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Closing Comments

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Closing Comments

Corn

Exporters shipped an impressive 47.1 million bushels of corn in the week ending September 4, the first week of the new 2014-15 marketing year, up from 34.8 million the previous week and up from the five-year average for the week of 25.6 million. Marketing year shipments since September 1 total 28.6 million bushels, up from 8.2 million the previous year. Export shipments to date exceed the seasonal pace needed to reach USDA’s target by August 31 by 10 million bushels.

USDA will release its weekly crop progress and condition ratings this afternoon at 3 p.m. CDT. The trade expects USDA to leave its corn ratings unchanged from the previous week. Harvest reports thus far have largely been in the 170 to 240 bushel per acre range, with central Illinois yields of 220 to 250 bushels. We know that there are areas of the Midwest that have lower yields, due to excessive wetness, dryness, etc., but these big  yields are pushing the average upward.

The midday GFS forecast model ease up a bit more on the frost risk for the northwestern Midwest, giving market bears greater courage in pushing the market lower. Prices sit just above last week’s contract lows. Traders may not want to challenge those lows until they have a better feel for this weekend’s frost event, as well as Thursday’s USDA crop estimates. However, the path of least resistance remains lower for prices as big yield reports continue to make their way to Chicago.

Soybeans

Exporters shipped 6.4 million bushels of soybeans in the week ending September 4, the first week of the new marketing year, up from 1.7 million the previous week, but down from the five-year average for the week of 10.9 million bushels.

Marketing year shipments for the first 4 days of the new marketing year total 2.9 million bushels, up from 1.8 million the previous year due to very tight old-crop supplies at this time of year the past couple of seasons. As such, the early pace of shipments falls short of the seasonal pace needed to hit USDA’s target, but that is expected to change as soon as greater supplies of new-crop soybeans become available.

Harvest yield reports from the Delta continue to come in primarily between 50 and 90 bushels per acre. We’re also hearing reports from as far north as central Illinois at 60 bushels per acre. Thus far, we’re hearing far more big yields than we are disasters due to disease, supporting ideas that USDA will be pushing its yield estimate upward on Thursday.

Soybeans followed a similar path to corn today. Prices turned lower overnight when November soybeans were unable to challenge the top of the recent wedge on the charts. Easing frost fears also pressured prices, along with expectations that USDA will confirm a big crop on Thursday. However, it’s still questionable whether traders want to push November soybeans below $10 before Thursday’s crop report and/or until they know more about this weekend’s potential freeze event in the northwestern belt.

Wheat

Exporters shipped 19.5 million bushels of wheat in the week ending September 4, down from 28.4 million the previous week and down from the five-year average for the week of 23.7 million. There were no shipments listed to Brazil during the week. Marketing year shipments to all destinations total 260 million bushels, down 116 million or 31% from the previous year. Shipments to date exceed the seasonal pace needed to reach USDA’s target by May 31 by 12 million bushels, but that is down from 14 million the previous week.

Good protein wheat supplies are a bit tighter than wheat overall, leading end users to find value in hard red winter wheat at current price levels. The same is true for hard red spring wheat as well, but it’s also feeling some harvest pressure. Meanwhile, Chicago wheat remains under pressure from big surplus supplies of soft red winter wheat. Gains are capped by sinking corn prices and increased moisture for key wheat producing areas that were previously dry.

Beef

Boxed beef movement the last week of August was the strongest of the year. Last week was a day shorter due to the Labor Day holiday, but movement almost reached the previous week’s level. Retailers are suddenly trying to extend coverage in case prices continue to go higher.

Slaughter totals were just below 600,000 head through the period, with this week’s kill likely in a similar range. Current demand suggests that packers need to be a bit more aggressive in bidding for cash cattle at current demand levels for the product. Meanwhile supplies remain tight, with numbers expected to be even tighter as we move into winter as the industry holds back heifers to expand the cowherd.

Packer margins remain near $35 per head, providing the revenue for them to be aggressive acquiring supplies if they need to be amid the tight supply. Product movement last week totaled 925 loads, down from the previous week’s high for the year of 981 loads. Choice cuts finished the week at $248.67 per cwt, up $2.37 on the week. Select cuts finished the week at $236.25, up $1.86 on the week.

Movement at mid-morning today was good at 93 loads. Choice cuts were up another $2.71 per cwt, while Select cuts were up $2.03. This strengthened the Choice/Select spread to $13.10 per cwt.

October live cattle futures fell short of testing the contract high of $160.75 per cwt, leading to profit taking this morning that pushed prices lower on the day. Fund managers are simply too nervous at these high price levels that demand will wane. However, the deferred contracts didn’t feel the same level of selling pressure, with the underlying fundamentals continuing to suggest that we will need to ration demand.

Feeder cattle took note of that strength, pushing prices to new all-time record highs on the board. Feeders are optimistic that the fat cattle market will be there when they needed it to be, along with a big corn crop cheapening feed prices. The latest CME cash index came in at $2.24.28 per cwt, up $1.37 on the day and just below this summer’s record high of $225.68.

Pork

Lean hog futures led the cash market lower this summer, often trading $20 below the cash market. However, that pattern switched, with futures trading $10 above the cash market. This made traders nervous, resulting in active profit taking in the lead October contract today.

The cash market was steady to $1 higher, but packer margins are evaporating, coming in at roughly $2 per head, leading traders to worry about the current lofty premium for the lead contract. Yet, the deferred contracts firmed once again, trying to keep up with the cash market as the highly-anticipated hole in supplies approaches. Carcass weights continue to trend lower at a time when they normally would be trending higher.

The latest CME cash index came in at $95.80 per cwt today, up $0.35 on the day. It was the first time in seven weeks that a higher cash index was posted.

Product movement last week totaled 1,472 loads, down from 1,604 loads the previous week. However, prices firmed during the week, stopping a trend of six straight week of sinking prices. Friday’s composite pork product price came in at $103.16 per cwt, up $1.44 on the week. Movement at midday today was routine at best at 145 loads, with the composite price up another 50 cents per cwt.

October lean hogs have first significant resistance near $106 per cwt, with first significant support at $102, followed by $98.

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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