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Closing Comments

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Closing Comments

Corn

Corn prices rise on surge in fund buying on weaker dollar and stronger crude oil markets.

Several things came together today to support a surge in money flow back into the broader commodity and stock markets. The dollar was due for a significant correction. That move was triggered by a stronger euro after Greece backed away from its demand to write-down debt late Monday. Losses accelerated as the dollar fell through technical indicators tripping sell stops/profit taking, posting losses of more than 1,000 points at times today.

Furthermore, additional strength in the energy sector supported by the biggest oil workers’ strike since 1980 triggered a larger flow of money back into the oversold commodity sector. The buying pushed crude oil to its highest price in a month. The continuous commodity index gapped higher, leaving a potential island bottom on the charts.

Corn prices benefited from the increased flow of money into the broader commodity sector, triggering short-covering and bottom-picking in the market. Fundamentally, traders pointed to strong demand and worries that heat and dryness may have curtailed Brazilian production, but there really wasn’t anything new in the market.

Informa released its updated global production estimates to its clients this morning. Trade reports indicate that Informa raised its Argentine corn production estimate to 23.0 million metric tons, up from 22.0 mmt the previous month. It also reportedly raised its Brazilian production estimate to 72.8 mmt, up 550,000 mt from its previous estimate.

March corn periodically tripped preset buy stops as areas of resistance fell on today’s rally. It was quite impressive, but I’m not ready to declare that prices are going up from this point. Key resistance for me is layered between $3.93 and $3.95, with further resistance at $4.00. December has key resistance at $4.19.

Soybeans

Money flow boosts soybean complex, but also with help from strong upfront demand.

Strength in the broader markets fueled a short-covering rally in soymeal and soybeans today; both of which already have near-term support from strong upfront demand. Fundamentally, additional support comes from declining production estimates for Brazil, which are hovering around the 93 to 94 mmt level. That’s still up substantially from last year’s 86.7 mmt crop, but it is certainly smaller than some of the huge 98 and 99 mmt estimates that had been out there a month ago.

Today’s rally triggered some increased farmer selling in markets where stronger basis pushed the price above $10. However, it was not enough to cause an overall collapse in basis. Soymeal basis was mostly steady to mildly mixed on today’s rally. Upfront demand remains robust.

Informa reportedly kept its Brazilian soybean production unchanged at 93.5 mmt, which is down 2 mmt from USDA’s January estimate. However, it is said to have raised its Argentine estimate to 57.0 mmt, up from 55.5 mmt previously and up from USDA’s estimate of 55.0 mmt.

Today’s March soybean rally hit a road block at $9.99 per bushel. Farmer selling increased as local cash markets hit $10. Fund managers struggled to be long (own) soybeans at $10, with a big South American crop coming to town. That crop isn’t as big as once thought, but it is still big. A sustained move above $10 would likely signal a significant change, but so far we haven’t done that. November soybeans stopped short at the 20-day moving average of $9.785.

Wheat

Extensive short-covering boosts big gains in wheat.

Wheat prices posted impressive rallies today, fueled by declining crop ratings in the Plains, but most of the strength came from a resurgence of money back into the broader commodity sector. Wheat prices were oversold and due for a significant correction, but previous attempts had been beaten down by the broader deflationary cycle in the broader commodity cycle. However, that flipped the other way today, at least temporarily, allowing funds to take profits on their large short (sold) positions.

Egypt bought 11 million bushels of wheat today. Romania sold it 6.6 million bushels, while the remainder of the purchase came from France. U.S. soft wheat has struggled to compete on price, but Egypt’s quality standards also made it difficult for exporters to offer our wheat, which has vomitoxin in it.

Informa is said to have raised its Argentine wheat production estimate to 12.5 mmt today, up from 12.0 mmt previously. USDA’s January estimate put the crop at 12.0 mmt.

USDA is not expected to release national crop ratings until April, but some individual states do so on a monthly basis in the winter, usually the first Monday of the month. This month’s updated state reports showed continued deterioration in the Plains hard red winter wheat belt. Kansas wheat rates 46% Good to Excellent, down from 49% a month ago. Oklahoma was rated 41% G/E, down from 54% previously, while Texas was rated 42% G/E, unchanged from its previous weekly report. Colorado dropped to 38% G/E, down from 62% the previous month.

The difference was seen in Illinois. That state’s wheat condition plummeted to just 24% G/E last month. However, it rebounded to 49% G/E this month. Most of that was in the Good category, so its crop is still not out of the woods, but the sharp improvement was a surprise to the trade. Furthermore, we should see good improvement in the Plains crop going forward, following soaking rains over the southeastern 75% of the belt at the end of January, just as the above state reports were being compiled.

Wheat may have more upside potential here on short covering, but don’t be surprised to see big swings for a while as the market carves out a broad choppy sideways pattern until more is known about the health of the winter wheat crop. Crop ratings are lower, but the past week’s moisture should eventually prove to be very good for the crop.

Beef

Fat cattle firm after feeder cattle post a double-bottom on the charts as selling dries up.

Feeder cattle futures locked the $4.50 per cwt daily limit lower Monday, with follow-through selling early today. Double-digit gains in corn prices added pressure to the chart-related selling amid soft demand at the sale barn. The latest CME cash index came in at $211.54 per cwt, down $0.15 on the day and down $23.68 over the past 16 trading days. Today’s early selling added pressure to live cattle futures as well.

However, selling dried up in the March feeder cattle market just above January 26 low of $195.40. That triggered profit taking by those holding short positions, allowing prices to erase the bulk of their losses. That in turn allowed the fat cattle market to firm, with ideas that it is oversold relative to the cash market.

There’s been little movement in the cash market to this point, although there have been unconfirmed rumors that a major paid $157 in the north yesterday. Today’s rumors had bids of $158 floating around in Texas. Last week’s trade started at $157 per cwt on a live basis, but gradually firmed to $160.50 by the end of the week. This week’s cash trade is expected to go a long ways toward giving us an idea of the amount of contracted cattle held by the packers.

Monday’s kill was estimated at just 105,000 head, down 7,000 the previous week and down 6,000 from the previous year. A lower slaughter number this week may help to firm product prices.

Boxed beef movement dropped to 142 loads, down from 176 loads the previous day, but up from 133 loads the previous week. Choice cuts firmed $0.17 to $242.61 per cwt, which was the first day that they closed higher since posting their record high of $263.81 on January 14. Select cuts were down $0.14 to $235.60 per cwt. This firmed the Choice/Select spread to $7.01 per cwt, up from $6.70 the previous day and up from $6.62 the previous week.

Monday’s stability in the product prices led to follow-through buying today. Choice cuts were up $1.46 per cwt, while Select cuts were up $2.28 per cwt. However, movement at mid-morning totaled just 87 loads.

Pork

Weak cash and product prices weigh on futures.

Pork production is expected to reach 23.908 billion pounds in 2015 as more hogs at heavier weights push the overall supply upward. That is expected to top beef production, currently estimated at 23.901 billion pounds, for the first time since 1952. Both are well below poultry production, estimated to reach 39.206 billion pounds, but the data shows the problem that beef is having in keeping up, while also highlighting the success that the pork industry is having in taking advantage of beef problems after recovering from the PED virus.

Today’s cash market was mostly steady in the eastern Midwest as producers struggle to delivery hogs on snow covered roads, but the closely watched Iowa/Southern Minnesota market was 50 cents weaker and Illinois was steady to $1 lower. The latest CME cash index came in at $70.35 per cwt, down $0.78 on the day, down $2.56 on the week and down $18.16 over the past 36 trading days.

The composite pork product price bounced to $78.48 per cwt Monday, up 15 cents on the day and up 18 cents over the past two days. However, the firming prices dropped product movement to 275 loads, down from 304 loads the previous day , but close to the 272 loads that moved the previous week. Unfortunately, prices fell again this morning with the midday composite pork product price down $1.99 to $76.49 per cwt. Yet, movement at midday remained routine at best at 187 loads.

Weakness in the cash and product markets weighed on lean hog futures today. The February contract posted modest gains as it approaches expiration, but the deferred contracts were under pressure most of the day. April found support at the double-bottom low near $70 per cwt though, which becomes a key level to watch in the days ahead.

Ultimately, we need to see hog numbers decline relative to demand. Carcass weights remain above year ago levels, with slaughter numbers above year ago levels, keeping the pressure on prices.

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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