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Closing Comments

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Closing Comments

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Corn was able to get back in the win column today with a small gain, +1 ¾ (Mar).  Because the record world supply and an anticipated large South American crop has already been baked into the equation, it is hard to see a path that takes corn below 3.42 (Mar).  There are several demand factors that are rising to prominence including higher than expected livestock supply, strong exports, and great ethanol margins.  China also announced that they plan to increase the production of biodegradable plastics and animal feed made from corn to exhaust their surplus stocks over the next three years.  Additionally, the Chinese plan to increase farm acres by 3.2 million acres, by diligent land management practices and increasing cultivation.  The EIA ethanol weekly report today showed production -8K bbl to 1.03 million bbl/day, with ethanol stocks -377K at 18.68 million bbl.  Crude stocks were up, while gas stock were down.  Look for support at the 3.44 ½ and 3.42 ¼ levels and resistance at 3.57 ½.

 

Soybeans have shown volatility back and forth with large moves and ranges that can be typical with thinner trade this time of year. Futures were down moderately, -3 ¾ (Mar).  Although South American weather has been very favorable, there is still enough speculation and uncertainty with Northern and Eastern Brazil’s warm, dry trend to hold off new sellers for now.  There were no new export sales reported this morning.  Presently, March soybeans are finding support at the 10.16 ¾ and 10.13 ½ levels.

 

Wheat was able to make a turnaround after yesterday’s correction, and was positive across the board: Chicago +3 ¼, KC +5 ¾, Minneapolis +3 ¼ (Mar).  Is wheat ready to make a recovery, based on its cheap and oversold condition?  Recent action and the overflowing world supply make it difficult to not succumb to bearish sentiment.  However, wheat funds are short over 100K contracts and demand from traders is picking up.  The export front has been quiet the last 24 hours other than Egypt announcing they bought 235K tonnes of Russian and Ukrainian wheat for shipment in Feb. and Morocco looking for U.S. and EU wheat.  Although Russia has dominated many offers recently, the rise in the Russian ruble against the dollar and euro will start to have a negative effect for them.  Rebalancing may favor wheat – keep an eye on support levels at 3.99 ¾ and 3.94 ½ in Chicago.

 

Live Cattle is hard-charging for the 2016 finish line, up again to a new high, +.575 (Feb).  Futures are overbought in the near-term, but the solid chart action and tighter supplies are providing support. Optimism regarding rising cash prices has helped to drive the action this week.  Cattle sales yesterday at the online auction were in a range of $115-116.75, and it is expected that cattle owners will hold firm with an asking price of $120 on Friday.  The beef market is benefitting from favorable profit margins at both the retail and wholesale level, which encourages both parties to feature beef as the preferred selection.  Export numbers have continued to be solid in spite of the strengthening Dollar (index is at a 15-year high). 

 

Hogs exhibited choppy, sideways action today, down slightly -.450 (Feb).  How long will hogs be able to maintain upward momentum, with bearish supply news weighing in for the Spring?  It will be critical for exports to continue to show growth, and short-term the trend is positive. Positive action is also supported by continued strong packer profits and solid pork demand.  This, in spite of the Hogs and Pigs report that was released the end of last week, which showed a significant increase in the number of animals that are expected to come to market between Dec and May.  The USDA estimates hog slaughter this Saturday to be 300K head, compared to only 5,000 last Saturday before Christmas.  Traders may be advised to proceed with caution as there will likely be volatility ahead. 

 

Due to the holidays, the USDA export sales report will be released tomorrow morning at 7:30am CT.  The CBOT will have a normal trading session tomorrow and will be closed Saturday through the New Year’s holiday, and reopening on Monday at 7pm CT.

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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