Commodity Index
A CCI gapped higher this week as the US dollar continues its plunge. US jobless claims this week rose to levels that suggest the Fed may not be so quick to raise interest rates through the rest of 2017, and the dollar’s chart looks rather weak currently, with next support pegged at 90 points. Should this level be hit, the dollar’s fall from winter highs will be a hefty 15%. ARC has long written about currencies offering the next major move in raw material prices, and while major exporting currencies are weak relative to history, farmer revenue in Russia and Brazil is in sharp decline, while strength in the euro is sustaining wheat prices there at levels well above US and Black Sea origin. A slow but steady rally is expected in the CCI through the autumn quarter, and the dollar will be a focal point in the weeks ahead.
Corn
Corn futures ended just marginally higher, and traded in a rather narrow range this week. There’s just not much enthusiasm to establish sizeable new positions ahead of next week’s WASDE, and more importantly ahead of actual harvest date – the point being the market is no more clear on corn yield (whether it’s 164 or 169) than it was in August. Otherwise, South America continue to ship record amounts of corn, a trend that will continue into mid-autumn. Biofuel demand is rising, though, and global feed wheat is offered at a premium to corn, and is rising slowly amid seasonal trends and as the wheat market is finding better global demand interest. It’s likely that a seasonal bottom was scored last week, but a sideways/choppy pattern should be expected through the remainder of Sep. Longer term, we’re not anxious to sell breaks as farmers across the world are being pressured to slow acreage expansion. We maintain that long term highs in global stocks were scored in 2016, and South American weather hiccups will offer betting selling opportunities during the winter months. Further dollar weakness will also offer support.
Wheat
Wheat futures ended steady to higher, driven by spring wheat futures, and all classes of US wheat likely scored their seasonal lows in late August. Russian interior prices continue to drift lower as a record harvest overwhelms the pipeline there, but this is already largely reflected in Black Sea fob offers, and we doubt Russian wheat will be offered below $180-182/MT. And recall there’s a rather strong tendency for Black Sea prices to recover during the fall quarter as demand is found. The US dollar’s ongoing collapse, and general strength in other exporting currencies, continues to weigh on farmer profitability, with winter planting just around the corner. Australia’s drought will worsen in the next two weeks, the US’s position in the world market is second only to Russia through November. A longer term bullish outlook requires adverse South American weather this winter, but on the margin we look for a modest rally into late year. Sales are not advised on breaks.
Soybeans
The soybean market posted good gains at the end of the holiday shortened trading week. Fund short covering on concerns over limited August rains and a dry September forecast could lower yields, as well as steady demand from China supported the week’s trade. Chinese imports in August were better than expected and indicate that the USDA is slightly underestimating old crop imports. There is no indication that demand is slowing, and US export sales last week were well above expectations. Commercial demand for exports should remain strong into the end of the year, but the trade’s debate over yield and crop size will continue until harvest is in full swing. The USDA will weigh in with their best guess on yield early next week, which will direct price trends into the end of the month. Trend line support sits just under the market near $9.10, and resistance is just over $10. Our near term outlook stays bullish on breaks, with a view that the US soybean yield falls below 48 BPA this year.
Cattle
Early week selling in the cattle market found good demand that supported trade into late in the week, on expectations that the week’s cash trade could develop higher. The beef market was slightly firmer through the week on lighter slaughter totals and the trade also talked about better post hurricane demand in Texas to restock cooler spaces. Technically cattle and beef prices are very oversold, and the market looks due for a bounce despite the more bearish seasonal tendency through September. But there is no change in the outlook for record large 4th quarter beef production which looks to slow any rallies in the upcoming months. We hold to a view of using rallies to $113-115 December for late year cattle sales. It’s the 1st quarter of 2018 that holds the bullish price outlook, when cattle prices could bounce back into the mid-$120s.
Hogs
The hog market caught support at the start of the week’s trading on short covering and technical trading, but the early rally was played out that day, and October and December hogs traded down in the rest of the week. Cash trends remain weak on big hog supplies, while carcass weights are now starting to gain as cool late August and early September temperatures have been near ideal for feeding pigs. The September inventory report is now 3 weeks out, but is expected to confirm a record large summer pig crop, and so any rallies ahead of the report can be used for sales against late 2017 hog production. US red meat production in the 4th quarter will be massive and looks to keep livestock prices down late in the year. The first target for spot futures holds at the 2015 low near $52.