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Closing Comments


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Closing Comments


Corn received yet another bearish surprise from the USDA today, as they reported their latest yield estimate at 169.9 bpa, up from 169.5 bpa in August. Average trade estimates leading into today were 167.8 bpa. One of the big topics of controversy has been ear weight, and this declined to .342 lbs, but is still the 5th highest ever. Of the Big Four, IL was bumped up +1 bpa, while IA, NE and MN were downgraded -1, -1 and -2 respectively. South Dakota was one of the surprises, getting a boost of +5 bpa, North Dakota was +3 bpa. Ending stocks for 2017/18 were upped to 2.335 bbu from 2.273 bbu, while 2016/17 were down slightly to 2.35 bbu from 2.37 bbu. Leading into the report, crop conditions did not offer any surprises as they were pegged at 61% good/excellent, right in line with expectations. Running 10% behind was crop maturity (or black-layered) at 21%, while 75% is dented (also 10% behind normal). Harvest was right on target with projections at 5% complete, mostly in the south and southeast. Dec corn finished –6 at 3.51 ½, rebounding into the close without establishing a new low.  For those who are of the more bullish mindset, the wait begins for actual harvest results.


Soybeans, like corn, also received a bearish nod from the USDA, as they raised their yield estimate from 49.4 bpa to 49.9 bpa. Trade analysts were expecting 48.7 bpa on average. The USDA used a record large soybean pod weight of .34 grams, 1.5 grams above last year. Pod numbers on the other hand are at their lowest level since 2008. This could be a volatile combo come the October report, if the USDA is wrong on weight. The Dakotas both saw improvement, with South Dakota up +4 bpa from the last report. Ending 2017/18 stocks were unchanged at 475 mbu, while 2016/17 went from 370 mbu in August to 345 mbu. Chinese imports were upped 1.0 MMT for old crop and for new crop as well. Pre-report crop conditions were announced yesterday at 60% good/excellent, which was right in line with trade expectations. The USDA reported a private sale to “unknown” of 132K MT of soybeans for 2017/18. November soybeans reached a session low of 9.37 ½, before bouncing back at the close to 9.50 ½ (– 9 ½).  


Wheat was least negatively affected by the report today, and was able to break free of the downward pull of the other grains: Chicago +7 ¼, KC +7. Minneapolis HRS was down slightly, – ½ (Dec). The U.S. balance sheet did not feature any revisions as both 2016/17 and 2017/18 ending stocks were left unchanged. World wheat supply for 2017/18 declined from 264.7 MMT to 263.1 MMT, and 2016/17 from 258.6 MMT to 255.8 MMT. WASDE increased their estimate of the Russian wheat crop by 3.5 MMT to 81 MMT, and Russian exports up by another 1.0 MMT. Yesterday afternoon, the USDA reported spring wheat harvest at 95% complete, well above the average of 82%. The French Ag Ministry released their latest production estimate showing a 1.0 MMT increase from the last estimate to 37.8 MMT. If accurate, this would be the 3rd largest soft wheat yield on the books. Is the wheat low now in?


Live Cattle gave in to pressure, finishing –.925 (Oct) and –1.325 (Dec). Will the larger supplies this year lead to a counter seasonal break? According to Hightower, cheap corn, good weather, and the premium of October cattle to the cash markets are all factors which may entice feedlots to feed cattle out to a higher weight, and the recent trend to higher weights is bearish. Average steer carcass weights have risen 55 lbs since May. This year production is expected to increase a record 335 million lbs.


Hogs continued their descent down the charts, as selling pressure overcame buying, -2.125 (Oct) and –1.525 (Dec). The market is receiving a measure of support from October’s larger than usual discount of futures to cash as well as increased capacity with the opening of two new processing plants this month. The five-year average discount to cash is 1.45, while this year it is 7.25. The pork cut-out has continued to lose value, with nearly another 20% decline by the end of the year.


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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