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Closing Comments

Corn was able to maintain its chart position today, finishing slightly positive, + 1 (Mar).  USDA weekly corn inspections were on the light side, as 860,927 mt vs 1.15 mmt were reported this morning, however higher than last year.  The December USDA report last Friday showed ending stocks in the states unchanged, and was basically a non-event for the markets.  This will likely not be the case when the “high risk” January report is released, as it may show a decrease in 2016/17 feed use of corn.  The focus is now squarely on South American weather, as this is the biggest opportunity/threat facing the market over the next couple of months.  Currently, Brazil and Argentina’s combined corn production is expected to be 28.1% above last year. Front month contracts led strength today, a good sign. Look for initial upside resistance in March at 3.67 and more firm resistance at 3.75. March closed at 3.60 ¼ today.

 

The Soybean bulls need a daily diet of bullish news in order to maintain positive momentum.  Today, their appetites were not satisfied in spite of a nice menu of positive news, – 6 ½ (Jan).  Easing doubt as to whether the export demand will continue, the USDA reported a private transaction with China for 256,600 mt of soybeans for 2016/17.  The USDA weekly inspections also did not disappoint, as it was announced that there were 1.837 mmt for the week ending Dec. 8th, vs the expected 1.45 mmt.  Exports have declined the past four weeks in typical seasonal fashion, but are ahead of last year.  The COT report on Friday showed managed money to be net long 123K contracts of soybeans, 9,000 meal and 112K oil.  The USDA report was unchanged, but the story is in oil, where carryout was trimmed back 100 million lbs to 1.55 billion.  The breakdown of oil usage showed a large increase in biodiesel while food, feed, and other usage actually decreased.  In Brazil, soybean planting is reported to be 95% complete, which is above the average for this point in the season.

 

Wheat had a late rally on Friday, and it is thought that this was nothing more of a short covering to finish up the week.  Today, was more of the same choppy action that we have become accustomed to, with Chicago + 1, KC + 1 ¼ and Minneapolis +1 ½.  Now that the USDA report is out of the way, there are not a lot of compelling stories for wheat.  Wheat continues to battle the bearish force of huge supply from key exporters around the globe.  The USDA weekly inspections this morning were positive, as exports were announced at 440,805 mt compared to expectations of 400K mt.  A couple of narratives to follow include, frigid temperatures in the western plains that will be lingering for most of the week and the fact that U.S. wheat is becoming more competitive around the world and may start winning some business (speculation that a portion of the Saudi order over the weekend went our way).  The COT report on Friday showed large spec to be sellers of around 2,000 contracts (5,000 expected), putting their net short position at 141K contracts.

 

Live Cattle brought a bullish demeanor into the new week, forging out a new high, +2.425 (Feb).  Cash sales in the north and the south were lower than last week, with sellers in the South accepting $110 on low volumes.  Many cattle owners are anticipating a bounce back in price this week.  But, packers will continue to lower bids as slaughter demand tends to tail off this time of year.  On the global stage, Australia cut back its forecast for beef exports for the 2016/17 season by more than 3%, as farmers rebuild cattle inventory after the strongest El Nino in nearly 20 years. Australia is the world’s #4 beef exporter, with key market share in China and Korea at risk to competition from Brazil.

 

Hogs technical action has been impressive, closing at a new high today, +.625 (Jan), but it may be challenging to hold premium.  Will they be able to continue this trend another few dollars higher? Extreme cold and snow in parts of the Midwest are giving support, as cash hog prices were up to $1 per cwt higher.  The weather could hamper deliveries to packers and some farmers are hesitant to open the doors to their swine buildings to keep the animals warm.  Packers have been able to maintain healthy margins which has enabled them to pay more for supplies.  This may be amplified if an inventory shortage develops. Feb hogs will have to prove if they can get through resistance at 62.425.

 

In Other news, the crude rally is a real boon to U.S. shale producers, who are upping the count of their most productive rigs.  This, following a weekend meeting of OPEC/non-OPEC producers which resulted in a non-OPEC production cut pledge as well as Saudi Arabia indicating they could bring output down below 10M bpd.

 

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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