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Closing Comments

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Closing Comments

Corn

Corn caught between technical resistance to limit the upside and funds already short.
Corn traded both sides of unchanged today, closing lower on the day despite positive trade out of the rest of the grains. The market seems to be stuck in a give and take phase, where fund short covering gives opportunities that are quickly overwhelmed by sellers near key resistance at 3.72 in the March contract. Both the poor state of the South African crop and the fact that Brazil is running tight on corn have helped to continue short covering, but more reasons will be needed if the market is to engage with stiff resistance near the 3.80 area. Interestingly, basis has stayed firm with the last few tests of 3.72, suggesting that farmer sales might not be what is keeping the lid on the market.
Friday’s commitment of traders showed that hedge funds lightened their positions by nearly 26k contracts, but are still short just over 540 million bushels of corn. This lifting was offset by index funds liquidating nearly 25k contracts of their long position. Commercials were relatively quiet, further enforcing that farmer selling has been relatively light in the face of the 20 cent bounce since the report.
Export shipments were somewhat disappointing at 599k mt, further widening the deficit that corn has been running to make the USDA export target. Corn is currently lagging 150 million bushels behind pace to hit USDA target, though exporters should begin to shop more corn as soybean shipments continue to seasonally weaken. Overall, exporters normally ship 36% of total shipments by this date; last year it was 30%; this year it is just 26% of USDA’s target thus far.

Soybeans

Soymeal leads the bean complex on short covering rally.
The Commitment of Traders report last week showed Non-commercial and Non-reportable combined traders to hold a net short position of around 40k contracts, down a significant 31k contracts for one week. They did increase their net short position in meal and hit a new record level at over 54k contracts, and an increase of 4,543 contracts for the week. This may have led to the midday bounce seen in the soy complex as the funds seem to be positioned in one direction for now.
Export shipments for soybeans were at 1.197 mln mt, an off about 14.5% from last week. Soybeans overall are off 11.5% from last year’s pace as well. That would be the lowest weekly shipment total since October 1st of 2015.

Wheat

Wheat higher on fund short covering and possible Russian grain export restrictions.
The wheat complex is stronger today on potential grain export limits or restrictions in Russia and some concerns around world stocks may tighten up some if India’s crop is as bad as some projections. December grain exports in Russia hit a record high at 3.8 million tons, due to the falling Ruble.
Export shipments for wheat came in at 437k mt and beat expectations by a small margin. Wheat shipments are currently running behind a little at 75.4% of the USDA forecast and a little below the 5 year average of 77.2%
COT report as of January 19th showed funds lightening their shortened position by 2,686 contracts for the last week, from 90,403 overall.

Livestock

Livestock trade the Cattle-on-Feed numbers accordingly.
Cattle
Now that the market is holding above the 40 day moving average it is suggesting the longer term trend is for higher. The Cattle-on-Feed report was slightly bearish and was likely the reason for the softer markets seen in today’s trade. Feedlot placements for the month of December were at 99.2% of last year and above the average guess of 95.6%. Marketings were 101.1% which was below the range of estimates and may be seen as a bearish factor for nearby cattle. On-feed supply came in at 99.5% of last year which was a little higher than expected. The monthly cold storage report had frozen beef supply up 15.6% from last year. Beef stocks typically increase 1.6% for the month of December and since this year it was only 0.6% it was seen as slightly friendly.
Hogs
April is currently at a large premium to cash so many are watching for signs of a near term top after the run higher we have seen. Slaughter numbers late last week brought the total up to 2.329 million head up from 2.300 million the previous week and up from 2.317 million head one year ago. The pork cutout levels released by the USDA last Friday after the close came in at $75.02, up $1.33 from Thursday and up from $72.54 the previous week. The pork cutout levels were the highest since November 12th. The overall commitment of traders report showed an increase of length across the board in the hog complex. Monthly cold storage numbers indicated an increase above last year of pork supply by 8.3%. The decline of 2.7% seen in the month of December was slightly positive given the normal decline is seen at 0.8%.

Closing Market Snapshot

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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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