Stewart-Peterson Market Commentary

Closing Commentary - August 22, 2014

Stewart-Peterson Closing Commentary 8-22-14

CORN HIGHLIGHTS: Corn futures edged higher today, gaining 2 to 3-1/4 cents with Sept leading the way higher, closing at 3.65-1/2. After a rough start to the week on Monday, prices finished on a firm note, finishing nearly unchanged for the week. Sept finished at 3.65-1/2 versus last week's 3.65-3/4. Dec, which closed at 3.77 last week, did lose ground, closing at 3.71-1/2 this week. Yet, prices clawed above the 21-day moving average today for the first time in four sessions closing above this area, which may have been viewed as resistance after prices slipped through on Wednesday. Good weather and rain could've possible pushed prices lower, but it appeared the market was waiting for final results of the Pro Farmer crop tour. The final estimate for this year's crop production from the tour suggests 14.093 bil bu, which is 169.3 bu an acre. Both are record levels. This compares to the last USDA report of 167.4 bu, and a crop production figure of 14.03 bil. We believe the month of August probably added bushels with many parts of the Midwest receiving much needed rain, along with temperatures remaining in a moderate zone. A big concern that could creep up ever so slowly into the minds of traders would be the late corn in the northern Corn Belt. As crop matures and temperatures generally stay on the normal to below normal side, it will take a full summer for many northern producers to mature their crop.

SOYBEAN HIGHLIGHTS: Strong basis levels for old crop beans helped to propel Sept higher, closing 29-3/4 higher at 11.66. Nov closed up 3-3/4 at 10.42. For the week, Nov soybeans lost 10 cents. That's not bad considering major parts of the US received beneficial rain. Bean prices were on the verge of potentially falling all the way down to 10.00, but seemed to hold together well the last three sessions with prices closing today at their highest level since Tues. Nonetheless, the trend remains down. The Pro Farmer crop tour continues to suggest both record yield and production. Estimated yield on the tour came in at 45.35 bu an acre, which leads to a crop size of 3.812 bil. These figures are in line with the USDA estimate of 45.4 bu an acre, and 3.82 bil for total production. In summary, the tour basically confirmed what most analysts, as well as the USDA, had been suggesting. This year's crop is significant and large. This, in turn, has led to continued downside pressure for beans as they search for a bottom.

WHEAT HIGHLIGHTS: Wheat futures found support, gaining 5 to 8 cents by today's close. Dec closed 6-3/4 higher at 5.62-1/4 in Chi. This compares to the close last week of 5.63-1/2. Prices had a sour start to the week, but finished on a firm note and once again, showed consolidation. Wheat prices are trading at the same level today as they were back on July 11. Consolidation continues. Uncertainty in the Ukraine and Russia has provided underlying support, yet that hasn't proved a significant factor one way or the other. The market does respond to uncertainty, but for the moment, it appears that news from that geopolitical part of the world is uneventful. Commercial buying was noted, as well as potential profit taking from those who recently went short, or short covering. Recent rain delays have hampered spring wheat harvest, and this too may have provided underlying support, yet we view these delays as temporary. Overall, the wheat market continues to mark time waiting further news for direction. We feel very strongly that the downward momentum for wheat has likely been halted, or at least slowed. When stepping back and looking at the big picture, world supplies are adequate, but not over burdensome. Demand should be good in the year ahead.

CATTLE HIGHLIGHTS: Both the live and feeder markets rebounded today with moderate to sharp gains. Aug cattle closed 220 points higher at 151.85, a strong rebound after sliding on Tuesday and Wednesday of this week. Oct cattle gained 1.45, closing at 147.00, and this compares to last Friday's close of 147.75. We'd like to believe this week is a consolidate week and the bulk of the heavy selling interest was last week. Yet, the inability to hold gains from earlier in the week is somewhat concerning and would suggest that cattle futures may have some further room to correct downward. With that being said, when looking at corrections, the Oct contract retraced 50% of its rally from the beginning of the year and may be starting to find buying interest. The feeder market has corrected downward also and may be poised to find additional buying interest. This afternoon's much anticipated Cattle on Feed report was viewed as neutral to negative. On feed was at 98.1% versus the average estimate of 97.5%. Placements were slightly higher as well at 92.6% versus an average estimate of 90.5%. Lastly, marketings were lower than anticipated at 90.7% versus an average estimate of 92%. This could suggest additional supplies available to the market in early August, and perhaps, in part, why the market fell apart as it did. Yet, we think that cattle were probably tugged down more by hogs, which imploded on themselves on the reality that hog production isn't anywhere near as low as many feared due to PED.

LEAN HOG HIGHLIGHTS: Bear spreading was noted due to weaker hog cash bids. Oct closed 75 lower at 92.87, while Dec closed 40 weaker at 87.15. Deferred months gained anywhere from 7 to 125 points. With weaker near term cash prices due to bigger than expected inventories, we're not surprised to see the front months come under some pressure. We do now believe the back months could likely be undervalued. Outbreaks of PED will likely begin to pick up into the fall months. As far as we can tell, there is no strong reason to believe that this virus won't continue to plague the hog producers. Despite a very rough start to the week, many of the deferred contracts finished the week higher. This again could signify that the momentum downward is slowing and as we indicated in previous reports, feel the market is overvalued. This is why we bought Feb hogs based off today's pit opening. 

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