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Closing Comments



Closing Comments


This week’s roller coaster ride was largely driven by outside money flow, but failed to show that the market had ability to sustain strength near-term.

Corn prices rode a roller coaster ride this week, with the lead March contract spanning more than a 22-cent trading range. The fundamentals changed little during the week, but if anything had a bit of a bearish bias.

Basis remains strong with farmers slow sellers. Deliveries have increased, due to previous contracts being fulfilled and a sharp rise in “price later” contracts, but that’s seldom supportive longer-term. Export demand is solid, due to low ocean freight rates into key markets, but unimpressive. Ethanol demand for corn remains strong, but it’s beginning to wane.

Furthermore, traders believe that the farmer is one week closer to dumping his 2014 corn crop. Besides that, favorable weather and currency exchange rate changes suggest that Brazil may see all of its safrinha corn planted, with even a possible increase in area.

However, this past week’s corn price movement had more to do with money flow than it did the above fundamentals. Prices tended to trade opposite of the dollar and with crude oil for much of the week, although a bullish jobs report helped crude oil rally to close out the week when most of the rest of the commodity complex came under pressure from a strong dollar.

In the end, March corn rallied to $3.895 before turning lower precisely at the top of the down-trending channel that has contained prices since late December. It found support at the 100-day moving average near $3.80, with additional support at $3.75-$3.76.

December corn broke out of that descending channel, but struggled to sustain anything above $4.18. I continue to believe that corn would like to chop sideways, with perhaps a weaker bias, this month. The expectation would then be that we would see some risk premium added back in next month as traders try to make sure that corn gets enough acres. However, continued strength in the dollar and/or weakness in the soybean market could leave prices vulnerable to additional weakness.


Roller coaster ride for soybeans has a bearish bias as South American harvest gains momentum.

Soybean prices found themselves subject to the same outside forces of the dollar and crude oil and corn did this week, but with a weaker bias than what we saw in corn. Soybean export shipments remain strong, with demand for soymeal still strong as well. However, new soybean sales are slowing seasonally as buyers shift their focus south of the equator.

Harvest is advancing in Brazil, with soybeans making their way to processors and export terminals. Mato Grosso harvest progress is currently near 17%, which is running a couple points above the five-year average for the week. The Brazilian crop isn’t as big as once believed, but it is still big. Furthermore, soybeans lost due to hot dry conditions last month in Brazil were likely gained by favorable conditions in Argentina.

Soyoil gained strength during the week on resurgent palm oil prices. Malaysian palm oil showed impressive gains in recent days on expectations that Indonesia will significantly increase its subsidies for its biodiesel program. However, crush continues to be driven more by soymeal and that demand is expected to wane as we move into the spring and competition increases from South America.

This leaves soybeans vulnerable to considerably more weakness later this year as it tries to lose ground to corn. Farmers continue to expand area that they plant to soybeans on both sides of the equator even though global supplies continue to rapidly expand. As such, the market needs to do what it can to discourage similar expansion in the U.S. this spring by narrowing its price ratio with corn in the weeks ahead.

March soybeans find first significant support at $9.55, but I expect the lead contract to test $9.20 in the weeks ahead, with a possible test this spring of support at $9.00. Eventually, we may see prices drop below that level if we fail to see a weather problem develop, especially for the November new-crop contract.


Short-covering supports wheat prices, but reasons to sustain a rally are still lacking.

Wheat prices showed impressive gains this week on hopes that Egypt will use a $100 million grant to buy U.S. wheat. It has hinted that it is prepared to do so, but Egypt will also only buy when it likes the terms and quality of the wheat being offered. It has strict standards that may make acceptance of soft red winter wheat containing vomitoxin difficult. As such, any wheat that it does buy would likely favor hard red wheat, but the higher prices of hard wheat would limit the quantity that it could purchase.

The soft red winter wheat crop is well protected for now from surges of Arctic air by a healthy blanket of snow. On the other hand, warm temperatures are pulling the Plains hard red winter wheat crop out of dormancy, leaving it vulnerable if cold returns, but helping it heal from possible early season cold damage if conditions remain favorable. Plains wheat is also benefiting from a weather pattern in recent weeks.

We won’t begin seeing weekly crop ratings in key states until March and April, depending on the area. However, the information that we do have at this point is generally not strong enough to sustain a rally. That said, wheat prices are at historically low levels relative to recent years and traders appear reluctant to push prices lower as spring approaches when the crop becomes more vulnerable.


Strong jobs report helps cattle market bounce. Otherwise, futures traders are skeptical despite firm cash.

The supply of slaughter-ready cattle may be as tight as we have seen them at any time since the bull market began last year, but that doesn’t mean that we will see that play out in sharply higher prices. The general belief coming into February was that the packer would have access to a much larger supply of contracted cattle. Thus far, we have little to argue against that notion, with packers remaining content to wait until the very end of the week to do any buying of significance.

Thus far, we’re primarily seeing confirmation of cattle moving in Iowa at $160 per cwt on a live basis, with movement at $254 to $255 per cwt on a dressed basis. However, other reports suggest that feeders were passing elsewhere at those price levels. That was followed by some sales in Kansas at $162 per cwt on a live basis.

Futures prices for both fat and feeder cattle plummeted well-below the cash markets, but both took advantage of a favorable jobs report today to rebound. A healthy economy is good for consumer willingness to pay up for an extra steak. In fact, The April and June contracts locked the $3 daily limit higher to close out the week in a relatively thinly traded market.

Boxed beef movement Thursday totaled 173 loads, down from 196 loads the previous day and down from 187 loads the previous week. Choice cuts dropped $1.57 to $241.18, while Select cuts fell $0.19 to $235.39 per cwt. That dropped the Choice/Select spread to $5.79 per cwt, down from $7.17 the previous day and down from $6.25 the previous week.

The latest CME cash feeder cattle index came in at $210.65 per cwt, down $0.81 on the day, down $1.04 on the week and down $24.57 over the past four weeks. An increasing number of locations are now reporting sales below $200 per cwt as demand softens amid rising supplies.


Lean hogs bounce, but the fundamentals remain bearish.

Lean hog futures continued their downward trend this week, but we finished the week with a healthy bounce spurred on by a bullish jobs report that suggests a healthier consumer willing to buy more pork chops. The cash  market as generally steady to $1 lower each day during the week, with Friday’s market mostly $1 lower. This kept packer margins in the black between $15 and $20 per head.

The latest CME cash index came in at $68.88 per cwt, down $0.56 on the day, down $2.85 over the past week and down $19.63 per cwt over the past 39 consecutive trading days. Slaughter numbers are high and at heavier weights, with producers fearing lower prices. As such, packers have not had to pay up to get the needed hogs.

Product movement dropped to 398 loads Thursday, down from 443 loads on Wednesday and above the 343 loads the moved the previous week. The composite pork product price dropped to $73.97 per cwt, down $0.71 on the day.

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

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