This week’s price action was indicative of the mostly-bearish USDA report that came out on Tuesday. In the report, national average soybean yields were pegged at 50.1 BPA, which disappointed grain bulls as many in the trade estimated a sub-50 BPA reading. Moreover, corn production was reported at 15.1 billion bushels, which was an increase of 23 million bushels since last month’s report. These elements were a contributing factor to pricing pressure on December corn and November soybeans this week. December wheat was the big winner of the week, doing its best to hammer out a bottom, and putting in a 3-day winning streak to finish the week.
Price action in the December corn contract continued to coil up, but we broke trendline support following Tuesday’s report, and again on Friday’s close. Corn production was on the higher end of expectations at 15.1 billion bushels, as were national average yields – pegged at 173.8 BPA the September WASDE. Yet, the biggest fundamental pitfall for corn prices remains sluggish demand. We’ve seen improvements over the last 6 weeks, but there remains ample room for improvement. Despite mostly bearish news during the week, December corn only settled 7 ½ cents lower for the week at 476 ¼. Managed funds continue holding a substantial net-short position, and added to it again this week. Managed funds hold a net-short position of 138,163 contracts. Broken down, that is 300,228 short positions compared to a meager 162,065 long positions. Before thinking where a short-covering rally could take us, we will likely need to make stack together a string of higher closes.
Despite being the most fundamentally well supported component of the grain complex, the November soybean contract felt the brunt of the pain this week. Friday’s price action was mostly responsible, as we settled 20 ¼ cents lower on the day to settle at 1340 ¼. For the week, the contract was down 22 ¾ cents. Soybeans’ inability to substantiate a rally after formidable export performance and declining crop conditions are a cause for concern. Moreover, we tested previous trendline support in Friday’s trade, and subsequently traded through the 50-day Moving Average. Our next 3-star support pocket will come between 1330 and 1332 ½ – just about where the 200-day Moving Average lies. If bulls are unable to defend this support pocket next week, it opens the door to lower prices. Possibly the most peculiar aspect of price action through the balance of the week is where managed funds have their money parked on the November soybean contract. It is important to note that total reportable positions in November soybeans (252k contracts) don’t even equate to the outright short-position of managed funds in corn (300k contracts). Funds are net-long just 67,475 contracts, holding 110,244 long positions compared to 42,769 short positions.
It’s been a while since the December corn contract was the winner for the grain complex on a weekly basis. After putting in a new contract low following Tuesday’s report, December wheat managed to rally all the way back into positive territory before Tuesday’s close. Since then, the contract closed higher 2 of the last 3 days, and gained 17 cents from Tuesday’s close. For the week, December wheat closed 8 ½ cents higher, to settle at 604 ¼. The most encouraging aspect to the price action in wheat this week was the increasing volume observed on each higher close throughout the week. Managed funds still hold a significant short position on the December wheat contract, so it’s possible that short-covering propels the contract higher yet again next week. As of this week’s Commitment of Traders report, managed funds hold a net short position of 89,232 contracts, which is 61,767 long positions compared to 150,999 short positions.
Cattle futures had been strong through the week and that momentum carried over into today’s trade. December live cattle futures finally overtook October futures in terms of trade volume. December future posted another new contract high and a new closing high, settling at 191.82, that was up 1.47 on the day and up 4.40 for the week. October feeder cattle are still the most actively traded contract but November is closing the gap. At the close October feeders were 2.60 higher to settle at 264.47. that was 5.32 higher for the week. The rally in both live and feeder cattle futures took the RSI or relative strength index up to it’s highest levels since June, entering what technicians would refer to as “overbought territory”.
On the snout side, December lean hogs overtook October in terms of volume. At the close, December futures were unchanged at 75.10, that was still 65 cents higher for the week.
This morning’s wholesale boxed beef report was weaker with choice cuts down a penny to 306.36. Select cuts saw more pressure trading 2.15 lower to 284.71. Yesterday’s 5-area average price for live cattle was reported at 183.81, stronger than what we’ve seen in recent reports. Yesterday’s daily slaughter was reported at 124,000 head which put week to date totals at 502,000 head, that’s down from 511,000 head from the same time period last year.