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Closing Comments

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Corn chopped sideways to a small gain, +1 ¼ (Mar).  The EIA ethanol report today was announced and it was impressive in more ways than one.  Production was a very strong 7.2% above last year’s same week and set another new record.  On the other hand, it is thought that production will likely slow, as stocks were up to the 2nd highest level recorded in mid-January.  Add to that the seasonality of declining ethanol margins in the Feb-Apr timeframe.  There is chatter about the Chinese announcement of import tariffs on U.S. DDGs and ethanol, which they say are being dumped in their market and affecting domestic prices.  The proposed tariffs will increase from 5% to 30%, and will stall U.S. export growth, as already seven cargos have been canceled.  It is estimated ethanol shipments to China were up in 2016 by 50% over 2015.  China has also been posturing the incoming Trump Administration, with a Chief Economist at the Center for International Economic Exchange stating that they do not want a trade war but will fight to the end if there is one.  It will be interesting to monitor this situation, and hopefully more clarity will be brought to bear after the Inauguration.  In other export news, the USDA reported a private sale of 110,400 MT of corn sold to “unknown”.

 

Soybeans could not generate positive momentum, with Argentina weather concerns unable to outweigh Brazil crop expectations, -4 ¾.  According to Ag Resource, the weather models are confirming the strength of the high pressure ridge over Chile, Argentina and Southern Brazil this week.  The concern is centered on shallow rooted crops that require more consistent rains, with temperatures reaching the 90’s and low 100’s.  It is likely that precipitation will be blocked from making it through for 7-8 days, before a more normal upper air flow will resume.  The question that begs answering – what will be the final impact on Argentina’s soybeans? It is almost certain now that they will lose 3-4 MMT’s at a minimum.  And, as much as China is posturing regarding trade wars, they are very dependent on U.S. soybeans, as South America alone cannot satisfy their appetite.  In other Asian news, South Korea bought 140 MT of U.S. soybeans for 2018 shipment. Recent longs will be looking to capitalize on profits if beans and meal are unable to continue their ascent.

 

Winter Wheat had a correction today, with Chicago and KC -7 ½ and -10 respectively (Mar).  However, Minneapolis gained back some ground lost earlier in the week, +3 (Mar).  Wheat has been the albatross of the grain complex for months, but is taking more of a leading role, partly in response to last week’s USDA announced reduction of planted acres in the U.S.  Look for wheat and corn to get back closer to the “normal” $1 price differencial and for possible breakout to the upside, as wheat has pushed through key resistance, according to an analyst from the floor of the CME in Chicago.  In exports, Japan bought 117.6K MT of US/Canada sourced wheat in a weekly tender, while Jordan opted for 60K MT of Russian wheat. 

 

Live Cattle continued their steep climb higher, finding support in higher cash values and yesterday’s improved wholesale beef values, +.750 (Feb). The closely watched weekly Wednesday Fed Cattle Exchange average rose to $120.50 from last week’s $119.  Choice wholesale beef was up $1.60 per cwt compared to Tuesday, according to the USDA.  The reduced supplies from the holiday shortened week helped to drive the action.  The USDA beef and pork export report will be released tomorrow, due to the Monday holiday.

 

Hogs also found support today from higher cash prices and tight supplies, +.225 (Feb).  According to Reuters, it is thought packers are still in need of pigs to complete the week’s production, with a Saturday slaughter estimated at 280K head. 

 

In Other news, the Ag community is cautiously optimistic about PEOTUS Trump’s choice for the Head of the EPA, Scott Pruitt.  He was grilled by Congress yesterday about his previous stands against the EPA’s positions, as he prefers to give states the power to make their environmental policies and to receive support from the Federal level.  PEOTUS Trump also finally selected his Ag Secretary nominee, Sonny Perdue, former Governor of Georgia.  Mr. Perdue has a reputation for being pro-business while focusing on government efficiency.  Rural America flexed its muscle in this year’s election, and is looking to wield influence with the incoming Administration.

 

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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