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Closing Comments

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Closing Comments

Corn

Fund liquidation weighed on corn prices amid rising global economic fears.

The tone for today’s markets was set on Wall Street. The dollar dropped in profit taking overnight on thoughts that perhaps the Federal Reserve’s updated policy statement midday tomorrow might hint at delayed interest rate hikes due to global economic problems proving a drag for our economy. Losses accelerated when Caterpillar’s earnings disappointed and data showed that December durable goods orders fell by 4.3% in December.

Fear captured Wall Street at that point as the VIX jumped nearly 20% at one point and the Dow Jones Industrial Average dropped nearly 400 points. Money headed to the relative safety of the sidelines and the bond market, with traders reluctant to be long (bought) in the so-called riskier asset classes. The exception was crude oil, which held above its nearly six-year low and livestock prices, which were bouncing after major collapses of their own.

Fund managers resumed liquidating corn futures in that bearish market environment today. Upfront demand remains strong and new farmer selling is slow, but end users are seeing enough January contracted corn come in to keep the supply pipeline from sucking air. They’d like to see more, which supports basis, but futures traders focused on the expectations that the farmer will eventually sell, with some likely coming to town ahead of spring planting.

The March corn chart was starting to look like it might put together a more significant bounce, but now it’s turning weaker once again. Closes below $3.76 would be a signal for me that the market is vulnerable to another leg lower, with $3.50 ahead of spring planting not out of play. Corn is in a better position than soybeans to put together a spring bounce, but we are in an environment where the funds are wanting to short (sell) the commodities, which increases our downside price risk.

Soybeans

Soybeans break amid cancellations and technical weakness in soymeal prices.

Soybeans posted impressive double-digit gains Monday as soymeal pushed higher on renewed export demand. However, the soymeal market was unable to sustain that strength, particularly failing to hold a move above $340 basis the lead contract.

USDA’s daily export reporting system today noted that “unknown destinations” bought another 4.1 million bushels of soybeans in the past 24 hours. However, the negative tone of today’s markets led them to focus on another report that indicated that China had cancelled 4.4 million bushels of a previous purchase.

Weakness in the soymeal market combined with weakness in the broader markets and the above cancellation to send soybeans to double-digit losses this morning. Prices came off their lows as the soymeal market firmed once again, showing that soymeal continues to be the “canary in the coal mine”, indicating the health of the overall complex.

First support for March soybeans is at Monday’s low of $9.67. Longer-term, I fear that seasonal February weakness could test key support at $9.20, followed by $9.00. Yield reports out of South America should slowly gain momentum over the next couple weeks.

Wheat

Wheat remains a follower, although Chicago benefited from a weakening dollar and spread unwinding with corn.

Wheat felt the downward pressure of the outside markets today, although Chicago wheat proved to be somewhat resilient. Traders are still concerned about abundant global supplies, with U.S. wheat prices uncompetitive, but today’s weaker dollar helped ease some of those concerns. We also saw spread unwinding with corn that helped lift Chicago wheat.

Unfortunately, Kansas City wheat did not fare as well, setting new contract lows. A sustained rally in the wheat complex would normally be expected to be led by Kansas City. We may see that opportunity later as we get closer to spring and the crop breaks dormancy, but today’s action reminds us that the wheat complex still has downside price risk. Better rains for dry areas of the Plains this week were part of the factor weighing on wheat prices.

Chicago wheat gave away what little strength it had in the final minutes of trade, setting a new low for the move. That suggests that wheat remains vulnerable to additional weakness.

Beef

Technical bounce in beef complex continues, although the fundamentals continue to soften.

February live cattle futures lost more than $16 in 12 trading session coming into today’s trade, although they recovered off sharp losses going into yesterday’s close. That led to follow-through buying today on ideas that the market was oversold. Cash cattle moved in Iowa yesterday at $246 to $249 per cwt on a dressed basis, which would translate into $155 to $157 on a live basis, providing some support as well.

Meanwhile, the product market continues to decline, suggesting that this bounce may be temporary. Boxed beef movement at mid-morning today totaled just 85 loads, with Choice cuts down $1.71 to $249.70 per cwt, while Select cuts were down $2.23 to $242.56. That put the Choice/Select spread this morning at $7.14 per cwt, up from $6.62 on Monday.

The comprehensive cutout value that includes more formula sales to retailers outside of the spot market has been stronger, suggesting that packer margins are better than widely believed. That likely explains the rise in last week’s kill to 576K head, with this week’s kill expected to be in that neighborhood as well.

Feeder cattle futures bounced for similar reasons today, although demand at the sale barn continues to wane. The latest CME cash index came in at $217.61 per cwt, down $2.84 on the day and down $14.77 over the past 11 trading days.

Pork

Lean hogs bounce on hopes of a seasonal rally in the cash, but couldn’t hold the gains.

February lean hogs lost more than $23 off their mid-November highs, leaving the market in an oversold condition amid sinking cash prices. The market was oversold and due for a bounce, which it tried to begin on Monday. Follow-through buying lifted prices early today on ideas that a seasonal rally may be ahead for the cash market, but traders gave up on those hopes by late-morning, with prices dropping to test Monday’s lows again.

Today’s cash market did stabilize, with steady prices across most of the Midwest, although Illinois was steady to 50 cents lower. Yet, the latest CME cash index posted its 31st consecutive loss at $72.91, down $0.66 on the day and down $15.60 per cwt since the string of losses began.

Product prices tried to stabilize Monday, gaining $0.09 cents on the day with 272 loads moving. However, the composite price dropped $1.73 at midday today, with a mere 187 loads moving at an average of just $82.74 per cwt, adding to the weaker tone for futures. Packer margins today were estimated at an impressive $57.50 per head, but hogs are coming to the packers without them having to chase the market higher.

Closing Market Snapshot

 

All opinions expressed in this commentary are solely those of Water Street Advisory. This data and these comments are provided for information purposes only and are not intended to be used for specific trading strategies. Although all information is believed to be reliable, we cannot guarantee its accuracy or completeness. There is significant risk of loss involved in commodity futures and options trading and may not be suitable for all investors.

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Arlan Suderman | Senior Market Analyst
WATER STREET ADVISORY® | www.waterstreet.org
(316) 729-4599 | asuderman@waterstreet.org

Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK involved in trading futures and or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL. This information is provided freely and is NOT in the capacity of a trading advisor. NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. Information provided is not to be construed as an offer to sell or solicitation to buy any commodity or security named herein.

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