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Closing Comments

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Corn looks primed to follow soybeans higher, with high volume action as funds and end users expand their market length – CBOT brokers reported 30,000 contracts sold.  March futures were able to forge out a new high and importantly, finally break out of the trading range where they have been floundering, finishing +7.  In China, sources have indicated that up to seven cargos of U.S. ethanol imports have been canceled due to the hike in import tariffs from 5-30%.  How will this play out with future demand? The focus is now on the new Presidential Administration for direction and clarity regarding trade relations with China.  Additionally, the Chinese Ag Ministry is predicting 2017 corn production will be 4.1% lower compared to last year.  Regarding export inspections for the week of Jan. 13th, the USDA announced corn at 35 million bushels, which is in line with expectations.  For the crop year to date, the U.S. has exported a phenomenal 741.2 million bushels, which is up 77%.  

 

Soybeans gapped higher overnight breaking through resistance and to another large gain +23 (Mar).  Meal is the key driver, also reaching a new high and breaking through key resistance at 343.70.  The Argentina weather issues are really gaining traction, in spite of long term supply issues.  NOPA announced their crush report today and it showed the December crush lower than expected (first time in six years lower than November) and December soybean oil stocks much larger than estimated.  China’s crush continues strong and at this rate they will surpass the USDA estimate.  China is expecting 2017 soybean production to increase by 7% over last year.  In that vein, the Malaysian Palm Oil Board is also predicting increases over 2016, with production up 12% and exports up 11.2%.  Brazil has their combines rolling already, with AgRural estimating the soybean crop 1.1% harvested, and the Mato Grosso harvest pace is putting up the largest numbers in the last 10 years.  Regarding USDA inspections for the week of Jan. 13th, it was reported that 51.8 million bushels of soybeans were tallied, at the top end of expectations.  Year-to-date the U.S. has exported 17% more soybeans than last year.

 

Chicago and KC wheat jumped on the soybean bandwagon, driving to gains of +7 ½ and +3 (Mar) respectively.  However, Minneapolis had a volatile day that did not end well, -16 ¼ (Mar).  To this point the higher quality MN wheat has led the complex, but ran out of buyers today in the front month.   Fund traders hold the largest net short position of any ag market at 92K+ contracts and look for liquidation this week.  In Russia, they are reporting that their winter grain crops are in excellent condition, with only 3% being poor vs. 9% last year.  They have experienced good snow cover and are hoping for another record crop this year with over 2.7 million more acres planted.  On Saturday, Egypt purchased 235K tonnes of Russian/Romanian wheat.  It will be important for the U.S. to become more competitive in this export space in 2017.  Wheat exports were much better than last week’s anemic level, but were at the bottom end of expectations and off pace to meet the USDA projection for the year.  It will take a very strong finish and 30% gain over last year to catch up by the end of May.

 

In Live Cattle, futures gapped up to a nice gain, +1.050 (Feb).  Feeders found support from live cattle buying, +.750 (Mar).  The cash market seems to continue to lead the futures market, and Monday’s better wholesale values helped to boost trade.  Weather continues to influence this time of year, as rain and poor conditions across the Midwest and Plains have created mud in feedlots, making the logistics of loading and transporting cattle more difficult.  The U.S. Dairy Council named Tom Vilsack, former U.S. Agriculture Secretary veteran, as its president and CEO, the group announced today. 

 

Hogs have been predicted to form a short-term top for some time now, but were able to eke out a small gain today, +.200 (Feb).  Traders reported that investors were simultaneously selling February and buying the deferred months, concerned that cash prices may peak soon.  Pork production for 2017 is predicted by the USDA to be an all-time record, at 26 billion lbs.  It will be critical for export demand and strong cash market prices to continue in order to keep moving in a positive direction on the charts.

 

In Weather, according to Ag Resource, the US and EU models are in agreement that a strong ridge of high pressure will form in the eastern Pacific that will block storms from moving across Argentina, while Brazilian rains will be unaffected.  The 10-day forecast is calling for heat and dryness through the end of January.  The heat could pose a problem for stressed crops in the flooded areas of Argentina that need cooler weather for their shallow roots. 

 

In Other news, the IMF announced that they see the U.S. economy growing under the new Administration, with expected growth of 2.3% in 2017 and 2.5% in 2018, compared to the meager 1.6% this past year.  However, they warned that a change in trade policies and a protectionist bent could have a negative impact on the global economy.

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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