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Closing Comments

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Closing Comments

Corn

Corn traded both sides of unchanged today as strong bean and wheat trade failed to entice corn higher. Weekly export sales were within range for trade expectations at 33.3 million bushels which failed to overcome the negativity persisting from yesterday’s ethanol stocks numbers. The ongoing debate continues to focus on potential 2015 corn acres, with farmer’s large old crop holdings and bearish peripheral fundamentals keeping rallies in check.

Despite the generally negative tone of market fundamentals for everything but new crop corn, corn technicals could be in the process of making a short term bottom after surging back from the “V” bottom set last Friday. There is also a bull flag pattern with the pole set by Tuesday’s large range day, and modest weakness since forming the flag. This pattern is setting up well to either confirm or fail with Tuesday’s USDA supply and demand report. Any rallies in the grain complex will be hard fought, but support from wheat could support modest spring rallies even with the market’s current bearish tone.

Soybeans

Soybeans added to Tuesday’s gains today reversing yesterday’s losses in the overnight before settling into a limited range during the day session. Today’s gains were sparked in the overnight by improving oil share prices as Indonesia announced that it would be tripling its biodiesel subsidies. This announcement caused an immediate rebound in Malaysian palm oil futures by 5% and a gain in oil shares to 32.2%. This increase also supported domestic crush margins which stand at 99 cents per bushel, a very attractive mark that should continue to entice crushers to process soybeans at an aggressive pace.

Exports also buoyed the soybean market as they came in at the top end of trade’s expectation, with China being the largest buyer at 225k metric tons. Despite these positive fundamentals the market will still have to struggle against a record Brazilian bean crop with favorable 2 week weather forecasts, and an unexpectedly large Argentine soybean crop. That being said soybeans could be a reluctant follower in jeopardy of shedding acres if corn and wheat edge higher into spring.

Wheat

Wheat strength seems to still be tied to outside markets. Not a lot of fundamentals at the table, although the international market is seeing some buyers coming. Exports came in at 14.6 million bushels for the 14/15 crop – right in the range of market expectations. 60,000 mt of Durum Wheat was bought by Turkey for February 20-March 20 delivery. While there is still risk for another leg lower, the market seems to be trying to bottom as indicators are starting to now turn for higher.

 

India wheat is advancing into reproduction with potential shaping up average to slightly above average. Cold air will pool into Eastern Europe into early next week, but snow cover should offer protection for affected areas. SW Russia and Ukraine has lost snow – but no risk of damaging cold anytime soon.

Beef

The cattle complex saw volatile and mixed trade today as feeders initial freefall has recovered by nearly $2.50 late in the session, led higher and stabilized by fats that are now in positive territory. Cash cattle meanwhile are in a standstill with bids no better than $160 live in the South and sellers unwilling to budge from $162 – $164. Several factors could be supportive for the cattle complex moving forward including slow rate of gain due to cold and the markets deep discount to cash. However, a bottom will be hard to call as the pork complex continues to weaken and the same cold weather that could decrease supply will also negatively impact demand.

As of noon the choice cutout was down $.30 with select cutout up $1.31. This inequity is easily explained by the historically high number of cattle grading choice, which is supportive of select values particularly on middle meats. Overall, packers continue to have a positive attitude while buyers are more bearish due to declining hog and chicken prices.

Pork

The hog market continues to slide as packers appear to have full inventories, supply is up, and cash pork prices are at their lowest mark in 4 years. The market cannot seem to find support as weakness in pork cutout values this week has helped to spark the speculative long liquidation selling. The USDA pork cutout came in at $74.36 yesterday, down $1.59 from Tuesday and down from $80.20 the previous week. This cutout value is actually the lowest since 2010, and a deterioration of the CME Lean Hog Index to 69.82 as of February 2nd only helped add fuel to the bearish fire. Just as hogs struggled to find a top last year in the face of PEDv, they seem to be struggling to find a bottom in the face of an expanding herd, improved animal health, and larger market weights.

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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