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Closing Comments

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Closing Comments

Corn had a break-out day, following the lead of soybeans, +12 (Mar).  Helping the cause was the USDA weekly report showing corn inspections of 1.15 mmt vs. 850K.  South Korea also had a buy of 267K mt of corn, which will be divided between the U.S. and optional origin sellers.  The U.S. is once again back in the top position to sell corn to Asia, given recent weakness in both futures and Gulf basis.  Ethanol plants are encouraged by last week’s $.15-.20 gains in the crush.  This will likely lead to a record production week for ethanol before year’s end.  In Asia, China is looking to double ethanol production by 2020.

 

Soybeans snapped 4 days of decline with an exclamation point today, finding support from strength in the Dalian markets and positive export news, +16 (Jan).  A solid USDA inspections announcement of 1.910 mmt compared to 1.70 mmt, added to the optimism.  China was back in the export action today as the USDA reported another very large private sale of 426K mt of soybeans.  This was welcome news, as China has become much more active with scheduling Brazilian cargos over the course of the last week.  The U.S. needs a regular flow of continued strong demand as a counterbalance to the favorable South American weather. 

 

Wheat, following the lead of corn and beans, was able to gain modestly in the March contract with Chicago (+4), while KC –¼) and Minneapolis (-3) were not able to gain any momentum.  Wheat  has seen some support from cold weather threatening the U.S. winter crop, exposed by little snow cover.  The USDA announced favorable weekly inspections today of 453,633 mt vs. the expected 375K.  Wheat production news was checked by anticipation of Canada announcing a larger crop tomorrow and Australian wheat being 4.3 mmt above the USDA projection (Australia is the world’s 4th largest wheat exporter).

 

Cattle futures were mostly firm, according to traders, with investors selling the Dec contract and simultaneously buying the deferred months, as live cattle finished +.100 (Feb).  Cash prices later in the week will give further direction as bearish traders are concerned the market may be close to topping out, due to bountiful supplies, declining packer profits and softening wholesale beef values.  The demand for most proteins in general has received a positive contribution from strong export demand, a better employment picture, and the culmination of the election season. Holiday appetites should offer some much needed support to reducing the sheer amount of product.  Some beef inventory may spill over into refrigerated storage, which could have a negative impact on demand in Q1 of next year.

 

Hogs were up modestly following two day in the red, +.775 (Feb).  Pork production has been up over last year, +4%.  Hams have been a top performer in this space, benefitting from both holiday demand and strong exports.  At this point, packers are still making good money and want to maximize plant capacity.  Last week they processed a record 2.54 million hogs, according to USDA estimates. The question on packers and producers’ minds – what will happen two weeks from now?  Usually, hog numbers remain large through January and there will be a lot of competition from inexpensive other meats to exacerbate the situation.  Demand will be the key driver after the first of the year, both here in the U.S. and abroad.  In 2016, China was the story in February and April while Mexico dominated the narrative in the fall. 

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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