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Closing Comments

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Closing Comments

Corn

Corn trades lower throughout the session pressured by weak ethanol numbers and technical weakness.

Corn gave up gains in the overnight before trading lower throughout much of the day session before rallying into the close but failing to trade into positive territory. Today’s ethanol numbers also showed an increase of 500k barrels of ethanol stocks paired with a slowdown in production of 18k barrels from last week. The increase in stocks is the more disturbing of the two numbers as it shows a continued slowing of export pace on the heels of 2014’s historically large crop, yet in a year on year context production is still very strong seasonally.

Chatter that farmers could plant as much as 91-92 million acres of corn is also weighing on the market along with the farmer and funds both continuing to stay stubbornly long this crop. Ukrainian and Argentine currencies should also lead to deeply discounted export prices from the United States’ two largest export competitors. However, seasonally this time frame is usually weak for grains; more than likely it will take the uncertainty of spring to breathe life into the corn market that looks set on testing support at the 3.60 area before trying higher.

Soybeans

Soybeans trade strongly lower in continuation of recent choppy trade driven by weather and the ebb and flow of the South American port worker strike.

If you don’t like today than just wait until tomorrow seems to be the mantra of the bean market extending back over the last 10 days of trade. Largely this give and take has been driven by the improvement or deterioration of logistical conditions in South America as they begin the process of moving a large crop into ports always fraught with labor and timing issues. The strikes do not seem to be going away but no news is bad news for soybean bulls. A delayed harvest is easing the impact of the strikes but will also fuel the bean market higher if it persists. Continued shock over the USDA Ag outlooks lower than expected bean acre number and robust crush numbers have also cast some doubt on the incredibly bearish fundamentals of both old and new crop soybeans.

Technically speaking, the bean chart continues to look constructive despite negative trade every other day. The main question at hand is quickly becoming is there a larger issue at play to justify a return to earlier highs or even to new highs, or is this all positioning that will prove hollow when we see the USDA’s acreage numbers on March 31. Time will tell but for now it seems like breaks are for buying until more fundamental information changes the trend.

Wheat

Wheat continues to weaken threatening to take out recent lows despite decent export news this week.

Yet another nasty day of trade for wheat as Chicago broke through psychological support at $5 and KC wheat broke into new contract lows. Quickly forgetting yesterday’s Egyptian tender the market refocused on technical action and trend selling, with action in beans and corn only adding to negativity. With the market remaining oversold a bottom will come eventually and could be violent when it happens, but for now I would not fade weakness. A potential ray of hope could be the possibility for a large scale slowdown of Ukrainian and Russian exports due not only to regional tensions but also to severe weather potentially damaging yield.

Beef

Recovery in the beef complex today as profit taking and recent lows support market while cash remains quiet through midday.

The market recovered today as packer’s reduction in kill rate seems to be supporting the markets recent lows. Nebraska traded nearly 5k head yesterday at around $157, but the live bid has not improved today causing feedlots to pass on those bids. If we can maintain today’s gains into the close kill/cut margins should be most of the way back to black, and could provide enough support to solidify what is typically a seasonal bottom this time of year. However, triple bottoms rarely hold so it would take substantial follow-through to prove that the trend has changed for the market to proceed back higher.

As of noon the choice cutout is up $2.28, with select jumping up $2.83. Spot volume continues to be light at retail buyers are stunned by nearly a $5 jump in cutouts in just two days. Packers should continue to maintain lower than seasonal slaughter into the weekend which could artificially maintain a short term bottom in the beef complex.

Pork

Hogs continue to rally after finding a seasonal bottom and in the face of worsening winter weather concerns.

Cash markets continue to firm after recovering over $2 yesterday across Iowa and Minnesota. USDA pork cutout values released after yesterday’s close came in at $70.50, down .16 cents and the lowest cutout value since February of 2010. Despite yesterday’s uptick in cash prices, buyers remain sluggish as the idea that bitter cold could be backing up hogs and provide heavier weight stock in mid-March keeps them patient.

The CME Lean Hog Index as of February 20th was 60.40, up 13 cents from the previous session, but down from 61.97 the previous week. The USDA estimated slaughter came in at 407,000 head yesterday, bringing the total for the week to 837,000 head, up from last week but down from a last year’s numbers.

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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