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Closing Comments

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Closing Comments

 

Corn found some support in a neutral EPA announcement, +2 ¼ (Mar). The EPA stayed with the statutory maximum cap of 15 billion gallons for corn ethanol. In this case, keeping the status quo was not a bad thing. However, weekly export sales were disappointing, as they were down 45% from last week at 599,200 MT, below the range of 750K – 1.2 MMT. This puts corn export sales 27% behind last year. Sales were mostly to Japan and Mexico, however, China inked a purchase of 110K MT of sorghum for 2017/18. Managed funds seem to be shedding off some of their exposure due to the large short position they hold (250K contract), as even yesterday’s “Position Day”, which would tend to be bearish, showed price appreciation.

 

Soybeans saw a correction with mixed news, -6 ¾ (Jan). The USDA reported two private sales, a 525K MT sale to China for 2017/18 and a 132K MT sale to “unknown” destination for 2017/18. However, there is still catch-up needed in order to come into alignment with USDA targets for the year. The weekly export sales report had soybeans well within the range of estimates (750K – 1.2 MMT) at 942,900 MT. Also, the EPA announced long-awaited biofuel mandates, which offered no significant changes. This was not the welcome news hoped for, as many in the biodiesel industry had lobbied tirelessly for growth in volumes. However, soyoil supplies should tighten up domestically, as tariff’s are taking effect against Argentina and Indonesia in the midst of growing biodiesel demand. South American weather still remains the biggest opportunity and threat to the market.

 

Wheat traded with mixed results: Chicago -1 ¾, Kansas City EVEN and Minneapolis -1 ½. Weekly export sales were unimpressive, at 187,400 vs. estimates of 250K-500K MT. Recent action includes Saudi Arabia tendering for 480K MT of milling wheat, Iraq buying 100K MT from the U.S. and Australia, and Algeria purchasing 570K MT from primarily France.

 

Live Cattle traded lower, especially in the deferred months, with Dec closing -.575. Big supplies looming are tempering recent optimism. The Sterling Profit Tracker showed feedyards at a $90 profit/head last week and packers are at $120 profit/head. Cow/calf producers are realizing $136 profit per animal. Low feed prices are helping to drive the market, with beef production in 2018 forecasted to be 5% higher. This would be a record amount of beef produced in the U.S. and the highest since 2002. Exports will be key, as they were up 11% in 2017 and are expected to be up another 4% in 2018.

 

Hogs are descending quickly after a sharp uptick last week, -.800 (Dec). The recent jump in weights has helped to confirm that there is a large short-term supply to digest. February hogs have held a large premium over Dec, but they gave up some of the advantage, losing -1.125 today. In other hog related news, Kansas State is researching a cure for PRRS, which is a deadly virus that takes the lives of young pigs, costing the pork industry over $600M/year. A new study is showing promising results of stopping the virus cold, by preventing it during pregnancy of sows. Piglets born healthy have a much better chance of resisting PRRS through vaccinations later.

 

Closing Market Snapshot  

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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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