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Closing Comments

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Closing Comments

In Corn, the big supply theme continued with trade influenced lower by soybeans, – 6 (Mar).  With today’s failure below the short term risk parameter of 3.44, the probability of a broader reversal higher looks doubtful, with a likely resumption of the secular bear trend to new lows. The USDA announced export sales this morning of 761.6K mt, below the expected 900K-1.2 mln mt – in fact, among the lowest of 2016/17 so far.  News overnight that 900 firms in China have applied for 2017 import quotas is viewed as a positive.  In South American weather, Brazil continues to look good, while Argentina is more mixed with multiple “hot and dry” areas. 

 

Soybeans were down for the third day in a row, – 2 ½ (Jan), conflicted by a positive export report and the weight of supplies and an overbought condition.  Soybean exports did not disappoint, as the USDA announced 1.399 mln mt vs. the expected 1.0-1.5 mln mt.  However, recent focus has shifted to South America, as China has ramped up activity with Brazil, placing orders for 10-12 cargos this past week.  Soybean meal sales were at the bottom end of expectations, while soybean oil came in at the top end.  There were no new USDA sales announcements today. 

 

March Wheat traded to a new contract lows yesterday, as Chicago has lost over 30 cents in the last five sessions. The same pattern continued today with KC and Chicago both down, – 7 ¼ (Mar).  However, the higher quality Minnesota has consistently moved the opposite direction, coming in + 2 ½ (Mar).  Wheat exports were reported at the high end of the range (but well off recent weeks’ pace), as the USDA announced 483.5K mt compared to the expected 250K-500K mt.  It is being reported that India bought around 500-600K tonnes of wheat from Australia last month with more purchases on the horizon in the coming weeks.  India lowered the import tax on wheat to 10% from 25% due to recent poor crop years, with this year expected to show the largest imports in 10 years.  Although the U.S. was absent from the offers to Egypt on Tuesday, it appears we are much closer to being competitive, as values on flat price are within $5 a ton in comparison to the Russian delivery.

 

Live Cattle changed direction after a modest gain yesterday, down – .575 (Feb).  At the online cattle auction yesterday, prices ranged from $113-114, following a similar pattern to recent weeks.  After the auction, buyers moved to the country where purchases were mostly in the range of $114-115.  The sales volumes were not as high as those in previous weeks.  Futures prices have fallen behind the cash market by several dollars, as buyers are hesitant to get back into the market after several failed rallies the past few months.  Beef exports have been strong, with beef muscle cuts having the highest average the past two weeks of any two week average this year or last.  Several Asian markets have continued to drive exports with extremely strong demand, in spite of the robust U.S. Dollar – including South Korea, Japan and Taiwan.  This is due in part to Australian slaughter being down by double digits from last year.  Asia continues to be far and away the major importer of U.S. beef.

 

Hog futures reversed course after a rebound yesterday, dipping to the lowest point in two weeks, – 1.150 (Feb).  Hog supply is actually down in a more manageable range now, due to farmers rushing more hogs to market (prior to last week) than they normally would have due to falling cash prices.  And, packers have had an incentive to process as many animals as possible to maximize favorable margins.  However, packer margins were down today as cash prices have been on the rise and the pork cut-out values have softened.  The export market has been good for pork, with Mexico taking the top spot for U.S. pork exports.  Because of the rise in Mexican imports, this helps explain the firmer ham prices in the face of very large slaughter numbers.

 

In Other news, crude has rallied quite impressively the last couple of days, following the announcement from the OPEC meetings this week of an agreement to curtail production in 2017.  According to Reuters, Vladimir Putin played a critical role as an intermediary to bring the Saudis and Iran together on a deal.  The expectation of reduced crude output has been a key driver of the post-election rally in the markets.  The question that begs answering – will it last (as there is still a glut of crude stocks worldwide)?  Market watchers have some concerns as to whether the cuts will actually be implemented due to low trust levels among member nations.

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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