11/9/18 On The Road Commodity Update/End-Of-Week Analysis

Soy Higher, Grains Lower:  What The Heck Is Going On?

Soy/Grain spreading (or more specifically the unwinding of Grain/Soy spreading is more likely) appeared to be the “name of the game” for post-USDA report grains. Why?

Three factors I believe:

  1. Soy technicals held-up with a near 1 Bln. Bu. ’18/19 US carryover confirmed on Thursday…we did not take-out $8.40
  2. Both wheat & corn likely faced a market which came back around to the higher Chinese production numbers, and incorporated these numbers more into prices.
  3. Some talk in Chicago being heard was a more optimistic view by some in the futures market regarding China-US relations and a greater confidence in getting an agreement on trade.
  4. Probably most tangible to me was that my Chicago colleagues alerted me right away this morning (since I am at the Kansas Cattlemen’s Conference near Wichita) about the likely weather turning very rough for Argentina–as the map below suggests, key growing areas are looking-at potentially getting 6-10″ of rain in the next 5 days.  

Heading Into Monday:  Harvest data is going to be a potentially supportive feature in this market…there is a LOT of soybeans left in states like KS, IL, and IN/OH–essentially wherever it’s been excessively wet the past three weeks. With that in mind, I am not “bullish” or “bearish” soybeans–not until they hit key critical technical levels, that is. In other words, if we see the Nov. Beans hit $8.85 again, and we don’t have (1) the grains supporting and/or (2) a trade deal between the U.S. and China, I am ready to recommend resuming hedging more ’19 and rolling-up any ’18 soybean puts still in place. I’ll give some more information later this weekend on another blog update relating to corn and wheat…Mike

Livestock:  Hogs Bounce On Fresh ASF In Eastern Europe While Cattle Get Hammered By Funds

The chart below shows us how we saw cattle give-up their 52-week moving average today: between this and the general “risk-off” market in equities and commodities (on a sharply higher US Dollar/weaker Russian Rouble/weaker Chinese Yuan), the funds likely took-hold of the futures market today. I am skeptical that we have a lot more downside, given that NE finally reportedly traded around 3500 head at $113 area; however, I think the market could leak or go sideways for another week just because of the seasonality of this market: the 2nd chart below, for instance shows the April Live Cattle Seasonal for the last 6 years–note how it can be very common to see a top in November and then about 30 days lower. I’ll have more about the conference and what I expect next week on a blog-post later this weekend, so stay tuned…Mike