Stewart-Peterson Market Commentary

Closing Commentary - October 15, 2018

Top Farmer Closing Commentary 10-15-18

CORN HIGHLIGHTS: Corn futures rallied another 3-4 cents. Dec lead the way, closing 4-1/2 higher at 3.78-1/4, near the day's high of 3.78-1/2. Broad-based buying in row crops with beans up over 20 cents and wheat 5-7 higher provided underlying support, as did continued short covering and index fund buying. Technical activity has Dec corn closing above the 100-day moving average for the first time since 6/1. The market has now retraced more than 38% of its summer high to fall low, with today's close above the 38% retracement suggesting a test of the 50% retracement at 3.86 Dec is in store. Harvest delays may have provided support as well, as wet conditions have slowed progress. The likely underlying factor is that last week's USDA report was not negative as the market anticipated. Instead, it suggested that tightening carryout and prospects for a smaller yield number on next month's report have traders on the offensive. Weekly export inspections at 39.2 million bushels were also termed supportive.

SOYBEAN HIGHLIGHTS: Soybean futures experienced one of their stronger days in recent memory, as futures raced higher, gaining 20-24 cents, as Nov lead today's gains, closing at 8.91-1/2, its highest close since 8/9. A close at or above the 100-day moving average on futures contracts looks very technically strong today, in particular the Feb through Jul contracts. We believe the move through the 100-day moving average uncovered significant short covering, which is accomplished through buy stop orders. Strength in soymeal, which ran 10.00 higher, as well as higher bean oil, which closed 33-37 points higher, provided underlying support. Rain delayed harvest and ideas that processors are looking for beans as evidence in some basis improvements, is suggesting that the rally in the near term is reflective of a market that is more interested in buying dips rather than selling on negative news. Last week's USDA report had a negative tone, and failed to generate much or any follow through selling. Consequently, with corn and wheat prices gathering strength, beans took their turn today. Today's crush figure was also larger than anticipated at 160.8 million bushels, and this is the eleventh consecutive record month, indicative of strong world demand. Lastly, export inspections at 42.5 million bushels were supportive.

WHEAT HIGHLIGHTS: Wheat futures finished with gains of 4 to 7-3/4 cents Chi, with Dec leading today's gains. KC finished 5 to 7-1/2 higher, and Mpls 4-1/2 to 6 higher. Broad based buying in commodities, strength in corn and soybeans and expectations that winter weather last week will delay plantings all provided underlying support. Weekly export inspections at 16.6 million were considered neutral. Today's figure was better than a year ago at this time, but cumulative to date inspections at 2.87 million bushels are down over 25% below the USDA's projected 14% increase. Technical short covering was noted late in the session.

CATTLE HIGHLIGHTS: Cattle futures started the week off on solid footing, with live cattle futures finishing with triple digit gains. Nearby Oct live cattle closed 1.05 higher to 113.37, Dec closed 1.80 higher to 117.97, and Feb closed 1.30 higher to 121.70. Feeders were up as well, with Oct up 40 cents to 155.10 and Nov up 60 cents to 155.22. Friday afternoon, choice beef closed 20 cents higher to 202.71. The stabilization going into the weekend was a positive force this morning, but when choice cuts were reported 1.48 higher this morning to 204.19, buyers swept in to push futures sharply higher. Pork values have been surging over the past two sessions, providing some support to beef values. While today's strength was impressive, the fundamental picture still looks supply heavy overall. The USDA is projecting that fourth quarter production will be 2.9 higher than last year, and first quarter beef production is expected to be up 3.4% from last year. While demand is strong and should be able to take care of some extra production, those are very sizeable increases. Price charts today show impressive price action. Coming into today, live cattle futures were oversold, so technical buying was easy to come by. The best traded Dec live cattle contract pushed through its 10-day moving average resistance level and closed at its 20-day moving average resistance level. The overall trend still looks to be lower, but the stabilization today does provide a glimmer of hope for the near term.

LEAN HOG HIGHLIGHTS: Hog futures surged higher, finding buyers on a new round of headlines about African swine fever issues in China. The nearby Dec contract closed 1.75 higher to 56.75, Feb closed 1.67 higher to 63.90 and Apr closed 92 cents higher to 68.85. The CME lean hog index was down 29 cents to 68.99. Pork values were a major source of support today, closing 1.43 higher Fridays afternoon to 80.04 and up another 1.42 this morning to 81.46. Slaughter since 10/1 has been down 0.5% from last year's pace, which had helped keep supplies relatively tight and prices supported. Reports of African swine fever found in a 20,000 pig operation in China overnight was supportive, as this is the largest farm to harbor the disease yet. ASF was also reported in 50 villages in northeast Hungary recently. Early this afternoon, the USDA's Agriculture research service announced that it intends to approve a license to market a vaccine for ASF, though details on the vaccine are very light. Technical buying was a large part of today's gains as well, with futures coming into the session oversold and holding their 50-day moving average levels on Friday. The best traded Dec contract pushed through its 10-day moving average resistance level but ultimately tested and failed to close above its 20-day moving average resistance level. Feb futures recovered off of their 50-day moving average support to close above their 200-day moving average resistance.

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