It was a rough week for US stock indexes, led by a post-election break in high-tech stocks.
The Grains sector also struggled to find buying interest, particularly in the beleaguered wheat sub-sector.
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Speaking of beleaguered, economic pressure continued to drive pork and beef markets lower this week.
Afternoon Summary: I closed last Friday’s Afternoon Commentary by looking through the windshield and seeing this, “Money is flowing out of equities and into Treasuries as a safe-haven…ahead of next week.” A look at this week’s trade using the rearview mirror and we see the S&P 500 ($INX) is off 203 points (2.7%), the Dow Jones Industrial Average ($DOWI) is down 484 points (0.9%), and the Nasdaq ($NASX) lost 857 points (3.4%) from last Friday’s settlement. We all know why. The US mid-term election tried to bring balance back into the government, but the reality is a potential balance means nothing more than a stalemate. This means the economic slide the US, and it could be argued the world, is on will continue because nobody will be allowed to use the brakes. This week highlighted a few interesting points. First, as discussed in Monday’s Afternoon Commentary, the Energies sector did seem to indicate what the outcome was going to be. Second, hopefully US rural landowners sold some farm ground to data centers BEFORE the Democrats took control of Congress and the wheels came off the high-tech stocks sector. Lastly, I hope folks didn’t load up on bread, via wheat, because wheat futures contracts posted a tenth lower weekly close.
Corn: The corn market was able to rally late, allowing contracts to finish in the green Friday. The December issue (ZCZ26) extended its modest 1.75-cent overnight rally to as much as 2.5 cents over the course of the session before closing at $4.4150, up 1.5 cents for the day on decent trade volume of 215,000 contracts. What stands out to me is Dec gained 0.75 cent on March which gained 0.5 cent on May. I’ll break Rule #5[i] and play the game of making up reasons ‘why’ for market activity. This one’s relatively easy though. This week has seen national average basis firm, though remain neutral to weak, and heading into a late harvest season weekend merchandisers are expecting to watch most of trucks drive by on the way to on-farm storage. It will be interesting to see the CME’s reported change in total open interest following last night’s number of 1.96 million contracts. For the record, Dec26 still closed 6.25 cents for the calendar week after finishing the latest Tuesday-to-Tuesday positioning week with a loss of 6.25 cents. The latest Commitments of Traders report (legacy, futures only) showed a noncommercial net-long futures position of 137,595 contracts as of Tuesday, November 3, a decrease of 63,677 contracts.
Soybeans: The soybean market was also able to close the week on a rally, also showing signs of commercial buying interest. The January issue (ZSF27) gained as much as 7.25 cents on trade volume of about 125,000 contracts before settling 5.5 cents higher for the day. Additionally, Jan gained 2.5 cents on March, the spread closing at a carry of 5.5 cents and covering 21% calculated full commercial carry. This was a dramatic change from last Friday’s settlement of 9.5 cents carry and 36%. Did the commercial side of the soybean market register that 4-letter word “hope” of an improving situation between the United States and China following the US mid-term election? Keep in mind national average basis has also firmed dramatically this week ahead of Friday night’s calculation. Further out, the March-May spread closed at a carry of 9.0 cents and covered 31% versus last Friday’s 9.75 cents and 33%. As for the noncommercial side, January finished the calendar week with a loss of 40.5 cents after finishing the latest Tuesday-to-Tuesday positioning week 29.0 cents in the red. The weekly Commitments of Traders update showed funds held a net-long futures position of 163,618 contracts, a decrease of 40,501 contracts from the previous week.
Wheat: Since I mentioned wheat in the opening Summary, let me dive headfirst into the bearish numbers. Before we take the plunge, I’ll summarize by saying the December and July SRW and HRW contracts all registered their tenth consecutive lower weekly closes while December HRS was in the red for the ninth week out of 10, an unchanged mark in there early. Okay, now for some numbers: December SRW (ZWZ26) was down 8.0 cents for the day and 12.25 cents for the week. July (ZWN27) was off 4.75 cents Friday and 14.5 cents lower than last Friday’s settlement. Over in HRW we see December (KEZ26) down 3.25 cents for the day and 11.75 cents for the week with July (KEN27) 2.75 cents and 16.75 cents. December HRS (MWZ26) was 4.0 cents in the red at today’s close and 7.75 cents below last Friday’s settlement. That’s a lot of numbers, but I still haven’t gotten to the key figure: The new-crop July-September SRW futures spread closed at a carry of 11.75 cents and covered a bearish 71% calculated full commercial carry. The weekly Commitments of Traders report showed Watson increased its net-short futures position across the board as of Tuesday, November 3: 11,776 contracts in SRW, 3,315 contracts in HRW, and 5,774 contracts in HRS.
Livestock: I can’t help but think somewhere, someone in the pork industry is waving a white flag. This has become a bloodbath. The December futures contract (HEZ26) closed at $53.525, down $1.575 for the day and $5.35 for the calendar week. I switched to a weekly continuous chart, and it shows a December lean hog futures contract has not been this low since mid-August 2020. This makes sense when we consider this runaway train is being co-engineered by both commercial and noncommercial interests. On the commercial side, the latest CME Pork Cutout Index came in at $70.94, fast approaching the all-time low of $68.16 from December 28, 2020. As for funds, the latest Commitments of Traders report showed a noncommercial net-short futures position of 81,035 contracts as of Tuesday, November 3, a decrease of 1,326 contracts. This included another new record large short futures position of 169,437 contracts. Despite a weaker cash market this week, December live cattle (LEZ26) was able to trim its Friday loss to $0.35 but was still down $6.90 for the week. Similarly, with cash indexes falling fast, the January feeder cattle contract (GFF27) closed $1.95 lower for the day and $13.40 in the red for the week. Funds decreased their net-long live cattle position by 4,044 contracts and switched to a net-short position in feeder cattle.
[i] It’s the what, not the why.
On the date of publication, Darin Newsom did not directly have a position in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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