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Closing Comments

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Closing Comments

Corn

Corn broke its uptrend line today on light volume, closing nearly on its lows as liquidation of the December open interest continues to weigh on corn along with weakness from the soy complex. December options expire this Friday and the market seems to be migrating to the option volume around the 360 area.

Exports and price competitiveness continue to be a longer term concern for the market as reports of more Ukrainian corn coming to the global market as well as French wheat destined for the southeast US market due to on-going logistics issues, strong dollar and European supply.

Ethanol production is the bright spot in the corn complex.  For last week production was reported up 2.5% vs the previous week and up 7.3% over the previous year. Corn used in last week’s production is estimated at 101.85 million bushels just above the USDA needed weekly pace of 99.404 million bushels. While ethanol stocks dropped from last week, they are still above last year levels with spot margin in ethanol over $2 however deferred months closer to 25 cents.

Corn closed below the 24 day moving average but December should find nearby support in the 3.60 area. If 3.60 doesn’t hold the next two sessions, the corn may try to migrate to the option volume at 3.50.

Soybeans

Light on news today, January soybeans dropped 18 ½ cents today near the 10.00 support today after falling immediately after the open of the day trading session. Talk of export demand concerns developing and soy meal continuing to soften, some weakening of western meal basis along with fund profit taking ahead of the holiday added to the weight of the market.

Estimates for tomorrow’s export report are 700-1,000 mt versus 1,074 last week.

January soybeans closed below the 24 day moving average and the lowest daily close in 19 days.

Wheat

Wheat joined the grain weakness, drifting lower throughout the session closing lower but not before posting a last 15 minute rally off the lows.

Disappointing export pace, warming temperatures the next few days and growing concerns over EU bird flu add to the bearish tone in wheat.

Light news and light volume kept the recent rally from holding up but still closing Chicago December above the 20 day moving average however still 20 cents above nearby support.

The December Kansas City over Chicago spread seems to be trying to develop a short term bottom at support around 44 cents, posting a bit of strength in the spread today. Typically a strengthening wheat complex is let higher by Kansas City. That spread has been weakening continually since October 17th.

Beef

The futures trade for live cattle was rather quiet today, trading both sides of unchanged, but the dips continue to be shallow as buyers prop up the market on the tight herd size, supportive wholesale beef prices, and anticipation that Friday’s Cattle-on-Feed Reports will show 4% lower placements compared to last year at this time. Cash trade has not developed yet, and likely won’t until later in the week, but asking prices remain at $175 on a live basis. As time has gone on, the packers have done better at not ending up “short-bought”, securing a larger amount of contract cattle, and in some cases, turning around and putting animals back on feed after they’ve attained possession.

 

Despite the supportive tone, we’re also not seeing a lot of “willing” buyers near contract highs, especially ahead of the reports on Friday. In all likelihood, we’ll see some back-and-forth action on continued jockeying for position ahead of the figures, unless we see cash trade develop ahead of that. The tightest supply is nearing, along with winter, so any cold bursts/winter storms in the coming month(s) will certainly have an impact on cash trade and futures.

 

At mid-day, boxed beef was higher as choice prices rose .68 to 254.97, and select was seen at 243.16, up 1.90. Movement was rather light so far on the day with only 97 loads traded.

 

Feeder Cattle futures spent most of the day in lower territory, but also saw a mixed trade for the session. Lower corn futures helped prop the market up throughout the session, and with the most recent CME cash index at 240.09, not much downside is seen. The November Feeder Cattle contract is trading around the 240.50 level going into tomorrow, which is the last trade date, after which the January contract will take over as the lead month, and is currently at a discount of about $3.00.

Pork

Some profit-taking was noted today in Lean Hog futures after the weak performance yesterday. Bear spreading was a continued theme as the February contract experienced stronger gains at a time where pork product prices have sagged and cash remains steady. At mid-day, mandatory FOB plant prices were down 1.38 for carcass at 92.78 with 275.54 loads trading. Bellies were down .66 at 92.46.

 

The discount that futures hold to cash may keep sellers from pressing things too hard in the near-term, especially with cattle prices firming and the charts threatening to turn higher. A sideways bias may be in store as we approach the holiday time frame, but cash needs to converge with December futures at some point soon as the last trade date for that contract is December 12th.

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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