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Closing Comments

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Closing Comments

Corn

Corn posts modest losses after failing to take out Tuesday’s high, but losses were modest relative to the other markets.

The Department of Energy reports that crude oil stocks rose by 6.3 million barrels in the week ending January 30. That puts crude oil stocks at their highest level for late January in at least the past 80 years. Gasoline supplies rose by 2.3 million barrels in the week, keeping them well above the high end of the normal range for this time of year. The mid-week data dump poured cold water on bullish embers that ignited on Tuesday as money flowed freely into the energy complex.

Ethanol stocks rose to a 2-1/2 year high of 21.0 million barrels in the same week, up from 20.6 million the previous week and up from 16.7 million in the same week last year. The rise came despite a break in production, which dropped to 948K barrels per day. That total was down from 978K barrels per day the previous week, but still up from 895K barrels in the same week last year.

The data suggests the ethanol industry used 100.6 million bushels of corn during the last week of January, down from 103.8 million the previous week, but above the 96.4 million bushels used in the same week last year. This brings estimated corn usage to date to 2.209 billion bushels, up 85 million or 4% from the previous year’s pace. Estimated corn usage to date exceeds the seasonal pace needed to reach USDA’s target by August 31 by 19 million bushels, up from 17 million the previous week.

Commodity Weather Group notes that growing conditions have generally been very favorable for Argentine crops this year, with only very limited areas of stress amid good rainfall. CWG studied other similar years and found that USDA’s current corn production estimate of 22 million metric tons is likely too low. By how much? We could see the crop grow by another 4 to 6 mmt if favorable weather holds. That could add another 200 million bushels of exportable corn to the global balance sheet compete with U.S. exports.

Cash corn basis continues to hold well amid tight farmer selling. Ethanol production is slowing, but overall upfront demand remains stronger than producer selling. That’s helping to hold the cash market up, but futures are struggling to sustain a rally. March corn posted big gains on a surge of money flow Tuesday, but turned lower early today when the contract failed to take out Tuesday’s high.

First resistance is stacked between $3.88 and $3.90. I believe that this market would like to trade sideways to a  bit weaker in February, but it has not yet been able to establish that range. Price need help from the outside markets to sustain rallies.

Soybeans

Easing money flow allows soybean traders to focus again on South American harvest.

Soymeal led the way lower today as money flow from the outside markets dried up once again. Soybeans followed, with traders looking to the South American harvest that is slowly gaining momentum. Production estimates for Brazil are slipping lower due to hot dry conditions in central and northern Brazil last month, but they are rising for Argentina.

Commodity Weather Group’s study of Argentine weather suggests that USDA’s soybean production estimate for the region may be too low. USDA is already calling for a record 55.0 mmt soybean crop in Argentina, but a look back at similar growing seasons suggests that the crop may be anywhere from 2.5 to another 5.0 mmt larger than currently forecast by USDA.

The bottom line for soybeans is that we have too many of them, but yet farmers on both sides of the equator continue to increase the area that is being planted to the oilseed. That suggests that the market has more work to do yet to discourage production.

Wheat

Wheat could not hold gains amid losses in the other markets.

Wheat prices tried to go against the tide of selling seen in much of the broader commodity sector early today, although but that strength eventually withered, with Minneapolis posting double-digit losses. Support came from a Bloomberg story that Egypt plans to buy more U.S. wheat in the future. The story quotes Egypt’s Supply Minister, saying that they plan to use a $100 million grant from the United States to buy American wheat.

U.S. wheat has not been included in Egyptian purchases due to our strong dollar and freight disadvantage that keep us out of the market. However, vomitoxin in our soft red winter wheat crop also makes it difficult for us to meet Egyptian standards, at least ahead of this year’s harvest. That suggests that Egypt could end up buying a handsome quantity of hard red wheat in the weeks ahead, or else wait for new-crop soft red winter wheat.

It’s still difficult to get too excited about the wheat market, or to even say that the low is behind us, but I do feel that the food grain would like to establish a choppy sideways trading range this month that it can perhaps build on next month if crop ratings disappoint.

Beef

Futures continue to tumble even as cash market appears to find value.

The bulls remain in hiding in the cattle pits, with prices continuing to erode lower. Reports that major packers are bidding $160 per cwt on a live basis in the Plains with no takers did little to soothe the bears who remain in control of this market. Nobody wants to step in front of this market to turn it around.

One of the keys to watch will be whether the double-bottom will be able to hold for March feeder cattle at $195. That’s already well below the cash index, but futures traders obviously believe that the cash market will see significantly more weakness in the weeks ahead. The latest CME cash index came in at $212.87 per cwt, up $1.33 on the day, but down $22.35 over the past 17 trading days.

Boxed beef prices are showing some signs of stability, which should slow the bleeding for packers. Margins are currently estimated at losses of $64.90 per head, but they have stayed in that neighborhood now for the bulk of the week.

Tuesday’s kill was pegged at 112,000 head, up 1,000 from the previous week, but down 4,000 from the previous year. Week to date kill is at 217,000 head, down 6,000 from the previous week and down 10,000 from the same period last year. That slower kill should help put value back in the product market.

Product movement rose to 159 loads Tuesday, up from 142 loads the previous day, but down from 172 loads the previous week. Choice cuts were up $0.50 to $243.11 per cwt, while Select cuts were down $0.46 to $235.14. This widened the Choice/Select spread to $7.97 per cwt, up from $7.01 the previous day and up from $7.44 the previous week. Movement at mid-morning today was good at 131 loads, with Choice cuts down $0.52, while Select cuts were up $1.07 per cwt.

Pork

Futures drop as cash market continues to slide.

April lean hogs broke below key chart support at the double-bottom of $70 per cwt today. Futures broke lower as the cash market continues to erode lower. Today’s cash market was called mostly steady in Indiana and southeastern Ohio, but most other markets were $1 lower, including the closely watched Iowa/Southern Minnesota market.

Packer margins are currently estimated at $17.65 per head, providing incentive for packers to pull hogs through the plants, but they are not having to fight to get the hogs they need. Slaughter numbers are trending higher and at heavier weights. The latest CME cash index was $69.99 per cwt, down $0.36 on the day and down $2.52 on the week. In fact, the index is down $18.52 over the past 37 consecutive trading days.

Tuesday’s slaughter came in at an estimated 433,000 head, up 16,000 from the previous week and up 8,000 from the previous year. Slaughter for the week to date is estimated at 825,000 head, down 27,000 from the previous week and down 23,000 from the same period last year due to a slow start to the week on Monday.

Product movement rose to 386 loads Tuesday, up from 275 loads on Monday, but down from 423 loads the previous week. The composite pork product price dropped $2.23 to $76.25 per cwt on Tuesday. Movement at midday today was routine for a Wednesday at 254 loads, with the composite price up $0.42 to $76.67 per cwt.

This market is oversold and due for a bounce again, but prices finished the day near the session low, suggesting that we remain vulnerable to additional weakness yet this week.

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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