Daily Grain / Hogs Marketing Outlook Written by: Jim Gerlach 10/28/2014

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Daily Grain / Hogs Marketing Outlook
Written by: Jim Gerlach
10/28/2014
Early Call 8:45am EDT: Corn up 5-6, soybeans up 15-16, wheat up 7-8. The key to the grain sector
remains soybean meal. Another strong rally in that market overnight pulled soybeans to double-digit
gains, leading to an important rally in corn that saw the Dec contract take out its September high.
Wheat contracts were also rallying early Tuesday. Outside commodities were mixed, with buying
interest limited by the rally in the U.S. dollar index.
Grains: Soybean prices surged on Monday thanks in large part to signs of strong foreign and
domestic demand for the oilseeds. Corn and wheat also rose. Soybean prices jumped to a fresh onemonth high, defying weather forecasts for mostly clear skies this week, which will help accelerate the
pace of the U.S. harvest. Rainfall earlier this month had stalled fieldwork across much of the U.S.
Midwest, limiting available supplies and prompting a rally in commodity prices at a time when values
typically sink as ample crops weigh on markets. Prices for the oilseeds were bolstered on Monday
amid evidence of robust overseas demand for U.S. supplies, as the USDA said private exporters had
booked sales of 120,000mt of soybeans to China for delivery in the 2014-15 crop year, as well as
110,500mt to unknown destinations for delivery during that same time period. The news comes after
the USDA last week reported better-than-expected export sales of the crop. Stronger-than-expected
demand from U.S. processors, who turn soybeans into products like meal for use in animal feed, had
also boosted prices for the crop. Demand for soybean meal from U.S. livestock producers is also
strong, but exporters have soaked up much of the new crop. Soybean futures for November delivery
soared $.28 ½ to $10.06, the highest closing price since Sept. 12. Meanwhile, corn futures soared to a
more than two-month high despite forecasts for favorable weather which will benefit U.S. farmers,
who are set to harvest a record crop this year. A spike in prices last week had encouraged farmers to
hold on to their crops, betting that prices would rise further from five-year lows seen at the start of the
month. Prices were also buoyed by speculative investors, including hedge funds, which have been
buying grain contracts amid uncertainty in other markets. December corn delivery soared $.10 to
$3.63, the highest settlement price since Aug. 22. Wheat prices rose, supported by strength in corn and
despite the quickened pace of planting by farmers in the eastern U.S. Midwest, who have been delayed
in seeding fields with soft-red winter wheat due to rainy weather. The wheat, which is used to make
animal feed and flour for cakes and cookies, is typically planted after farmers finish harvesting other
row crops. CBOT December wheat rose $.05 to $5.22 ¾.
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So goes meal, so goes soybeans and trailing
behind, corn and wheat. That has been the
story of this year’s harvest, although it
remains to be seen what the longer-term
impact will be. Rallies in futures will
generate soybeans, but from what I can tell,
that’s not the issue as plants are getting
stuffed full now. The problem lies with the
combination of strong export programs, poor
logistics and less than ideal quality of
protein, particuarly in the WCB. A report
yesterday from the Powerline Group
(www.powerlinegroup.net) noted that the
bottom line appears to be that most of the
bearish news has been factored in (i.e. trade
was well aware of record crop size/potential
well before harvest), and farmers (flush with
capital after back-to-back record years, and using some of that profit to build additional storage
infrastructure) have been reluctant marketers at low prices. This combination somewhat
surprising/overwhelming a cash trade that is struggling with record export programs in the soy
complex (beans and meal) and still stinging from logistical constraints (rail and barge
performance/cost). In a nutshell, the crop is out there to support those record programs, but it’s not
reached a point as yet where actual movement of those products into the commercial pipeline has
reached a level needed to meet those demands. How does the market then achieve a level of comfort
with soy/grain movement to satisfy these record large programs? An acceleration of price it appears.
To date, a low-to-high rally of almost 50-cents in Dec corn and nearly a dollar in Nov beans has not
yet done the job? How much more it might take to do so, then becomes an open question. For an
answer to that question, the best clue may come from the soymeal market. Meal has to so far given the
upside leadership to the soy complex, as crushers have struggled to maintain supply flow and protein
content (quality) that matches the capacity needed to execute record export sales already on the books.
While we’ve come off the extreme values from this summer, crush margins still remain north of
$2.00/bushel. The ability to lock in this size of a crush margin gives the plants/buyers a huge amount of
variability to bid up values and ’hunt’ for supply. That situation will remain the case until such time as
those margins begin to weaken significantly. Further, and perhaps even better, evidence can be found
in the spread between Dec’14 and Jan’15 meal futures. Note that even with the harvest decline in
prices (more likely because of the early Oct price decline), the spread has exploded higher in recent
weeks as crushers and exporters desperately search for supply. If you want a clue as to when the
current rally will give way, this is what you want to watch. Warning though – strong inverses typically
end in dramatic an poor fashion. The collapse will likely be ugly when it does come. While we think
that end should be fairly close, there is no evidence in the price action as yet to support that view.
Keep your eye on the meal and the meal spreads.
Bullish soybean traders are pointing to the fact that final U.S. soybean demand has exceeded the prior
year USDA November forecast in 6 of the last 7 years by an average of 127mb, including USDA’s
Nov 2013 Crop Report which underestimated final 2013/14 U.S. soybean demand by 235mb. As it
stands today, the USDA may indeed be understating 2013/14 U.S. crush and exports by 75-100mb
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given record-setting new crop soybean and soymeal export sales. However, a 1.2bpa gain in October to
final U.S. soy yield would accommodate this extra demand. Let me make one thing perfectly clear:
we have a logistics, not a supply issue in the soybean/soybean meal markets. There will be
PLENTY of soybeans and soybean meal to consume this season, with global soybean stocks projected
to be the highest ever. Under normal circumstances, futures rise to discourage consumption and/or
increase supply. While it’s too late to increase supply in the U.S., the current rally is sending a strong
signal to South American growers to raise all they can. Based on trade talk, we are discouraging some
demand for U.S. soybean meal as 5+ cargoes (250,000mt) of meal has reportedly been cancelled and
replaced by Argentina, leaving this soybean meal to meet domestic demand.
Speaking of foreign demand, the sharp drop in the Brazilian Real and strong rally in the U.S. dollar
will also make their soybeans cheaper while ours get more expensive to foreign buyers. On the
domestic demand front, ECB soybean meal buyers, who are paying $55 over Dec futures as it is, will
likely once again be looking to increase corn DDGs and synthetics like lysine at the expense of
soybean meal. The real issue impacting U.S. soybean and meal prices are logistically related.
Exporters are being hit from all sides, having already committed huge sales for Oct-Dec and
finding issues with rail service and problems in the WCB meeting the 47% protein requirement.
Again, a rise in futures isn’t going to help either of these problems go away, so what the market is
likely doing is pricing U.S. soybean meal at levels that cause origin switching to South America. Long
term, this is NOT bullish as it means U.S. soybean meal exports are likely to suffer and domestic
demand may be crimped as end users turn to cheaper alternatives. Over the short-term, as the old
saying goes, “the market can stay irrational longer than you can stay solvent.” Seasonally, corn
and soybeans are typically steady/firm in the last half of October before rolling over in early
November, while wheat usually erodes late October into mid-November. In fact, CBOT Dec wheat has
declined from 10/27-11/19 in 14 of last 15 years while July corn has declined from 10/31-12/7 in 13 of
last 15 years. Producers need to be ready to finalize their 2014/15 grain hedges and initiate
2015/16 hedges on a chart failure.
Yesterday’s Commstock report also believes the staying power in the grain markets may be shortlived. Frankly, I have low expectations for significant seasonal price improvement next spring. There
should not be competition for acres as there are too many for all. Years with increased ending stocks
as we will see currently have poor seasonal price improvement. The carry and some basis
improvement are about all that can be expected. It takes someone on the long side to push an uptrend.
The funds sponsored the long side last year and sorely regretted it. An uptrend in the dollar and signs
of deflation will keep them away. Last week's high in December corn tested previously broken support
as resistance at $3.65. Last week's high in November soybeans at $10.02 tested the continuation gap
left when the September contract expired. Fundamentals are not more bullish today than they were
when the September contract expired. Oversold technical extremes have been corrected with this rally.
The focus will soon begin to shift to the November crop report and higher yields and larger carryovers
are expected.
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U.S. corn harvest was 46% complete
compared to 56% last year and the
five year average of 65%. The trade
had generally expected harvest to
reach 42%. The only state with
progress ahead of average was
Tennessee at 94% against 92% on
average. The good/excellent rating
was reported at 74%, unchanged from
last week and compares to 62% last
year. The poor/very poor rating was
7%, unchanged from last week.
Mature was 96% complete compared
to 97% last year and the five year
average of 97%.
U.S. soybean harvest was 70%
complete compared to 75% last year
and the five year average of 76%. The
trade had generally expected harvest
to reach 64%. The bean harvest
remained is basically done in the
northwest corn belt. The market
should expect for the U.S. harvest to
catch up to average over 90% by next
week. Most in the west indicate
farmers are done with soybeans and
are concentrating on corn. Winter
wheat planted was 84% compared to
85% last year and the five year
average of 84%. Wheat emerged was
67% compared to 63% last year and the five year average of 62%. The first good/excellent rating was
59% compared to 61% last year. The trade had generally expected a 62% rating. Cotton was rated 48%
good/excellent, up 1% from last week. Bolls opening were 91% complete compared to 90% last year
and the five year average of 95%. Harvest was 42% compared to 32% last year and the five year
average of 41%.·Rice harvest was 96% complete compared to 93% last year and the five year average
of 91%.·Sorghum mature was 91%compared to 94% last year and the five year average of 91%.
Harvest was 56% complete compared to 63% last year and the five year average of 60%.
The highlights of RJO’s Weekly Crop Roundup included an active, harvest belt-wide (beans in
east/corn in west), declining corn moisture, minimal farm selling, lower 2015 SRW area and better
than expected row crop yields across IL/IN/SD/NE vs. more variable yields in IA/MN/ND and
northeast AR. Soy harvest is in full swing across the eastern Midwest since late last week. Soy
processor bids are hanging strong despite the accelerating harvest. Reporters are far from confident on
sales pressure during the last 20% of corn harvest, but they do note producers are making every
attempt to hold as much grain as possible. An Indiana reporter noted long truck lines this weekend at
elevators/processors, while an IL commentator noted “commercial space is starting to tighten up”. IA
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row crops are characterized as “average but not record,” with an emphasis this week on corn where
“very few yields reported over 210bpa.” Select MN/NE farmers will be wrapping up harvest by the
end of the week. SD row crop yields characterized as “great” while western ND yields clock in better
that eastern ND. Low basis levels in portions of the Dakotas ($1.00 or more under for both corn and
soy) are encouraging tight farm holding. OH/Delta SRW area could be down 20%+ vs. last year.
Brazilian analytical firm Safras indicated that soybean planting in Brazil was now 12.5% completed
against 26% last year and 31% on average. Soybeans in the largest producing state of Mato Grosso
were just 16% finished against 48% last year and 48% on average and 2nd leading state Parana sees
planting 28% done against 54% last year and 49% on average. Some also suggest that delays in
planting beans in the center west would lead to lower plantings of Brazil’s safrinha corn crop in late
February and March. Kazakhstan expects to harvest around 15.5mmt of grain by clean weight this
year, a senior Agriculture Ministry said, raising the forecast from an earlier estimate of between 1415mmt. The country plans to export 8mmt of grain in the 2014/15 marketing year and this year's
harvest will be smaller than last year's crop of 18.2mmt but will be significantly higher than the
drought-hit crop of 12.9mmt in 2012.
On the demand front, farmers were actively harvesting beans over the weekend and weather conditions
should favor additional harvest activity much of the week. Premiums in the barge market were steady
to weaker. Shippers were less aggressive in paying up for a float barges. Loaded beans south of St.
Louis were bid $1.20 over. October paper was bid $1.17 over, down $.01 from Friday, with sellers at
$1.23. November was bid $1.17 on $1.19 and Dec was $1.10 on $1.16. Board crush margins traded out
to $1.65 to $1.70, but cash crush margins are significantly better. Processors in Illinois continue to
have the strongest bids at option price to $.10 over. Claypool, IN was bidding $.08 under and most
others, east and west, were buying beans at $.20 to $.50 under and offering meal at significant
premiums to the Dec futures. October corn barges were bid $.65 over and November had a bid at $.70
over. Dec was $.77 on $.82 and Jan-Mar was $.66 on $.72. Cash meal premiums firmed out west by
$5-10 on rail values for the balance of October and November. There were reports of two crushers
trying to buy in soymeal. The truck market has also advanced to a more normal discount to rail values.
The U.S. crush rate has just not been running at 100% of capacity yet this month due to wet beans in
the east or a slower harvest and the crush rate has not been able to reach the maximum necessary to
meet commitments on the books. As a result, the U.S. crush rate has not been able to catch up to fill
that hole. More believe October crush will be down 5-10mb from the 165mb seen in October last year.
In the east, the strength in the nearby meal basis rolled into full November and that market was $55
over Dec, up $5 from Friday. Rail problems linger and customers are anxious for rail deliveries, which
continues to be a challenge.
The latest reports railroads submitted to the Surface Transportation Board appear to bolster claims by
elevators that railroads are giving priority to oil shipments over grains, according to a Minnesota Grain
and Feed Association official. "The recent (Oct. 22) STB reports received from the railroads, seems to
confirm reports we have received from our elevator members of continued delays in service to the
grain sector, while oil appears to be unaffected by the unprecedented congestion on the upper Midwest
rail network," according to Bob Zelenka, executive director of Minnesota Grain and Feed Association.
Zelenka had told the STB in September that whether perceived or real, it appeared oil traffic was
receiving priority from both the CP and BNSF. "While grain elevators waited weeks and even months
to receive service, with the severe winter being blamed by the rail carriers as the main culprit, oil trains
seem to have been moving steadily throughout the winter and spring, unabated by weather or other
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constraints, such as, a shortage of crews and/or locomotives," Zelenka said. It appears from the recent
BNSF status update that his concerns were more real than perceived. The BNSF showed that during
the week of Oct. 12, 747 loaded grain cars sat idle for more than five days with just six oil cars
showing the same delay. However, the BNSF noted in their update to the STB that "If a car has been
held at a point on the BNSF network for more than 48 hours or even 120 hours, it does not necessarily
mean that the car will not be delivered in a timely manner or even within the initial service plan. Many
cars are held in terminals and other locations on our network as part of the service design for the
movement or for the convenience of a shipper or receiver. As the large grain harvest continues to
progress, rail backlogs seem to get a little bigger each week. While it is normal for backlogs to occur
during harvest time, shippers are concerned that if the weather becomes a factor soon or other
unforseen events occur to further slow cars, they will be faced with another long winter of waiting for
cars.
In export-related news, Thailand announced another tender this week for shipment Jan-Mar and MayJun. Offers from Argentina might be tough to find and typically Brazil is concentrating on bean
shipments in February and March, not soymeal. Britain has sold a shipment of feed wheat to a buyer in
the U.S., marking the first significant volume in 2 ½ years. According to private sources, around
25,000mt of British feed wheat is expected to be shipped in the coming days, coinciding with the
country's return to being a net exporter after a two-season hiatus. Ukraine grain exports are higher so
far this season than a year earlier, despite predictions that the grain harvest and exports would decline
because of the political instability in the east of the country. Around 11.24mmt of grain were exported
between the start of the current marketing year, on July 1, and Oct. 27, outstripping the last year's pace,
the agriculture ministry said Tuesday. The ministry didn't give last year's figures for comparison but
based on the ministry's past reports, Ukraine exported around 9mmt of grain between July 1 and Oct.
27 in 2013. Russia has begun the current marketing year's grain export at a greater pace than last year.
According to the figures released by the agriculture ministry Tuesday, Russia exported between the
beginning of the current marketing year July 1 and Oct. 22 14.028mmt of grain, 33.3% more than in
the same period in the previous marketing year. Palm oil for gained 2.1% overnight, the biggest jump
at close for most-active contract since Sept. 4. Malaysia is set to implement a B7 biodiesel program in
November, according to their Ag Ministry. B7 refers to blend of 7% palm biodiesel with 93%
petroleum diesel. Average crude palm oil price forecasts for 2014-2016 were reduced 5%-11% on
larger-than-expected global edible oil supplies, weaker biodiesel demand in Indonesia and drop in
crude oil, according to CIMB Investment Bank.
Yesterday’s U.S. soybean exports for the week ended 10/23/14 were massive at 80.7mb, up from last
week's 74.3mb and were actually slightly below last year's 85.5mb. Last year's exports over the coming
three weeks, for comparison, were 82.6, 86.3 and 87.8mb, respectively. Cumulative exports now stand
at 300mb, up 15% from last year's 262mb at this time, but the weekly year-over-year gain continues to
fade. Exports will need to average roughly 31mb/week over the remainder of 2014/15 to reach the
USDA's export projection of 1.700 billion bushels, while they averaged 30.2mb/week from this point
forward last year. U.S. corn exports last week were a bit disappointing at 27.7mb and reflected a
decline from last week's 28.3mb. Last week's exports were also the 2nd lowest of the first eight weeks
of the 2014/15 marketing year and were the 4th week of the year to fall below the average weekly
needed export pace of 32.5mb/week to reach the USDA's current export projection of 1.750 billion
bushels. Exports so far during the first eight weeks of the marketing year have averaged 33.8mb/week.
Cumulative exports now stand at 252mb, up 44% from last year's 175mb at this time, but as with
soybeans, the weekly year-over-year gain has declined regularly in recent weeks. U.S. wheat exports
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were, by far, the most disappointing last week at just 7.8mb and were easily the lowest of the first 21
weeks of the 2014/15 marketing year. In fact, last week's wheat exports were actually the lowest
single-week exports since the last week of December 2012. Cumulative exports of 394mb are down
33% from last year's 591mb, while the USDA's export projection of 925mb reflects a reduction of just
21% from last year. Exports will need to average roughly 15.6mb/week to reach the USDA's export
estimate, while they averaged 18.0mb/week from this point forward last year.
The red-hot U.S. farm land market is cooling, with prices for prime acreage steady to lower so far this
autumn, but holding up better than expected with grain prices near four year lows, farm managers and
auctioneers said on Friday. "It's getting softer but there's no panic in the streets. The market is taking a
breather," said Jim Farrell, head of Omaha, Nebraska-based Farmers National, the largest U.S. farm
management company.
Hogs: Cash hogs are called steady-weak despite pork prices rising yesterday, breaking a long streak of
lower prices. Hog buyers should resume work this morning with another round of lower bids.
Positively, wholesale pork prices move higher yesterday after a long and painful run of lower prices
and struggling demand. The big question is whether or not we are really starting to see some product
stability or just a momentary pause in the seasonal storm? Peoria is called steady after falling $2
yesterday to $65.00. The IA/MN bid lost $.70 to close at $88.45 while the ECB bid was $88.24, with
no comparison to the previous day. Hog prices have fallen sharply amid a steep decline in the
wholesale pork market over the past week, as retailers expect an influx of hams, bellies, and other
items to come to market in the months ahead. Rather than pay elevated prices in the near term, some
have scaled back purchases of wholesale meat items, forcing packers to lower asking prices and
reducing their incentive to bid aggressively for hogs in the cash markets. However, yesterday saw pork
prices rally $1.86 to $100.11 after falling to the lowest level since February, with movement average at
277 loads. The pork carcass value finally reflected new buying interest yesterday, jumping nearly $2
with all primals showing better demand except the rib. Weekly kill was up 0.23% yesterday vs. a year
ago. Hog weights also have increased sharply as nutrient-rich feed grains from the harvest underway
become available to producers, adding to near-term supplies. Weights typically increase further as the
weather cools down across the central U.S. Estimated packer margins were $18.08/head for nonintegrators and $51.27/head for integrators vs. $13.86 and $48.68 the previous day. December lean
hogs slid to a lower close on Monday. The action was consolidative and held within Friday's high and
low. The near-term trend outlook remains weak, but strong short-term support has formed at the
$87.85-$87.72 zone. On the upside initial resistance lies at $90.65. Gains through that zone would be a
positive signal, if that were to occur. Major gap resistance lies overhead at $91.92-$91.85, from
October 15-October 16. As long as the gap holds firm, the near term trend outlook is weak. Declines
under support at $87.72 would be a bearish signal and would open the door to a fresh selling wave.
Hog futures ended lower, pressured by expectations for supplies to swell in the months ahead.
December lean-hogs fell 1.2 cents to 89.05 cents a pound. February hogs were down 0.65 cent to 88.22
cents a pound. Dec hogs remain a $12 discount to the cash index vs. the 5-year average of $1-$2.
While this may seem extreme, if USDA pork production forecasts calling for a smallest decline in 4th
to 1st quarter production in 17 years are realized, the discount may well be earned. Still, I am waiting
for the basis to narrow before entertaining additional sales out past Feb 15th. The price of gas has
dropped by 29 cents since last year and represents the lowest average cost of gas since Dec. 17, 2010.
Gas prices have been steadily falling in recent months and are expected to continue to decline amid
increasing oil production in the U.S. and abroad. This should make more room in the consumer's
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budget for meat. However, as we move closer and closer to Thanksgiving, red meat promotions will
sink further and further into the backseat. Cattle futures rose Monday, landing at new record closing
highs amid technical trading and continued focus on the tight supply outlook of market-ready animals.
Thinly traded October live-cattle futures advanced 1.3 cents to $1.695 a pound, notching a fresh alltime peak after climbing 1.9% over the past week. Cattle for December, which becomes the frontmonth contract this week, advanced 0.925 cent to $1.678 a pound. The cattle market is getting a boost
from technical buying, as investors pile in to the market which has rallied for weeks to the highest
levels in history, lured by the persistent tightness in supplies of available animals. A federal on-feed
supply report reiterated the tight supply outlook Friday after the market's close, lending support to the
soon-to-expire front-month contract. The USDA’s cattle-on-feed report Friday showed the 26th
consecutive decline in the total number of cattle counted in the nation's feedyards. Although managed
funds slimmed bullish bets on live-cattle futures by 1,178 contracts in the week through Tuesday, those
large investors continued to hold a heavy net-long position of 109,356 contracts, according to data
released Friday by the U.S. Commodity Futures Trading Commission. Analysts remain concerned that
historically pricy beef products could sway some consumers to cheaper proteins like pork and chicken.
Feeder-cattle futures for October rose 0.425 cent to $2.383 a pound.
As the U.S. animal protein industry relies increasingly on exports, recent dollar strength bears
watching, according to BB&T Capital Markets analyst Heather Jones. The U.S. dollar index is 5%
stronger than last year, and critically, the dollar has advanced against major U.S. beef, pork and
chicken importers as well as against competing protein export countries. “Our analysis shows a strong
inverse correlation between the dollar and combined protein exports,” Jones wrote in a note to
investors. She cited as mitigating factors, however, increased pork and chicken production next year,
which should pressure pricing, and the fact that dollar strength also weighs on the corn and soybean
meal prices, pushing down key producer input costs. Exports comprise 20-25% of U.S. chicken and
pork production and 10% of U.S. beef production. While dollar depreciation since 2009 has boosted
exports, dollar appreciation in the past three months has been significant. The dollar has appreciated
5% relative to the Japanese yen, 12% relative to the to the Brazilian real, 7% against the Australian
dollar and 4% against the Mexican peso. Because of the deterioration in currency rates in Brazil and
Australia relative to the yen, pork and beef from Brazil are now 6% less expensive and Australian beef
is 2% less expensive in Japan. The currencies for major chicken importers such as Saudi Arabia and
the United Arab Emirates have also appreciated against the Brazilian real, making Brazilian chicken
export pricing favorable in those markets. “It is difficult to say how long the dollar strength will be
sustained as many factors are at play, but we believe it is something for producers, buyers and
investors to be mindful of,” Jones wrote.
Weather: The U.S. and European models are in fair to good agreement during the first few days of
this period, except over New England and eastern most Canada, where the European model shows a
strong storm and upper level trough moving through on day 6. The models are in fair to poor
agreement during days 9-10. Today's U.S. model looks more likely to verify as it concerns the last
couple of days of this period. The U.S. model shows a trough moving across the Midwest and Delta
regions during the middle of the outlook period. The southern part of this trough may trail the northern
part somewhat, leading to a chance for rain in the Delta and the Ohio River valley during that time
frame. Later in the period, the trough lifts out towards the northeast and the ridge begins to build
northward across the southern Plains and into the Delta and the southern Midwest. The European
model shows more of a split jet stream at the end of this period. The southern trough begins to cut off
from the flow over the southern Plains as soon as Tuesday. This model then shows a cut off upper level
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trough drifting over the Delta next Wednesday and Thursday. If real, this would bring heavier rains to
the southeast Plains and Delta regions towards the end of the ten day run.
A cold front will work through the eastern Midwest today and tonight. Totals of generally less than
.35” look to fall in MI, IN and OH. Things will be quieting back down in the Plains and western
Midwest today and remain quiet in the Plains and Midwest for the rest of the period. Temps will run
average to above in the Plains and WCB and cool to below average in the eastern Midwest by the end
of the week. Another cold front is seen to bring some moderate rains to the SE Plains and SE Midwest
the first half of next week. Early estimates on amounts with that activity are in the .30-.80” range,
isolated to 1”+. The forecast looks pretty good for harvest across the Midwest, with just a few brief
delays for another 24 hours or so and again early next week.
U.S. Crop Impact: Harvest slowdowns occur in the Midwest due to today's rain in the south and east
areas. The southern and eastern areas are also more likely to experience wet conditions during the 6-10
day period as well. Today's rain in the Delta will likely mean harvest delays for summer crops. Longer
range charts also bear watching due to the chance for heavier rainfall during the 6 to 10 period. The
northern Plains will see mostly favorable harvest weather during the next 7-10 days. Favorable weather
will occur in the central/southern Plains for any remaining planting. A more variable temperature
pattern occurs this week, with little rainfall during the next 5 to 7 days.
A cold front will work through all Argentine growing regions today and tomorrow and will bring rains
of .50-1.5”, isolated to 1.5”+ to most areas. Things look to quiet back down for the rest of the week
and weekend, with a few spotty showers possible early next week. Temps look to run above average
today, then cool to average for most of the rest of the week, before warming back to above average for
the weekend and early next week. Average highs right now are in the 70’s. Southern Brazil will be
mainly dry through today and then a cold front will pass through and bring rains of .50-1.5”, isolated to
1.5”+ to all areas tomorrow through Friday, with some tropical, hit and miss rains lingering across
Parana into the weekend. The first half of next week sees some hit and miss rains to bring mainly light
totals to most areas. Temps look to run average to a bit above in the southern Brazilian growing
regions in the next week to ten days. Northern Brazilian growing regions will see tropical hit and miss
rains continue across most of these areas in the next week to ten days. Daily amounts in most cases
will be in the .10-.50” range, isolated to .50”+, with daily coverage of around 65-75%. The forecast
looks good, with rains in the northern Brazilian growing regions to continue. Enough rains look to fall
in Argentina and S. Brazil to keep soils favorably moist in advance of planting.
Global Weather Highlights: Increasing shower activity in northwestern Brazil may help to improve
conditions for planting and early growth of soybeans. However, due to the scattered nature of these
showers, it is not clear whether these rain chances would help everyone. It is also not clear whether
these showers would amount to normal amounts of rain during the 10 day period. Scattered moderate
to heavy showers and thunderstorms in northeastern Brazil during the weekend period should be
enough to initiate flowering of the coffee trees. The trees will now need regular rains during the
coming weeks to support the flowering and set buds. This situation continues to bear close watching.
The forecast does show additional rain chances later this weekend or early next week and some
isolated shower activity prior to this time frame as well. Moderate to locally heavy showers and
thundershowers have also occurred in key sugarcane areas of Sao Paulo during the weekend period.
This will help ease stress to the early developing crop. Cooler temperatures have also eased stress to
sugarcane. The forecast is somewhat drier during the short range period, but it should become wetter
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again later in the period. Scattered light to moderate showers and thundershowers in South Africa have
occurred in key growing areas during the weekend. This should help condition soils for planting corn
and it should favor developing sugarcane. However, the region looks to be drier and warmer than
normal during the next 5-7 days. This should deplete soil moisture and increase the risk to early
planted crops. Cold weekend temperatures in Ukraine/southwestern Russia have likely caused winter
crop development to slow considerably. The region should trend warmer early this week, colder again
later in the week. Dry weather is likely for most, which favors any remaining harvesting of summer
crops or planting of winter grains. A tropical cyclone continues to strengthen over the western Arabian
Sea as it drifts slowly towards the north. The forecast suggests increasing forward speed with a turn
towards the northeast possible after 24 hours. The expected track brings the system to the coast of
northwest Gujarat India near the border of Pakistan on the 1st. Top winds at the time of landfall are
expected to be about 45 knots. This has the potential to bring unseasonably heavy rains to crop areas of
southeast Pakistan and Gujarat. This may impact maturing crops and harvests, including cotton and
groundnuts.
Macros: The macro markets were modestly supportive as of 8:55am EDT, with Dow futures up 0.3%,
the U.S. dollar index was down 0.2%, crude oil was up 0.5% and gold was up 0.3%. The S&P 500
index on Monday closed lower. The S&P 500 lost 0.15%, the DJIA gained 0.07%, and the Nasdaq
gained 0.10%. Negative factors included carry-over selling from a slide in European stocks after the
German Oct IFO business confidence fell for a sixth month to a 1 ¾ year low, the 0.3% increase in
U.S. Sep pending home sales, weaker than expectations of 1.0% and the 1.6 point decline in the U.S.
Oct Markit composite PMI to 57.4, the slowest pace of expansion in 6 months. The markets are
unanimously expecting the FOMC at its 2-day meeting that begins today to end QE3 with a final $15
billion cut. That would end QE3 with a total size of $1.7 trillion, bigger than QE1 of $1.4 trillion and
QE2 of $600 billion. The market is also unanimously expecting the FOMC to announce that it will
continue its program of reinvesting the proceeds of its portfolio in new securities purchases so that its
balance sheet remains constant and does not start declining as securities mature. However, the main
question is whether the FOMC will revise its language that rates will remain near zero for a
“considerable time” after QE3 ends. Fed officials have already made clear that they would like to
switch to guidance that is “data dependent,” i.e., saying that the Fed will start raising interest rates only
when such a move is justified by the labor market and inflation data. Two FOMC members at the last
FOMC meeting dissented from the “considerable time” guidance. However, the FOMC may leave its
language unchanged this week with the idea that it doesn’t want to shake up the markets too much with
a guidance change just as it is ending QE3. The market is expecting today’s Aug S&P/CaseShiller
Composite-20 home price index to show a small increase of 0.18%, recovering a bit after the 0.50%
decline seen in July. The Case-Shiller index posted a 6 1/3rd year high in April where the index was up
by a total of 25.1% from the 11 ½ year low posted in Jan 2012. However, the index then fell by a total
of 1.1% from May through July. The decline in metropolitan home prices suggests that potential
homebuyers are showing resistance to the sharp increase in home prices over the past two years, thus
causing home prices to fall back mildly. The market is expecting today’s Oct U.S. consumer
confidence index from the Conference Board to show a 1.1 point increase to 87.1, recovering a bit after
the sharp 7.4 point decline to 86.0 seen in September. Before falling back in September, the U.S.
consumer confidence index had risen by a total of 11.7 points in May-Aug to post a new 7-year high of
93.4 in August.
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Orders for big-ticket manufactured goods
fell for the second consecutive month in
September, the latest sign of uneven
improvement in the economy. Purchases
of durable goods--products like airplanes,
cars, and heavy machinery that are
designed to last at least three years--fell by
1.3% in September from the prior month
to a seasonally adjusted $241.63 billion,
the Commerce Department said Tuesday.
Economists surveyed by The Wall Street
Journal had forecast orders rose by 0.7%
in September. Excluding the volatile
transportation category, orders fell 0.2%.
Excluding defense goods, orders fell
1.5%.The report showed business
spending emerging from a period of greater than unusual volatility over the summer on weak footing.
It signaled that concerns over slowing global growth could be weighing on business confidence.
Durable goods orders fell 18.3% in August, slightly less than a previously reported 18.4% decline.
They rose 22.5% in July. The large swing was caused by record orders reported by aircraft
manufacturing giant Boeing Co. in July. Another key measure of business investment also fell in
September. Orders for nondefense capital goods excluding aircraft, a proxy for spending on equipment
and software, fell 1.7%. This closely watched category had risen 0.3% in August and fell 0.1% in July.
Overnight, Bloomberg News reported that stocks rose before reports that will provide evidence on the
strength of the U.S. economy as the Federal Reserve prepared to begin a two-day meeting. The Stoxx
Europe 600 Index gained 0.8 percent at 7:05 a.m. in New York as seven shares advanced for every one
that declined. Standard & Poor’s 500 Index futures added 0.5 percent, and Chinese equities rallied the
most in three months after industrial profit increased. Copper gained 0.5 percent. U.S. durable goods
orders and consumer confidence probably rose, economists said before reports today. The Fed is set to
finish its monthly bond-buying and leave its key interest rate unchanged near zero, according to
Bloomberg surveys of analysts. All but one of the 19 industry groups in the Stoxx 600 gained as the
gauge advanced for the first time in three days. About 80 percent of S&P 500 companies that have
posted quarterly earnings this season have topped analysts’ estimates for profit, while 61 percent beat
sales projections, data compiled by Bloomberg show. The MSCI Emerging Markets Index climbed 0.7
percent as gauges of Chinese shares rallied more than 2 percent after industrial profits increased and
President Xi Jinping signaled a nationwide expansion of free-trade zones. The Shanghai Composite
Index halted a five-day losing streak, climbing 2.1 percent. The Hang Seng China Enterprises Index of
mainland companies listed in Hong Kong surged 2.4 percent, the most in seven weeks. Taiwan’s Taiex
jumped 1.7 percent. Data from China’s statistics bureau showed profit at industrial companies grew
0.4 percent last month, compared with a 0.6 percent drop in August. Xinhua News Agency cited
President Xi as saying that Shanghai’s free-trade zone can be replicated in other parts of the country.
The ruble weakened 0.7 percent to 42.5765 per dollar. The currency declined for a fifth day to a
record on concern Russia will quicken its move to a free float after more than $20 billion of currency
interventions this month failed to halt the depreciation. Russia’s currency has depreciated 17 percent
in three months, the world’s worst performance. The decline stoked speculation that the central bank
11
will decide to abandon interventions as early as Oct. 31, when policy makers meet to decide on interest
rates, according to Sberbank CIB. Ukraine bonds gained for an eighth day, sending the yield on 2017
Eurobonds three basis points lower to 13.39 percent. Pro-European parties, which may have won
enough seats during the weekend election to gain a two-thirds constitutional majority, began talks on
forging a coalition. Russia said it’s considering requests for emergency aid to the two easternmost
regions torn by a separatist rebellion. Europe’s 18-nation shared currency was little changed at
$1.2688. The yen traded at 107.97 per dollar from 107.82 at yesterday’s New York close. Treasuries
were little changed, with the two-year notes set for sale today poised to draw the lowest yield in five
months. Copper rose 0.5 percent to $6,761 a metric ton. China is the biggest buyer of the metal. Nickel
jumped 1.8 percent after Goldman Sachs Group Inc. said production cuts of substitute nickel pig iron
are on the way. West Texas Intermediate oil was little changed at $80.98 a barrel, after falling to a
two-year low of $79.44 a barrel yesterday. U.S. crude stockpiles probably expanded to the highest
level since July last week, a Bloomberg News survey showed before a government report tomorrow.
Prices have slumped about 25 percent since June. Brent crude slipped 0.2 percent to $85.65 a barrel,
a third consecutive decline.
Summary: Soybean meal proved to be the clear leader yesterday on firm cash markets pushing
meal/soybeans to new, recent highs. Clear harvest weather for virtually the entire Corn Belt should
bring a level of pressure, but no one seems to care for now. Please take note that effective November
2nd, the new daily price limits on the CME will be as follows: corn $.25, soybeans $.70, meal $25,
soyoil $.02 ½, SRW $.35, HRW $.40 and oats $.25. Corn pushed higher for a rally to $3.63 ¾ just as
markets were coming to a close. With harvest advancing rapidly, corn seemed to just fall in line with
the large moves in the soy complex. The weather outlook continues to look favorable for extended
harvest activity and should allow for selling pressure to loom over the market. Fund buying in corn
was estimated at 8,000 contracts. Friday’s cattle on feed report showed on feed at 99% vs. 99.7%
estimated, placements at 101% vs. 101.9% estimated and marketings 99% vs. 99.1% estimated. Meal
strength and strong weekly inspection numbers gave the bean complex a supportive push to the upside.
December meal led the day and settled at $376.80, up $26.60. Brazil’s president Dilma Rousseff was
reelected over the weekend. The Real continued to weaken after the election and could prompt
aggressive Brazilian farmer selling. Key areas in South America were the benefactors of welcomed
rains over the weekend and Brazilian and Argentine rainfall is expected to remain active over the next
7-10 days. Funds were estimated buyers of over 11,000 bean contracts. First Notice for November
futures will be this coming Friday. Wheat went along for the ride on spillover support from the corn
and bean complex. U.S. wheat remains uncompetitive in the world market and with plenty of world
wheat available, export business should remain slow. Fund buying in wheat was estimated at 3,000
contracts.
November soybeans erased early losses to close sharply higher on Monday. The action formed a
bullish outside day, which is a positive signal. The market pierced resistance at $9.99 ¾, the Sept. 16
spike high, on Monday and rallied to a close above the $10.00 level. Monday's move above $10.00
marks the first time since Sept. 9 that November beans have traded above that level. Recent action has
been volatile, but the overall near-term trend pattern is bullish. A minor bottom has formed on the
daily chart off the Oct. 1 low. November beans are trading above their 10-day, 20-day and 40-day
moving averages, which is bullish for the short-term trend outlook. The 14-day relative strength index
has been climbing higher in a choppy manner in recent weeks. The 14-day RSI hit 61% on Monday.
The 70% line is considered "overbought," so November beans are not yet registering overbought
readings. Monday's action propelled the contract slightly above the upper daily Bollinger Band line,
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which is a sign that the market is overextended. Volatility is picking up. Monday's low at $9.67 ¾ is
now important near-term support. That floor needs to hold to keep the very short-term technical bias
bullish. An upside target lies at $10.28, the Sept. 8 daily high. December corn recovered from an early
dip under 10-day moving average support to close with solid gains on Monday. Friday's high at $3.65
remains initial resistance and a target for the bulls. The near-term technical trend pattern remains
bullish. A push through $3.65 would open the door for a quick test of $3.70, the Aug. 28 daily high.
Also, overhead the 100-day moving average at $3.74 ½ is resistance and a bullish target. The
December corn contract has been trading below its 100-day moving average since late May and this
will be an important level to watch. A large bottom formation has developed on the daily chart in
recent weeks. For now, the long-term downtrend remains intact, but the bulls have etched substantial
improvement to the overall technical picture since marking out a bottom on Oct. 1. The shorter-term
moving average outlook remains bullish, with December corn trading above its 10-day, 20-day and 40day moving averages. Monday's low at $3.48 ½ is now important short-term support, with next support
at the Oct. 20 swing low at $3.42. Declines under support would be a weak signal and would show the
bulls are losing the upper hand.
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trades.
Hedger’s Advice
10/1/14 None at this time.
Speculator’s Advice
10/25/14 None at this time.
Current Positions
Hedger:
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6/26/13 Corn producers hedged 25% of their 2014/15 corn production via a long Dec 14 $5.60 put at
$.58 ½, short Dec 14 $6.60 call at $.23 and short Dec 14 $4.60 put at $.17 for a total cost of $.18 ½.
7/24/13 Soybean producers sold the last 25% of their 2012/13 soybean production in August futures at
$14.27.
10/9/13 Corn producers sold another 25% of their 2013/14 corn production in March futures at $4.55,
bringing them to 50% hedged.
10/15/13 Wheat producers sold 100% of expected wheat production in July 14 futures at $6.93 ½.
10/25/13 Soybean producers replaced expiring Nov 13 put options with Jan 14 futures at $12.96 on
40% of their 2013/14 production.
11/5/13 Grain producers hedged another 20% of their 2013/14 corn production via a July 14 option
spread, buying a $4.30 put at $.22 and selling a $5.00 call at $.15. This brings us to 70% hedged.
11/5/13 Grain producers hedged another 20% of their 2013/14 soybean production via a Mar 14 option
spread, buying a $12.00 put at $.35 and selling a $14.00 call at $.10. This brings us to 60% hedged.
11/5/13 Grain producers hedged another 25% of their 2014/15 corn production via a Dec 14 option
spread, buying a $4.70 put at $.45, selling a $5.70 call at $.12 and selling a $3.70 put at $.08. This
brings us to 50% hedged.
11/5/13 Grain producers hedged the first 25% of their 2014/15 soybean production via a Nov 14 option
spread, buying an $11.60 put at $.85, selling a $13.60 call at $.20 and selling a $9.60 put at $.15.
11/22/13 Grain producers sold 25% of their 2013/14 corn production at $4.44 ¼ July 14 futures and
applied their $.81 ½ profit on an expiring Dec 13 option spread, giving us a net sale of $5.25 ¾.
11/22/13 Soybean meal users bought their needs to Mar 1, 2014 at $412.70 Mar 14 futures. Our long
Dec $440 call at $17 and short Dec $410 put at $8 expired worthless, putting our next cost at $421.70.
1/23/14 Grain producers sold 10% of their 2013/14 corn crop at $4.28 ¼ March 14 futures and 20% of
their 2013/14 soybean crop at $12.85 March futures. This bring us to 80% hedged in both.
1/29/14 Hog producers sold another 50% of their Feb 16-Jun 15, 2014 production at $93.70 April 14
and $102.72 June 14 futures bringing them to 75% hedged. They also made an initial sale of 20% of
the Jun 16-Aug 15, 2014 production at $101.30 July 14 and $99.20 August 14 futures. Deferred
premiums are simply too large and extremely good margins can be locked in.
2/13/14 Corn and soybean producers sold the last 20% of their 2013/14 production at $4.52 July 14
futures for corn while soybean producers sold March 14 soybean futures at $13.26 ½.
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5/2/14 Grain producers sold 25% of their 2014/15 corn/soybean crops in Dec 14/Nov 14 futures at
$4.99 and $12.27 ¼, respectively. This replaces our 25% short-dated put options positions, which
expired last Friday. Combined with our current 50% corn put options and 25% soybean put options,
this brings us to 75% hedged in new corn and 50% in new soybeans.
5/28/14 Hog producers sold 50% of their Jun 16-Aug 15 production in July 14/Aug 14 futures at
$121.35 and $124.70, respectively, bringing them to 70% hedged. July hogs hold a huge, $12 premium
to the cash market vs. the $7 discount for June vs. the cash market, suggesting the premium is too
wide.
8/22/14 Grain producers sold 25% of their anticipated 2014/15 corn production in July 15 futures at
$3.97, replacing the Sep $3.60 short-dated puts that expired. This brings us to 100% hedged.
8/22/14 Grain producers sold 25% of their anticipated 2014/15 soybean production in Jan 15 futures at
$10.48, replacing the Sep $10.20 short-dated puts that expired. This brings us to 75% hedged.
9/4/14 Livestock producers bought a $3.80 Oct 14 serial corn call at $.01 on 100% of their current to
Mar 1, 2015 corn needs to cover frost risk out to expiration on Sep 26th. It would take a close over
$3.80 to reverse the downtrend.
9/4/14 Livestock production sold 50% of their expected production from now until Feb 15, 2015 at the
$103.40 in Oct, $94.42 in Dec and $91.30 in Feb futures. We’ve made 38.2-50+% retracements of the
summer decline and it’s time to get some protection in place.
9/30/14 Hog producers sold an additional 30% of their Oct 1, 2014-Feb 15, 2015 production at $95.50
in Dec 14 and $90.50 in Feb 15 futures. This brings us to 80% hedged.
Speculator:
10/24/14 Sold Jan 2015 soybeans at $10.03 ¼ as prices have now had a nice rally and are nearing a
seasonal peak.
Closed Positions
Hedger:
11/22/13 Corn producers replaced their expiring Dec 13 $5.40 put spreads with a July 14 futures sale
on the close today, banking $.81 ½ profits on top of July 14 futures.
15
11/22/13 Soybean meal producers let their long $440 Dec meal call, short $410 Dec meal puts
originally bought for $9 expire worthless.
4/29/14 Grain producers let their long, short dated corn/soybean puts expire worthless. Producers had
hedged another 25% of their anticipated new crop corn/soybean production via a long $4.80 May 14
corn at $.15 ½, short-dated put option at the market and a long $11.70 May 14 short-dated put option at
$.22 ½.
5/27/14 Grain producers who hedged 25% of their 2014/15 corn production via a long $5.60 Dec 14
put/short $6.60 Dec 14 call/short Dec 14 $4.60 put bought back their short $6.60 call at $.02 ½.
5/27/14 Grain producers who hedged 25% of their 2014/15 soybean production via a long $11.60 Nov 14
put/short $13.60 Nov 14 call/short Nov 14 $9.60 put bought back their short $9.60 put at $.03 ¾.
8/22/14 Grain producers saw their short-dated Sep corn/soybean puts expire worthless and replaced
with futures. Producers had covered 25% of their anticipated corn production via a long Sep shortdated $3.60 corn put at $.04 ½ and 25% of their anticipated soybean production via a long Sep shortdated $10.20 put option at $.06 ½.
Speculator:
7/9/13 Exited our July 13/Nov 13 soybean bull spread at $3.50 that was bought at $.81. Profit of
$13,450.00.
7/9/13 Exited our July 13/ Nov 13 soybean bull spread at $3.50 that was bought at $1.97. Profit of
$7,650.00.
9/3/13 Exited our long Sep 13/short Dec 13 corn at $.12 that was bought at $.10 ¾ premium Sep 13.
Profit of $62.50.
10/23/13 Exited our long Nov 13 soybean at $13.08 that was bought at $12.67. Profit of $2,050.00
10/23/13 Exited our short Dec 13 hog at $83.37 that was orginally sold at $88.50. Profit of $2,052.00.
12/9/13 Stopped out of our short Mar 14 soybean at $13.27 that was bought at $13.20. Loss of
$350.00.
1/30/14 Exited our short July 14 wheat at $5.54 ½ that was originally sold at $6.93 ½. Profit of $6,950.
7/31/14 Exited our long Aug 14/short Nov 14 soybean spread at $1.47 premium August. Loss of $950.
16