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Closing Comments

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Closing Comments

Corn was not able to keep its head above water today, with the strong undertow of soybeans applying downward pressure, -4 ¾ (Mar).  USDA weekly inspections were favorable, as they were announced at 1.061 MMT for the week ending Jan. 26th, compared to expectations of 850K MT.  Additionally, the USDA reported a private sale of 105K MT of corn sold to Colombia for 2016/17.  But, it was not enough to overcome South American weather and trade policy concerns.  Friday’s Cattle on Feed report could be viewed mildly bullish corn, with extra mouths to feed – Cattle placements were 10 points over expectations and cattle on feed was slightly over.  The Commitment of Traders report wielded the biggest clout, providing surprising numbers.  Large spec traders bought 61,591 contracts for the week, more than 45,000 higher than estimated.  This is the first time they are long corn since last summer.  There was a big transfer of ownership from the farmer to the elevator who in turn immediately hedged to spec buyers.  In spite of this, corn futures still put up a timid seven cent loss for the week.  Look for support from 3.52-3.55.

 

Soybeans entered today’s trade with a classic bull flag on the charts, seeking direction for its overbought condition.  And, direction they received, displaying a sharp move to the downside, -26 ½  (Mar).  The market appears to be eliminating some of the excessive length that accumulated (as spec buyers had sharply increased their holdings according to the COT report).  South American weather is now much more favorable, with Central and Southern Argentina forecasted to receive rains in the next 48 hours.  Central Argentina in particular has not seen rain in the past 2 weeks, with temps yesterday in the mid-90’s across a widespread area, and even up to 100F in the South.  Brazil also will continue to receive rains over the next 10 days with some of the heaviest downpours blanketing the drought stricken areas of the NE.  In addition, there is continued concern and uncertainty caused by the new US Administration’s trade policies, particularly with Mexico and China.  Stay tuned for further developments to this delicate situation.  Soybean inspections announced by the USDA were positive, with a reported 1.630 MMT for the week ending Jan. 26th, compared to the expected 1.05 MMT.

 

March Wheat futures gapped lower today with Chicago –6 ½, KC -8 ½, and Minneapolis –8 ½.  The complex was not positively influenced by supportive weather news in Europe or the USDA export report, as soybeans dominated the headlines, pulling down the rest of the grains.  Weekly wheat inspections had another good showing, with the USDA announcing 321,479 MT for the week ending Jan. 26th, compared to the expected 300K MT.  This following on the heels of an unexpectedly strong export report last Thursday.  Around the globe, Russia is still concerned that the increasingly frigid temps they have been experiencing in areas without sufficient snow cover could result in crop damage.  Central Europe is also anxious about their crop for the same reasons.  Russian wheat prices have increased for three weeks in a row.  Countries that are currently looking for wheat include: Ethiopia, Yemen, Algeria, Iraq and Jordan.  Look for wheat to seek direction from corn and beans this week.

 

Live Cattle, began trading sharply lower today with April futures gapping to a new low, -2.500.  April Feeders were also down significantly, -3.200.  However, due to a sizeable discount to the cash market,  the downside is expected to remain somewhat limited. The relatively sharp decline was likely triggered by the results of the bearish Cattle on Feed report, which showed larger than expected numbers of cattle placed in feedlots at the end of 2016.  Placements of light feeders were up 60,000 head while placements of cattle between 600 and 700 pounds were 95,000 head. That’s an increase of 16% and 27% respectively from 2016. Front month February futures fell to the lowest levels since January 9, and opened below Friday’s session low.

 

Hogs were able to minimize losses in the face of the large negative move in cattle, signifying that the demand side of the equation is strong, -.075 (Apr). The February contract is on pace to test its roughly seven month high of 68.00. However, in an overbought market with an increasing focus on trade war with Mexico leaves the potential for a significant amount of pork to return to the US market.  Keep an eye out this week for a possible test of support at 65.00 (Apr).

 

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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