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Closing Comments



Closing Comments


The Department of Energy reports that ethanol stocks rose to a two-year high of 20.2 million barrels in the week ending January 9, up from 18.8 million the previous week and 16.1 million the previous year. Ethanol production jumped to 978K barrels per day during the week, up from 949K the previous week and 868K the previous year.

The data suggests that the ethanol industry consumed 103.8 million bushels of corn in the week ending January 9, up from 100.7 million the previous week and 93.5 million the previous year. Estimated ethanol corn usage for the marketing year to date is 1.900 billion bushels, up 68 million or 4% from the previous year. Corn usage to date exceeds the seasonal pace needed to hit USDA’s newly revised target by 8 million bushels, versus 3 million the previous week.

Corn prices dropped with the rest of the commodity complex overnight after the World Bank downgraded its global economic outlook. Losses accelerated after the above ethanol data was released, with traders worried about the sustainability of current ethanol use of corn if prices continue to fall and stocks build. Some weakness was also being attributed to unwinding of energy/grain spreads.

End user buying could be seen at times, pulling corn off its lows. It continued to be on the defensive though for much of the day as traders focused on the broader weakness in commodities as well as the largeness of U.S. supplies.

March corn broke below the 100-day moving average at $3.7725, but pulled back above that level into the close. Today’s low was the lowest the contract has traded since late October. It’s greatest vulnerability at this time would probably be if soybeans were to post a much larger break.


Soybean futures turned lower on the aforementioned broader commodity sell-off overnight, with losses dropping the lead March contract well below psychological support at $10. However, the market chopped back and forth through much of the day, with end users buying the breaks and bears selling the rallies. Soybean basis has been firming on the recent price break, along with soymeal basis. However, soymeal basis started to soften once again today.

Upfront demand is quite strong; supported by both strong demand for whole soybeans on the export market and soymeal on both the domestic and export markets. However, futures traders know that will likely change dramatically once the big South American crop hits the market in a matter of weeks. As a result, it’s becoming increasingly difficult to find a trader willing to hold a long (bought) position, particularly knowing that the farm is the biggest long; in both the United States and South America.

One of the more telling developments of the day was the expiration of the January soymeal contract. The expiring contract settled at $328.90 per ton, down $20.80 on the day, suggesting that no squeeze on supplies is seen. The expiring January contract went off the board at $9.925, down 7-1/2 cents on the day and below the psychological $10 area.

March soybeans surged back into positive territory in the final minutes, garnering support at the time from the outside markets, as well as strong upfront demand. The contract held just above the December low of $9.91, posting a double-bottom on the charts. The move also comes as the continuous commodity index bounces off trend line support off its 2001 and 2008 lows.

I wouldn’t be surprised if the broader commodity complex finds an excuse to bounce at this level, but that doesn’t mean that we’ll be able to see the same from corn and soybeans. Traders are increasingly becoming wary of the big South American harvest. Logically, why should soybeans hold at current levels with a 410 million-bushel carryout, record production in Argentina and Brazil, with Brazil up 10 to 12% from last year’s level and with U.S. acres expected to rise by 4+ million this spring?


The wheat charts are bearish, with traders focused now on the high price of U.S. wheat relative to the global market due to the strong U.S. dollar. Winterkill damage and low wheat acres are a factor for this spring. In the meantime traders are trying to find a value where U.S. wheat can compete. That became more difficult overnight when global commodities saw a broad-based sell-off after the World Bank revised its global economic outlook downward.

Perhaps the more discouraging development for wheat came late in the day. The broader commodity complex began to rally with a sharp influx of fund buying 30 minutes ahead of the close of grain trade. Corn and soybeans came well off their lows as they captured a tail wind from this increased money flow. However, wheat could barely muster a whimper for the bulls coming off the close, settling with double-digit losses in Chicago. The market is oversold and due for a bounce, but overall sentiment remains weak due to poor export demand.


February live cattle futures traded down to $155.95 early in today’s session, which was $11 off the high set last Thursday. The early weakness bought the contract close to the December low of $155.10, triggering profit taking and bargain hunter buying, particularly amid strong boxed beef prices. Futures rallied to $158.80 on that renewed buying, mirroring a bounce in Tuesday’s market. However, selling returned again late morning as traders braced for what should be the final day of index fund portfolio rebalancing.

Packers are using the weakness in the board to their advantage to pressure cash prices. They are said to be offering $164 in the Plains, although feeders are said to be holding out for at least $2 more than that at this point. The charts are bearish, although holding the December bottom could put in a double-bottom. Product demand is strong, but we have to respect the risk posed by the charts.

Boxed beef movement dropped to 128 loads Tuesday, down from 158 loads the previous day and down from 180 loads the previous week. Yet, Choice cuts were up $2.85 to $261.63 per cwt, while Select cuts were up $1.30 to $251.68. That strengthened the Choice/Select spread to $9.95 per cwt, up from $8.40 the previous day, but down from $10.28 the previous week.

Movement at mid-morning today was good at 101 loads. Choice cuts were up $2.20 to $263.83 per cwt, while Select cuts were up $1.92 to $253.60. The Choice cuts value would be a new record high if it holds through the day.

The Feeder cattle market held a bit more strength than the fat cattle market today, with sale barn demand holding and with less vulnerability to the index fund rebalancing. March feeder cattle found buying interest just above the December low of $207.75 per cwt.

Late-day selling again pushed live cattle futures weaker late in the day. The lead February contract took out the 200-day moving average without a hesitation, while doing the same with the December low of $155.10. This leaves the charts very weak going forward, despite what appears to be solid fundamentals. Attention now turns to this week’s action in the cash market.


Today’s cash hog market was mostly steady in the Midwest, but Iowa/Southern Minnesota and Illinois markets were again steady to 50 cents weaker. The latest cash index came in at $76.26 per cwt, down $0.45 on the day and its lowest level since April 1, 2013. The index has been lower for the past 22 trading days, with losses over that period totaling $12.25 per cwt. The cash market just keeps leaking lower as supply exceeds demand.

Product movement jumped to 392 loads Tuesday, up from 293 loads the previous day, but down from 465 loads the previous week as retailers were restocking after the holidays. The composite pork product price jumped $1.76 to $84.58 per cwt, which was its most significant one-day bounce since October. Movement at midday today was decent at 265 loads, with the composite price up another 13 cents.

February lean hogs consolidated modestly higher today, trading inside Tuesday’s trading range. The market was oversold and due for a bounce. Yet, the fundamentals do not give me a great deal of confidence that we are done sliding. Packers continue to see more heavy-weight hogs than they need enter the slaughter plant gate.

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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Arlan Suderman | Senior Market Analyst
WATER STREET ADVISORY® | www.waterstreet.org
(316) 729-4599 | asuderman@waterstreet.org

Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK involved in trading futures and or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL. This information is provided freely and is NOT in the capacity of a trading advisor. NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. Information provided is not to be construed as an offer to sell or solicitation to buy any commodity or security named herein.

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