Stewart-Peterson Market Commentary

Closing Commentary - October 23, 2017

Top Farmer Closing Commentary 10-23-17

CORN HIGHLIGHTS:Corn futures finished with solid gains of 5-1/2 to 6-3/4 cents, as Dec futures led today's rally, posting a friendly bullish key reversal. A close above the 21-day moving average, the first time this has occurred in five sessions, was also viewed as supportive. Once again, the 40-day moving average stopped corn in its tracks, as prices reached this key resistance level just as they did a week ago and ran out of gas. Strong gains in wheat and short covering in corn were viewed as reasons why prices moved higher. Friday's Commitment of Traders report indicated funds adding to short positions with total net short near 163,000. The Commitment of Traders report is figured through Tuesday and released on Friday. Private estimates suggest the short position was built upward to a net of 186,000. In other words, the market is vulnerable to a short covering rally, and that may have ensued today when prices tried to work lower but failed to find much selling interest in the specuatlive realm or farmer selling. One day doesn't make a market. News for today's upturn was lacking, and this would suggest that more sideways trade is likely, but this is the third bullish key reversal since 8/31, which suggests managed money is unable to push the market lower.

SOYBEAN HIGHLIGHTS:Soybean futures finished with gains of 1-3/4 to 2 cents as Nov led today's recovery, closing at 9.80-3/4. After a bearish key reversal on Friday, futures pushed lower this morning, trading beneath the 50% correction from the most recent low to the most recent high. Selling interest appeared to wane at that point and buying developed, pushing prices into positive territory. However, it did appear that beans were more of a follower than leader today, as both wheat and corn finished with strong gains. Export inspections were supportive at a strong 94.2 million. While down from 104 million a year ago, today's number is still stellar and indicates beans are moving through the pipeline quickly. We believe a strong push of farmer selling last week weighed on futures and may be keeping interest minimal. Funds have been long beans aggressively, with investment long 64,000 contracts coming into today, as well as long meal and oil. There was some liquidation last week on harvest pressure, but we believe the bigger picture suggests prices are bound to consolidate or continue their move higher.

WHEAT HIGHLIGHTS:Wheat futures posted a very friendly looking bullish key reversal, with Chi gaining 9 to 10-3/4, as Dec led the way higher, closing at 4.36-3/4. New crop Jul gained 9, closing at 4.81-1/2, its highest close in 10 days. Mpls wheat finished with gains of 3-4, while KC finished with gains of 10 cents on all contracts. Short covering was the primary feature in today's trade, as funds, who have been net short wheat, were buyers. With short over an estimated amount of 80,000 contracts, we are not surprised to see some begin to cover as prices double-bottomed on most charts.

CATTLE HIGHLIGHTS:Cattle futures finished mixed on Friday's bearish Cattle on Feed report. The nearby Oct live cattle contract closed 15 cents lower to 111.52, Dec closed 15 cents higher to 116.75, and Apr closed 30 cents higher to 121.57. Feeder contracts were neutral to negative, with Oct finishing unchanged at 153.62, Nov down 35 cents to 152.72, and Jan down 45 cents to 150.87. Friday's Cattle on Feed report was expected to bring much more negative movement than observed today. The on feed number was reported at 105%, vs the average market guess of 104.6%, placements were reported at 113%, vs average market estimate of 108%, and marketings were reported at 103%, vs the average market guess of 102.6%. While still within expectations, the placements number was expected to drive prices lower today, particularly the early 2018 contracts, as that is when cattle placed in October would reach market ready weight. Boxed beef values closed with gains on Friday afternoon with choice up 29 cents to 199.86 and select up 38 cents to 191.14. By midsession, choice cuts were down 54 cents to 199.32, and select cuts were up 71 cents to 191.85. The boxed beef values may begin to soften sooner than later due to possible cutbacks in wholesale buying. Grocers have likely completed the majority of their buying for the near future and will shift focus to ham and turkey buying for the Thanksgiving holiday. Technicals are not exactly friendly either. While the best traded Dec contract did finish the session with positive movement, prices were stopped short of the 10-day moving average resistance level. The bear spread market structure may lure feedlots into holding out on cash sales in hopes of higher prices in deferred months. This could ends up backfiring, as the higher priced deferred month contracts should drift lower to expiration.

LEAN HOG HIGHLIGHTS:Nearby hog futures contracts reversed off of Friday's highs to close lower on the day. The nearby Dec contract closed 1.32 lower to 63.52, Feb closed 876 cents lower to 68.22, and Apr closed 25 cents lower to 72.65. The CME lean hog index was up 87 cents today to 64.21, extending its move higher begun 10/4. The index has regained about 25% of the drop it took from mid July to early October. Carcass cutouts finished 1.18 higher on Friday to 75.50. This was the highest cutout value since 9/20. Cutout values were 19 cents lower at midday to 75.31, led by picnics 2.75 lower to 57.59. Keeping with the recent themed, volume for today's session was extremely low, likely contributing to extra volatility. Short term, prices remain overbought, thought longer term momentum studies may be indicating a building trend higher. Increased ham demand for Thanksgiving may provide some speculative buying fuel soon, especially if traders can spread hogs with cattle.

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