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Closing Comments


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Closing Comments

Corn made a modest correction today after breaching the short term risk parameter of 3.44 yesterday, + 4 ¾ (Mar).  This past Tuesday the USDA gave its long-term projections, with corn yield at 170.8 bushels/acre, significantly higher than 2016 which was 168.1 bpa.  Even though corn planted acreage is expected to drop from 94.5 million to 90 million acres, there is not a reason to be bullish at this juncture.  The European Commission dropped a surprise yesterday with a proposal to reduce the use of conventional biofuels in the EU transportation sector from 7% in 2020 to 3.8% by 2030.  This was prompted by decreasing public support for traditional biofuels, instead encouraging the use of advanced biofuels.  This is a noteworthy mentality shift in the EU and it will remain to be seen what affect this will have on ethanol and traditional biodiesel long-term.


Soybeans, following a strong overnight Dalian market gain and Malaysian palm oil hitting an intra-day 4-year high, started positive but ended up negative, – 2 ¼ (Jan).  Soybeans are in a vulnerable position with weak longs (if support levels are taken out), meal basis is very weak, and oils are likely nearing a top over the next weeks without help from weather or other factors.  Global ending stocks are at near record levels.  Another day of no USDA announced sales to China.  This may lead to increased selling pressure, as China is looking more to South America now with no adverse weather conditions to impede their progress.  Brazil has experienced near ideal growing conditions, while Argentina has been mixed, as they are reporting soybean planting at 46% complete compared to 54% last year at this time


Wheat, after three days in a row of new contract lows made a nice reversal today, + 8 ¾ (Chicago) and + 5 ¾ (KC), with Minneapolis being the straggler today, – ¼. Is this signaling a short-covering bounce in the near-term?  The soft red winter class surged on Thursday with 35,000 new open positions, topping both corn and soybeans, and led the market higher last night.  Russia is expecting a record wheat crop of 72.3 mmt vs. the USDA estimate of 72.0 mmt.  This will translate into potentially higher exports of 31.3 mmt, which is above the USDA projection for them of 30 mmt, and will only add to the glut of world wheat supply.  The U.S. must continue to try to find a way to be competitive with their Black Sea counterparts in bidding for Egypt and other large opportunities.  A USDA meteorologist reported that ¼ of the U.S. Winter Wheat acreage (Central & Southern Plains) is under drought as of the end of November.


Live Cattle futures losses yesterday spilled into today, accentuated by sell stops and fund liquidation, according to traders, finishing – 2.50 (Feb).  Was yesterday’s reversal a sign that a near-term top is in place?  Time will tell but with the overbought condition and over-abundant supply of all meats, fundamentals would tend to point this direction.  Beef slaughter has been up sharply the last five weeks over last year’s levels, with beef production following the same trend.  It is hoped that grocers purchasing beef to balance “turkey and ham fatigue” during the holiday season will be the impetus for next week’s cash prices.  It was announced today by Brazil’s Ag Ministry that Japan is planning to open the doors to fresh, frozen and processed Brazilian beef.  It will be worth watching how this plays out, as Japan is also one of the import Asian export markets for the U.S.


Hogs were not able to continue gains today, as futures were down slightly, – .05 (Feb).  Cash prices in the Midwest were up $1 per cwt today, aided by the smaller pool of animals as supplies have tightened.  Packer margins are an impressive $50.75 per head, up from $36.30 a year ago, according to HedgersEdge.com.  Hogs have been able to avoid a train wreck this December, thanks to producers being proactively aggressive in October and November.  Demand will be the key driver after the first of the year, both here in the U.S. and abroad.  Last year China was the story in February and April while Mexico dominated the narrative this fall.  The question on the minds of many – what will be the theme in the 1st Quarter of 2017?


In Other news, the U.S. government unemployment report showcased a gain of 178,000 jobs last month, reducing the unemployment rate in November to a nine-year low.  The chance of an interest rate hike at the Fed meeting on Dec. 13-14 is now very high, as CME’s FedWatch is pegging the probability at 95%.  The 4.6% unemployment rate is lower than the U.S. economy can sustain long-term without creating competing negative price pressures.  Also influencing the drop in the unemployment rate is a decline in labor participation, which is dwindling as the population ages.

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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