh direction from the cash market. The balance between supply and demand remains quite tight. Packers have a shortened slaughter week due to Thanksgiving next week, but this week’s showlist was also much smaller; especially in Texas.

Packers continue to be aggressive in the contract market, with some rumors of offers of $2 over futures for delivery in the first quarter of next year. They have been relatively effective at keeping supply and demand in balance by doing so, avoiding having to fight over a limited supply in the negotiated market. At times, they end up short, which is when the cash market spikes. Other times, they have more than they need, allowing the market to fall back. Early expectations are that this week’s cash will be steady, to perhaps a bit firmer, but that can quickly change.

The tightest supplies are expected over the next six weeks. That’s also a time when retailers focus on turkey and holiday hams. However, this year’s cold temperatures will also make it difficult to hold gains, likely leading to lighter carcasses. As such, the fundamentals look to remain tight a bit longer.

The trade expects Friday’s USDA cattle-on-feed report to show that 10.564 million cattle were on feed on November 1, which is 99.8% of year ago levels. October placements are expected to be pegged at 2.283 million head or 96% of the previous year. October marketings are expected to be pegged at 1.699 million head or 93% of the previous year.

Product movement dropped to 145 loads Monday, down from 191 loads on Friday, but up from 128 loads the previous week. Choice cuts were up $2.11 to $254.27 per cwt, their highest level in three months. Select cuts were up $1.74 to $240.03 per cwt, which is their highest level since August 21. This pushed the Choice/Select spread to $14.24 per cwt, up from $13.87 the previous day and its strongest since October 24. Boxed beef movement was good at mid-morning today at 102 loads, with Choice cuts down $0.02 per cwt, while Select cuts were up $1.33.

Feeder cattle were primarily a follower of the fat cattle market once again. CME Group reports that 108 head of light-weight cattle averaging 656 pounds sold at Ft. Pierre, South Dakota for $274.94 per cwt. Demand for light-weight cattle has been strong in the northern Plains, where corn prices are the cheapest. However, demand has softened further south, following the recent rally in corn values. As such, the latest CME cash index dropped another $0.64 to $239.19. The index has been down five trading days in a row, with losses over that week period totaling $2.50 per cwt.

The December and February live cattle futures contracts were content to trade above $170 today, although there was a lack of enthusiasm for pushing prices higher. Feeder cattle futures are still trending higher, but remain below recent highs, with the cash market making further gains increasingly more difficult.

Pork

One of the things that we’ve been warning about is the premium of the futures to the cash fundamentals. Lean hog futures rallied $7 over the past two weeks, at a time when the cash market and product markets merely showed an ability to stop their bleeding and stabilize. Futures traders finally took notice today, correcting sharply lower to close the gap.

The latest CME 2-day lean hog index came in at $88.01 per cwt, which is well below the lead December contract and down $0.24 on the day. The index had been higher on each of the four previous days, but gains over those four days simply totaled a mere 33 cents. However, we are likely looking at a sideways index near-term. Today’s Midwest cash market was mostly steady, with the Iowa/Southern Minnesota market $0.50 to $1.00 higher.

Product movement dropped to 266 loads Monday, down from 275 loads  the previous day and down from 272 loads the previous week. The composite pork product price dropped to $95.59 per cwt, down $0.34 on the day. The composite price was down another $1.07 to $94.52 today on good movement of 261 loads at midday.

December lean hogs remain several dollars above the cash market, even after today’s break. The two need to come together over the next several weeks. February lean hogs bounced just above the 50-day moving average today, currently at $90.20. That becomes the first area of support to watch. The key Iowa/Southern Minnesota market is garnering support from cold temperatures, which may help this market find firm footing here in the weeks ahead, but ultimately we need to see strength in the product market to sustain a rally in the cash, and therefore futures.

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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