Stewart-Peterson Market Commentary

Closing Commentary - October 17, 2017

Top Farmer Closing Commentary 10-17-17

CORN HIGHLIGHTS:Corn harvest is running well behind schedule at 28% complete vs 47% for the 5-year average. However, better weather this week should allow farmers to make good progress. That, in part, kept prices range-bound today in which corn futures eventually finished with small losses of 1/2 to 1-1/2 cents. Nearby Dec lost 1/2 closing at 3.50. If this sounds familiar, it is. Dec corn has been trading at 3.50 since late August. The overhead resistance at the 40-day moving average, 3.52-1/2, is keeping Dec corn futures in check. Usage should remain strong as low prices eventually cure low prices. This will be reflected in continued strong demand, both domestically and worldwide. With this month's Supply/Demand report increasing yield, this could have sent prices significantly lower, but a small reduction in acreage, and more importantly, revisions in carry-in and increases in demand are providing underlying support and this suggests corn prices remain range-bound.

SOYBEAN HIGHLIGHTS:Soybean futures weakened today for the second consecutive session, as better harvest weather should allow for good progress this week. As of Sunday, 49% of the bean crop was harvested vs a 5-year average of 60%. There was no change to crop ratings with 61% rated good to excellent. Crop ratings have very little impact at this time. However, ratings a year ago were at 74%. Therefore, with the second half of harvest getting underway, yield results could vary, especially in the northern Midwest where significant pockets of dry weather from mid-August onward could have hampered yields. Nonetheless, we're not looking for any significant changes. Excellent demand continues to underpin prices. Look for support on the Jan soybeans, near 9.87, the 50% retracement of the last move when prices bottomed October 2 and peaked on October 13.

WHEAT HIGHLIGHTS:It was another quiet session as wheat futures finished with small losses of 1/2 to 1-3/4 in Chi. Chi Dec led today's drop closing at 4.34-3/4. Prices are range-bound and there just doesn't appear to be much news to break them from this pattern. That, over time will change, but for now the 40-day moving average is holding as upward resistance, while support on Dec comes in play close to 4.30. KC wheat closed with losses of 1/2 cent, while Mpls gained 1-1/2 to 2-3/4. Winter wheat planting is slightly behind schedule at 60% complete vs a 5-year average of 71%. However, we expect planting progress to gain steam this week, as better weather should allow farmers to make progress. As for outside news to provide underlying support, there just isn't much. The dollar has traded more sideways in recent weeks then directional. The dollar is lower than it has been for nearly 2 years, but not quite enough to make traders interested in jumping on board. Wheat, much like the corn and bean markets, has a tendency to trade more on a sideways pattern in the fall months, and that would imply the recent trade pattern is expected.

CATTLE HIGHLIGHTS:Cattle futures closed lower today on bearish looking technical signals and heavy supply factors. The nearby Oct live cattle contract closed 55 cents lower to 111.17, Dec closed 85 cents lower to 115.97, and Feb closed 77 cents lower to 120.15. Feeder contracts posted much more drastic losses, with Oct closing 1.85 lower to 152.15, Nov closing 2.12 lower to 152.42, and Jan down 2.15 to 150.40. Cash bids in the country today were mostly undeveloped, with a few noted at 109.00. This would be 2.00 below last week's cash prices. While we probably won't see much cash trade until after tomorrow's Fed Cattle Exchange Auction, some traders are expecting higher cash than last week and some are expecting lower. Choice cut values closed at 198.73 yesterday afternoon, there highest value since August 15. Despite the improving boxed beef values and demand sentiment recently, Dec futures are running at a 5.00 to 6.00 premium over cash vs the normal seasonal premium of just 2.00 to 2.50 premium. This wide gap is making many traders nervous, and opens up a fair amount of downside room if this market does fall apart. Technicals today were very negative, with the live contracts falling below a nearby support at the 10-day moving averages and closing just above their 20-day moving averages. If we do see a close below the 20-day moving averages, then the next support level for the Dec contract comes in at the 100-day moving average, currently 1.50 below the market. The best traded Jan feeder contract closed below its 20-day moving average for the first time since August 25. Its next major moving average support level is over 4.00 below the market.

LEAN HOG HIGHLIGHTS:Some fear that hog futures have finally taken their turn lower on an excess of pork supply primed to enter the market. The nearby Dec contract closed 1.52 lower to 62.17, Feb closed 1.15 lower to 67.15, and Apr closed 72 cents lower to 71.30. Carcass cutouts closed 81 cents higher yesterday afternoon to 75.25, but were down 70 cents by midday today to 74.55. The losses in pork values were led by loins, down 4.22 to 73.20. Slaughter wasn't overly heavy today, with plants still ramping production up from a scheduled maintenance day yesterday. An estimated 455,000 head were killed today vs 463,000 head last week and just 444,000 head killed last year today. Weekly slaughter, since the new plants opened in the first week of September, has been 4.4% ahead of slaughter from the same period last year. While the increase has been somewhat supportive of cash hog prices, it was only a matter of time until the extra pork took its toll on the market. Technicals today were very ugly, with Dec and Feb futures both making bearish key-reversals. The Dec contract did hold its 10-day moving average support level, but the Feb was not able to. Though the market still needs to confirm these reversals, this could be the start of what the bears have been expecting since so much processing capacity was added earlier this fall.

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