Grains markets spent most of the week slipping lower. There wasn’t a major news item that was the main catalyst for the pressure, but it was more of a lack of fresh supportive news to keep the markets moving upward. Technical indicators were overbought and we were due for a corrective break, and that is what we have seen. Moving forward, the positive trade news, disappointing yield numbers and the possibility of a friendly November supply and demand report should keep a bid under the markets and allow us to continue on with our price recovery.
It would, of course, be helpful to get a trade deal signed, but the verbiage out of both Washington, and China seems to be optimistic. That certainly hasn’t always been the case over the past year where it always seems that one of the two parties is upset about something. Details on Phase One are still lacking, so there is a bit of trepidation regarding the deal because of that. Hopefully the deal gets close to living up to Trump’s hype.
The overall chart pattern of the corn, wheat and soybeans remain positive. We are seeing a correction, but long term we should still look for a move up to the $4.25 area in the December corn, $4.70 in the December KW, and $9.80 in the January soybeans. As a general rule as ending stocks estimates decline, prices rise.
Cattle futures had a very good week. The December live cattle reached the highest level since early May, which make our next major upside objective the contract high of $124.175. Beef prices are strong and the slaughter rate is high, which tells us packers are trying to take advantage of their high margins. There are even rumors now that the Tyson plant in Garden City might be opened before the end of the year, which would mean daily slaughter numbers could be even higher. Producing more beef may sound like a negative to the market, and at some level increasing the supply does weigh on the market, but when demand is not being met we have room for supply to increase without major negative consequences. Demand for beef, and pork for that matter, is going to keep the live cattle market moving upward for a while longer.
Feeder cattle futures didn’t have quite as good of a week as the live cattle. The cash market at the auctions was basically steady to lower than last week, so the rise in the feeder index has taken a pause. The multi-month highs in the live cattle futures didn’t spur much buying in the feeder futures which is a little bothersome, but higher cash trade again next week would likely cause the feeder futures to play some catch up. The November contract is starting to get short on time, but the $149 area is still a viable upside target for that market.
The U.S. Dollar Index was higher this week, but the dollar is still struggling to hold above monthly chart trendline support. BREXIT plans are no longer clear, which caused the British pound to give up some recent gains, and the European Central Bank is still on a course of very easy monetary policy. It seems we are back to worldwide competitive devaluation of currencies and the U.S. isn’t competing quite as hard as some others. Trump would like the Fed to lower rates back to zero to stay competitive on the world stage and boost our exports. We are still lacking inflation, which the commodity markets need, and the main beneficiary of easy monetary policy around the globe is the U.S. stock market. We are on the verge of new all-time highs in most of the indices and many records will likely be broken before the end of October.
Schwieterman, Inc. is a full-service commodity brokerage firm. If you would like more information on commodity markets or our brokerage services, contact Eric Relph at 800-272-9131 or www.upthelimit.com.
Note: This material has been prepared by a sales or trading employee or agent of Schwieterman, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Schwieterman, Inc. Research Department.