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Closing Comments


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Closing Comments

Corn continues to be a bean follower, which translated into a solid gain today, +6 (Mar).  The always anticipated USDA monthly report proved to boost trade in spite of no big news, with national corn carryout unchanged at 2.403 billion bushels, but up globally by 4 mmt.  A couple of announced buys included a commitment from Taiwan to purchase 65K mt of U.S. corn for Feb/March, while Israel bought 95K mt of Black Sea corn for Feb/April.  There is chatter of a possible sale to China from Ukraine of at least four cargos this past week.  Ethanol margins are at an all-time high for this year (over $1/bu), and the cold weather should prompt extra livestock feed usage.  Trump’s choice to lead the EPA (Scott Pruitt) is causing a little concern related to renewable fuels, as has been reflected in the trade.  But, overall Mr. Pruitt is viewed as Ag friendly and is expected to help alleviate burdensome regulations.


Soybeans have a need to be fed on a daily basis, or the threat of long liquidation may begin.  Today’s menu included a new sale and the USDA monthly report, as beans showed an appetite for big gains, +10 ½ (Jan).  The USDA  pegged soybean carryout unchanged at .480 billion bushels (but above the average expectation).  The world carryout showed an increase from 81.3 mmt to 82.9 mmt.  One might say this news was already “baked in”, as it did not negatively affect trade in the slightest.    South American weather is being closely watched for market direction, with the focus on whether Argentina will get needed rains in December.  The USDA announced the sale of 132K tonnes of soybeans to China for 2016/17.  Current perception in the market is that demand is unusually high this year.  However, total exports to China may not increase that much over last year, as last year featured a late surge of Chinese buying due to South American weather problems.  At this point, there is a lack of evidence that a similar story will be emerging this year. 


Wheat was the star grain in the market yesterday and finished bullishly today, drafting off the strength in beans:  Minneapolis +5 ½, Chicago +8, and KC +8 ¾ (Mar).  Wheat has been fighting the bearish force of a huge supply from key exporters. The USDA monthly report pegged wheat unchanged stateside, while global carryout came in almost 2 mmt higher.  Russia’s SovEcon boosted their estimate of total grain harvest by 1.5 mmt to 114 mmt, of which 70% is wheat.  This, in addition to Coceral adding to the storyline by  upping their EU wheat output estimate by 900K mt to 134.7 mmt.  Weather is becoming a prominent concern here in the U.S., as lows will be below zero over the next 7-10 days with accompanying gale force winds.  However, there are three separate systems lurking that could provide snow cover for much of the plains over the next five days.


Live Cattle, with sluggish cash news and red packer margins, may be starting to signal that the market is prone to a set-back if hogs put in a top, with trade down again today -.125 (Feb).  According to CME traders, live cattle felt pressure from follow-through selling and earlier fund liquidation.  The trend among investors was to simultaneously sell the December contract and buy the deferred months, in expectation of falling cash prices next week.  Cash cattle in the U.S. Plains traded around $110-112 this week compared to $114-115 last week.  Snow and frigid temps are beginning to impact cattle condition and price, and may disrupt movement of animals to packing plants over the next few days.  Feeder cattle were also pulled lower, influenced by profit taking, fund liquidation and live cattle’s selloff. 


Hogs continued their bullish ways for the fifth consecutive day, +.725 (Feb).  Futures have had a solid week of gains due to several factors: record slaughter numbers, with pork cut-out values rising to the highest level since late September; hog weights have remained steady in a period when weights normally increase; there were no capacity problems in the 4th Quarter which is lending optimism of better support for the cash markets into 2017.  Midwest cash prices were around 50 cents per cwt higher again today, as the cold temperatures across the Midwest are having an effect on supplies.  It seems that there is now a shortage of pigs as all the packers are competing for inventory.  Meanwhile, packer margins are continuing to decline as the cash prices are outpacing prices being charged by processors to grocers.


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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