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Closing Comments

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Closing Comments

US dollar stalled its recent rally, trading lower during today’s session on profit taking off the recent bull rally from Fed comments supportive the US economy.
Brazilian truckers started an indefinite strike today, blocking traffic in a few states. The February strike blocked roads at more than 100 sites and was focused on diesel costs and minimum freight rates. While organizers don’t believe those issues have been addressed, this strike is more political in nature – calling for the impeachment of President Rousseff.
Commodity indexes traded lower on money flow out of the sector on global demand concerns and a continued “risk off” trade in grains ahead of tomorrow’s USDA report. Data showed China’s October exports fell for a fourth month, while imports also dropped – creating concern in commodities and equities markets.

Corn

Corn starts week lower on fear of bearish USDA numbers and continued export concerns.

The recent rally in the US dollar coupled with fear for larger production numbers from the USDA tomorrow had funds as sellers of 11,000 contracts in today’s session. The market started weak and couldn’t catch a bit, in spite of the slow movement of ownership by farmers.
Expectations for tomorrow’s USDA report is for an increase in corn production to 13.564 bln bushels vs the October estimate of 13.555 bln bushels. Corn carry-out is expected to grow from October’s estimate of 1.561 bln bu to 1.597 bln bushels – as opposed to 2.008 bln bushels expected carry-out following the November 2014 report. December 2014 futures on November 10, 2014 was 3.69.
Export inspections were reported at 11.64 mln bu. More than 7 mil bu behind last week and puts the pace 25% behind last year. The pace was significantly behind what the trade was expecting for the week.
Export sales continue to provide the market with a demand proxy – lagging export competitiveness is creating concern for the 15/16 crop usage among traders, but strong processor bids illustrate the domestic market is not willing to let cash prices fall too far. This in turn keeps the Gulf bid from competing well, regardless of the futures action.
Support for December corn at $3.62-$3.65 with nearby resistance at $3.83.

Soybeans

Soybeans find general support amid the down commodity complex on Chinese buying and pre-report squaring.

Export inspections showed soybean at 74.46 mln bu which is 20% behind last week but keeps the pace ahead of last year by 4%.
Daily sales reporting shows two cargo soybean sales to an unknown destination and a switch from unknown to China on 257,000 mt. China looks to continue to solidify shipment needs into Jan at these price levels.
Expectations for tomorrow’s USDA crop report have the trade planning an increase in soybean production to 3.914 vs the October estimate of 3.888 bln bushels. The average trade guess is expecting an increase in the US yield to 47.5 bpa vs the October yield of 47.2.

Wheat

Wheat drops on profit taking and moderate global weather outlook.

Wheat starts the week significantly lower on profit taking and improved weather in some key producing areas. Funds reportedly sold 12,000 contracts in Chicago.
Winter wheat crop conditions show 51 percent at good/excellent, vs the previous week rating of 49 percent and previous year at 60 percent good/excellent.
Export inspections for wheat showed 10.38 mil bu. 65 percent better than a week ago, but still more than 17 percent behind last year at this time and just under that trade expectations.
Basis for hard red winter wheat eased off by about 5 cents at many locations in KS. Minimal export interest for US wheat is keeping the cash market steady with little interest in farmer selling at these levels.
Recent weather has been beneficial to Eastern Europe in general, but the severe drought has reduced the share of Ukrainian winter crops which are in good condition to around 29 percent. At this time last year, 41 percent were in good condition according to UkrAgroConsult.

Livestock

Cattle and feeder cattle close limit down on technical selling and demand concerns while hogs continue to extend losses.

Weak wholesale beef prices and technical selling brought renewed selling to the live cattle and feeder cattle contracts today. Weakness in equities spilled over as well as the cattle trade often looks to economic indicators for anticipation of future demand.

Lower trade late Friday in the cash cattle market provided pressure, but many saw that as already being priced in from the previous weak futures action. Market ready cattle had move roughly $3 lower at $135 in Nebraska.

Boxed beef prices are higher this morning, up $1.23 on choice at $216.89 and up $.0.54 of select at $207.79.

CME Group announced on Friday that it was hiking margin requirements for feeder cattle futures, similar to recent moves in the live cattle contracts.

Live cattle and feeder cattle will return to expended limits again tomorrow.

Weak cash hog and pork prices weighed on futures as well, but were able to hold up better than the beef complex. USDA data showed Monday morning’s average pork cutout at $77.15 per cwt, up $1.87.

Hog packer margins are solid at $33 per head while cattle margins remain negative.

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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