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Closing Comments

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Closing Comments

Corn has been caught in an area of consolidation but was down sharply today following the lead of the bean complex, – 9 ¼ (Mar).  Diminishing open interest would suggest that short-covering has been the primary support, which is not a good foundation for a long-term move.  Traders covered 29% of their net short position for the week ending Nov. 22nd, according to the COT report.  Gulf export corn remains very affordable, but South American offers are right on the heels of the U.S.  Still active importers of U.S. corn include the Saudis and Latin America, with Asia spurring competition between the U.S. and Black Sea sellers.  The USDA put out an early release of its baseline projections with 2017 corn acreage at 90 million acres and 170.8 bu/acre yield, and 2017/18 ending stocks of 2.298 billion bushels vs. 2.403 billion last year (estimated).

 

Soybeans were noticeably down after moving into trend mode for higher yesterday, – 13 ½ (Jan). Soybeans are overbought in comparison to supply fundamentals.  While the market reached several technical objectives for soybeans and soyoil yesterday, last night’s turnaround in spite of continued Chinese spec buying is noteworthy, as the market has been driven by Chinese markets and speculation.  The Dalian Exchange had soybean futures higher overnight, but soyoil and palm oil were lower, which seemed to set the tone for today.  There were no new USDA announcements of purchases this morning.  Other bearish factors include favorable South American weather and global stocks on track for record supplies.  Related to the early USDA baseline projections, it was announced that 2017 soybean acreage is pegged at 85.5 million acres and 47.9 bu/acre yield, with 2017/18 ending stocks of 396 million bushels compared to 480 million last year.

 

Wheat exhibited more weakness today, following the lead of the other grains with KC (- 12 ¼), Chicago (- 7 ¾), and MN (- 1 ¾) in the March contract.  As of late, Minneapolis has been outperforming its counterparts, with quality of wheat being the demand differentiator coupled with a surplus of lower quality inventory around.  The Commitment of Traders report showed managed funds reduced their short position by 18,131 contracts to 114,222 contracts.  Egypt is back on track on the export front, as their GASC bought 240K mt of Russian origin wheat today.  Egypt is the world’s largest wheat importer, and the U.S. is attempting to become more competitive with the Black Sea region in this space.  The USDA early baseline projection for wheat in 2017 is acreage of 48.5 million acres and 47.1 bu/acre yield, with 2017/18 ending stocks adding up to 993 million bushels compared to 1.143 billion  bushel in 2016/17.

 

Cattle continued lower for the second straight day, with live cattle futures – .725 (Feb).  Cattle may be susceptible to a temporary set-back or a consolidation period, as it is in an extremely overbought situation.  Even though post-Thanksgiving wholesale beef demand is expected to be very solid, this may not be enough to offset declining packer profits and a plethora of nearly 12,000 more animals for sale this week.  Tomorrow morning’s Fed Cattle Exchange (FCE) will be closely watched by investors, as 5,000 cattle will be for sale.  Last week brought an average of $109.75 per cwt.

 

Hogs ended lower for the second straight day, – 1.125 (Feb).  February hogs are trading at a .785 point premium to the cash market as compared with the 5-year average near a .575 point premium at this time of the year.  It would appear that from its overbought condition and from a stretched basis level, a signal for near-term top is in place.  Hogs have continued to see packer margins improve on strong pricing.  Prior to Thanksgiving, in order to avoid the general downtrend in cash pricing, farmers moved pigs to market earlier than normal.  As a result, it is thought cash prices may have bottomed out and processors will be able to sell pork at higher prices as supermarkets build their inventories for the Christmas and New Year’s holidays.  Mexico is also a major importer of U.S. ham this time of year.

 

In Other news, a question on the minds of many, as crude took a tumble in the market today – could a crude collapse hurt the grain market?  Part of the reason for the post-election rally is the notion that the oil cartel countries would agree to limit output and boost the price of crude in 2017.  However, at OPEC’s meeting this week there is evidence that the accord may be fraying, with Iran and Iraq resisting pressure from Saudi Arabia to reduce production.  Keep an eye on this developing story.

 

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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