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Closing Comments

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Closing Comments

Corn

Corn struggles to hold gains as dollar comes off lows.

Grain and oilseed prices firmed overnight as the dollar broke sharply lower in profit taking ahead of tomorrow’s European Central Bank meeting. Mario Draghi was expected to unveil a quantitative easing program of more than 550 billion euros at that meeting, but the euro broke and the dollar rallied when ECB officials revealed that the program will actually be closer to 1.1 trillion euros ($1.3 trillion) beginning in March. That led commodity prices to pull back from their early-day strength.

Cash basis firmed today in the Midwest as processors seek roughly 100 million bushels per week to keep operating near capacity amid slow producer selling. That provided support for corn futures early in the day, aided by a weaker dollar. However, corn prices turned soft as the morning progressed, repeating a recent pattern of overnight strength evaporating.

It’s difficult to sustain rallies in the corn market with favorable growing conditions continuing in South America. First crop corn yields are expected to be good and the February outlook currently looks quite favorable for harvesting soybeans and planting the safrinha corn crop ahead of the March 1 deadline, suggesting big exportable supplies.

The lead March corn contract has support near $3.75, but it has struggled to sustain rallies much above $3.90 amid big supplies and favorable South American weather. December has support near $4.04, and again at $4.00, with spread trading with soybeans providing underlying support as well. However, the market still lacks fundamental reasons to sustain a rally with additional weakness still likely.

Soybeans

China buys soybeans, but dry areas of Brazil get the needed rains to boost pod fill.

Soybean futures tried to bounce early today after falling to three-month lows on Tuesday. However, rallies were difficult to sustain amid forecasts for good rains in central and northern Brazil in the days ahead. In fact, those rains are expected to remain good for much of the next two weeks, helping many areas to finish pod fill in good shape. The forecast then dries out for much of the month of February to aid harvest and safrinha corn planting.

Soymeal rail basis broke another $10 at many locations today, although there were some reports of firming basis at the Gulf as some fresh export business returned. Soybean and soymeal export shipments should remain strong for a while yet, although new sales of soybeans are expected to start trailing off as buyers shift to new-crop South American supplies. That said, prices received a modest boost today from a fresh sale of 6.4 million bushels of U.S. old-crop supplies to China.

Soybeans finished the day with 1-2 cent gains, with the charts suggesting that volatility may increase from this point. Fundamentally, the argument would be for lower prices. However, February option expiration on Friday leaves the door open for traders to put a scare in premium righters by pushing the market back toward the $10 strike price.

Wheat

Hard wheat drops on currency moves, while soft wheat finds support by Ukrainian conflict.

News reports are sparse, but traders are tracking what appears to be a more aggressive push by Russian troops into eastern Ukraine this week. The likelihood that the move will support stronger U.S. exports is rather low, but the recent oversold condition of the market allows for prices to find support on the news. Exporters warn that U.S. wheat simply remains over-priced on the global market.

Canada surprised the financial world by cutting its key interest rate today. The move added pressure to the Canadian dollar, providing a price advantage to their wheat as well. That in turn added pressure to Minneapolis wheat as it tried to stay competitive, which in turned weighed on Kansas City hard red winter wheat as well. Additional pressure for Kansas City came as rain and snow showers provided valuable moisture to dry areas of the southwestern Plains today.

Chicago wheat traded a 9-cent spread today, finishing fractionally lower, while hard wheat prices came under much more pressure. However, prices treaded largely within recent trading ranges just above January lows. Wheat fundamentals remain weak, but traders are reluctant to take prices lower near-term, leaving the door open for a modest short-covering rally.

Beef

Cash trade disappoints once again, but futures bounce to correct oversold conditions.

Tuesday’s kill was estimated at 112K head, up from 111K the previous week, but down from 118K the previous year. Estimated slaughter for the week to date totals 224K head, up from 222K head during the same period last week, but down from 236K in the same period last year.

Live cattle futures tried to bounce today, working to correct an oversold condition. However, there’s still no sign that traders are in a hurry to build long (bought) positions again. The southern feedlot region is expected to see moderate snow today, but that’s not creating much concern on the trading floor at this point.

A few cattle have traded at $159 to $160 per cwt on a live basis in the Plains, down $3 to $4 from the previous week. Packers are believed to hold big inventories on contract for February, with so they will likely try to stretch supplies to get to February to avoid turning prices higher near-term. The current drop in prices has their estimated margins back in the black and they would like to keep it that way.

Boxed beef movement rose, but prices were lower again Tuesday as packers try to maintain market share amid cheap pork supplies. Choice cuts dropped $1.18 per cwt to $258.24 per cwt, while Select cuts dropped $1.02 to $248.83. That pulled the Choice/Select spread down to $9.41 per cwt, down from $9.57 the previous day and down from $9.95 the previous week. Movement at mid-morning today was good at 94 loads, with Choice cuts up $0.71 and Select cuts up $0.73 per cwt.

Feeder cattle futures were oversold, allowing for a modest bounce with the lead January contract trading at roughly a $6 discount to the cash index. The latest cash index came in at $221.87 per cwt, down $2.26 on the day and down $13.35 over the past 7 trading days.

March Feeder cattle traded more than $3 higher, without testing the previous day’s high. The contract remains $16 below the cash index, leaving the door open for a more significant bounce, but that’s not likely to happen as long as the cash market is falling so fast. Live cattle futures are also correcting oversold conditions while trading at a significant discount to the cash market, but the cash is rapidly closing the gap.

Pork

Hog futures consolidate, but the fundamentals remain weak.

Cheaper hogs and firmer product prices pushed today’s estimated packer margins to $28.35 per head, up from $19.20 the previous week. Today’s cash market was mostly $0.50 to $1.00 lower as well, which should keep those packer margins quite profitable. However, the supply remains large enough that they see no need to chase the market higher.

Tuesday’s slaughter is estimated at 434K head, up from 433K the previous week and above the 431K head killed in the same day last year. Estimated slaughter for the week to date is 830K head, down from 888K in the same period last week, but up from 803K in the same period last year.

Product movement rose to 381 loads Tuesday, up from 287 loads the previous day, but down from 392 loads the previous week. The composite pork product price rose $1.38 to $85.91 per cwt, which was its highest level since December 30th. Movement at midday today was good at 300 loads, with the composite price up another $0.09 to $86.00 per cwt.

February lean hogs dropped to a new low of $71.375 per cwt, before bouncing to begin correcting an oversold market. The big discount to the cash leaves the door open for more of a bounce, but sustaining rallies will be difficult as long as the cash market continues to slide lower.

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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