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Closing Comments

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Closing Comments

Corn

Exporters shipped 34.8 million bushels of corn in the week ending October 2, up from 23.7 million the previous week and up from the five-year average for the week of 31.8 million bushels. That brings shipments through the first 32 days of the 2014-15 marketing year to 158 million bushels, up 65 million or 69% from the previous year. Shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 3 million bushels, versus exceeding it by 2 million the previous week.

Exporters shipped 6.2 million bushels of grain sorghum in the week ending October 2, down from 11.7 million the previous week, but up from the five-year average for the week of 2.0 million. Shipments to China accounted for 4.4 million bushels of the past week’s total. Marketing year shipments to all destinations total 31.2 million bushels, up 13 million or 71% from the previous year, largely due to increased demand from China.

USDA’s daily export reporting system today included more corn sold to “unknown destinations.” The sale totaled 8.3 million bushels. We probably won’t know who the buyer is until the corn is shipped. It could be Mexico, Japan, South Korea, or another buyer.

Wet weather will slow the harvest, especially in southeastern areas of the belt. The past weekend’s freeze was a bit more than expected, likely resulting in some quality problems in the northwestern belt. The dollar was lower for much of today’s session, bringing money flow back into the broader commodity sector. Friday’s USDA crop report has traders nervous, resulting in some profit taking.

All of the above factors supported a short-covering rally today. The move was likely amplified by strength in the broader commodity sector. The trade is generally looking for about a 3-bushel increase in the U.S. corn yield Friday, along with harvested acreage dropping by a couple million, leaving ending stocks below the psychological 2 billion-bushel mark. Based on the harvest reports we are hearing and the fact that farmers were not penalized by delaying certification of acres until December, I think the market is set up for a bearish surprise on Friday, but USDA is known for its curve balls.

December corn climbed higher throughout today’s trading session, building on overnight strength as money flowed into the broader commodity sector. The contract peaked at the end of the day, essentially at the 2-day moving average. More buy stops are likely located above the indicator, with next resistance at $3.3575. Keep in mind that we rallied 23 cents in August, before falling nearly 63 cents. Keep the big picture in mind, with the bulk of this year’s bearish pressure yet to be felt as the crop searches for a home in late October into November.

Soybeans

Exporters shipped 35.8 million bushels of soybeans in the week ending October 2, up from 25.6 million the previous week and up from the five-year average for the week of 28 million. Shipments to China accounted for 21.6 million bushels of the past week’s total.

Marketing year shipments for the first 32 days of the  year total 91 million bushels, 24 million or 36% from the previous year. Shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 7 million bushels, after matching the pace the previous week.

Concerns that the weekend freeze will produce more “green beans” and harvest delays due to wet weather in southern and eastern areas were supportive of a short-covering rally. Additional strength came from hedge fund managers covering a portion of their massive short (sold) positions ahead of Friday’s USDA report, just in case the agency throws a curve ball.

November soybeans firmed through the day, with the 20-day moving average still nearly 18 cents above today’s high. In fact, gap resistance sits between $9.5475 and $9.56. The bottom line is that a short-covering rally can move impressively higher without confirming a bottom. Like corn, the most significant amount of fundamental pressure is still likely ahead of us.

Wheat

Exporters shipped 23.9 million bushels of wheat in the week ending October 2, up from 22.3 million the previous week and up slightly from the five-year average for the week of 23.5 million bushels. Shipments to Brazil accounted for 4.9 million bushels of the total. Marketing year shipments to all destinations total 351 million bushels, down 176 million or 33% from the previous year. Shipments to date fall short of the seasonal pace needed to reach USDA’s target by May 31 by 11 million bushels, versus being short of the pace by 15 million the previous week.

Cheap prices definitely gave a boost to demand on the export market, supporting a bounce in wheat prices. The food grain has been trying to carve out a bottom for some time, but I’m not optimistic that it will be able to sustain a rally at this point. That’s because I’m looking for strength to return for the dollar, as well as weaker corn prices. Furthermore, dry areas of the Southern Plains are expected to see good moisture later this week from the remnants of tropical storm Simon.

Chicago and Kansas City December wheat pushed just above the 20-day moving average, while Minneapolis fell just short. Wheat is the easiest of the three to build a case for an extended rally at this point, but even that case is suspect, as it would be difficult to climb higher against the current of a strong dollar and falling corn prices. It can happen, but it will be a difficult climb if it does, especially in an environment where money is flowing out of the commodity sector. That money was flowing in today, facilitating a nice bounce in the grains, but it is expected to flow out again as the dollar re-asserts its strength.

Beef

Feeder cattle futures came  under profit taking pressure today as corn prices pushed higher. Traders get very nervous at these high altitudes and are quick to take profits on the first signs of potential problems. However, the CME cash index continues to push higher. The latest index came in at a record high $236.42 per cwt, up $0.95 on the day.

However, the fat cattle market found renewed strength today, following positive cash action on Friday and stronger boxed beef prices. Last week’s boxed beef movement was the strongest for 2014 at 1,076 loads, up from 1,064 loads the previous week.

Choice cuts finished last week at $238.32 per cwt, up $0.66 on the week as the market showed signs of carving out a bottom. Select cuts were at $226.36 per cwt, up $0.88 on the week. This left the Choice/Select spread at $11.96 per cwt, down $0.22 on the week.

Packers dropped product prices in recent weeks to maintain their market share, particularly ahead of National Pork Month in October. The strategy appears to have worked well, with strong beef movement in recent weeks. They’re managing the input end by aggressively contracting cattle with basis contracts, trying to reduce the number of head that they have to fight over in the negotiated market.

December live cattle spent most of today’s session consolidating higher inside Friday’s trading range. It’s been a roller coaster ride for the market, with profit taking driving prices lower each time demand pushes it to new highs. As such, we’re again in the vulnerable phase for the market, but we also still see good demand beneath it at this point.

Pork

Today’s cash hog market was mostly steady, to 50 cents lower in portions of the eastern Midwest. The cash market is softening, as futures traders anticipated, based on recent action in the lead October contract. The lead October contract, which expires on the 14th, has been largely trading between $105 and $108 in recent weeks, while the cash index topped out last week at $109.73. However, the latest CME 2-day index came in at $109.68, down $0.05 on the day.

The strength of the hog market has been in the product market, with the composite pork product price trading $23.57 per cwt higher than it did on August 27. A combination of domestic and export demand that has been stronger than expected considering this year’s price levels and the strength of the dollar helped support the market. However, that may change once we get past National Pork Month, with retailers looking to the alternative meats within the next couple of weeks.

Product movement totaled 1,448 loads last week, down from 1,568 loads the previous week and a nine-week low. That came at a time when beef movement was reaching new highs for the year. The composite pork product price finished the week at $123.75 per cwt, up $5.12 on the week, but prices may be vulnerable as we move deeper into October. Movement at midday today was slow at 125 loads, with the composite price down 15 cents from Friday’s level.

December lean hogs continue to trade primarily between $93 and $96 per cwt. I’m concerned that this market may be vulnerable to breaking lower, despite the current strength in the product market.

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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