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Closing Comments


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Closing Comments

Corn and the rest of the grain complex experienced a bear “Position Day” yesterday.  The big news early today came out of the OPEC meetings, where they were able to hammer out an agreement to cut crude oil production by 1.2 million bbl/day (from 33.7).  However, the momentum did not last as corn rounded out the trading day basically flat at – ½ (Mar).  EIA numbers were announced today with ethanol fuel stocks down more than expected by -.50 mln to 18.45 mln bbl.  Ethanol fuel production was little-changed, -2,000 bbl to 1.01 mln bbl/day.  It is also noteworthy that gasoline demand has been underperforming over the last year or so.  


Soybeans traded higher in the overnight markets, also lifted by the crude oil rally.  However, this positive move was not able to sustain through today’s session, as beans finished – 9 ¾ (Mar).  Momentum indicators are waning as soybeans are overbought in comparison to supply fundamentals, while technical buying and strong demand from China continue to show support.  The USDA announced a private sale of soybeans to China of 123K mt.  The Chinese government indicated that they expect grain production to decline by 2.5% by 2020, as polluted land is taken out of the crop growing rotation and rehabilitated. 


Wheat continued its weak performance, led by KC (- 8), Chicago (- 6), and MN (+ ¾) in the March contract.  As of late, Minneapolis has been outpacing its counterparts, with quality of wheat being the demand differentiator coupled with a surplus of lower quality inventory around.  Also, adding selling pressure was chatter that Russia may have another bumper crop next year plus expectations for higher yields from harvests in Australia and Argentina.  Egypt announced yesterday that they bought 240K tonnes of Russian origin wheat.


Live Cattle was able to make a positive reversal after two days of regression, + 1.650 (Feb).  The market is technically overbought, but it will take a set-back in the beef market to spur a significant correction, which is not typical for this time of year. The online auction was the focus today.  Cattle show lists grew this week as cattle owners are chomping at the bit to move cattle into a stronger market.  Packers are showing confidence in the market direction to take on more inventory at higher prices, as many transactions sold in the last two weeks are allowing for extended delivery times.  Most asking prices are around $115, while packers bought the majority of last week’s inventory at $112 with a few topping $113.50 in the West.  Boxed beef prices have risen with the choice cuts the most preferred.  Expectations are high for beef features this holiday season.


Hogs were able to bounce back after two days of losses for a modest gain, + .525 (Feb).  Midwest cash markets were up $1 per cwt, supported by tighter supplies and strong demand from packers, and as much as $2 higher in southeast Ohio.  The first week of December typically has some of the highest slaughter rates of the year, mostly due to retailer demand for pork leading into the Christmas and New Year’s holidays.  Today’s daily slaughter tallied 441,000 hogs.


In Other News, U.S. net farm income is expected to drop for a third straight year in 2016, decreasing 17.2% to $66.9 billion.  This is due to in large part to poor returns on livestock, dairy and poultry farms, according to the USDA.  The weakening ag economy has also affected major input providers like Monsanto and Deere, who both reported lower revenues in fiscal 2016, leading to job reductions and major cost cutting.


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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