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Closing Comments


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Closing Comments

Corn recuperated from early weakness to finish +1 (Mar).  The market will be watching if March corn can work up through 3.64 on a closing basis.  The EIA ethanol report is usually the event of the day on Wednesday, and it was announced to no one’s surprise that production is at an all-time high at 801 million gal/wk compared to last week’s 778 million gal/wk.   Producers have been incentivized by ethanol margins sustaining the highest levels in two years, averaging $1/bu and more.  Two competing forces in the market include bullish strong exports driving demand, while gasoline usage has been bearish (4% below last year).  Ethanol stocks were also up to 801 million gallons vs 778 million gallons last week, but still well behind last year’s 854 million gallons.  It is thought that the strong export market will diminish the typical Dec-Feb stock build up, which would then require very robust production next spring in order to keep pace preparing for the summer driving season. March will encounter upside resistance in the 3.67 to 3.73 zone.


Soybeans have been hanging out just above the critical support area of $10.20 and it has been viewed that a close below this could open the door for a sell off.  Today did not feature any positive news (no export announcements this morning) that proved to be game-changing, as soybeans fell –4 ¼ (Jan).  News came out yesterday from China that the government has temporarily shut down 6-8 crushing plants in Dongguan to reduce suffocating air pollution.  This resulted in Chinese meal futures rising to highs not seen for several months as crush margins have surged.  Malaysian palm oil futures were higher also, resulting from a release by their Board which showed production and stocks lower than anticipated.  Another more recent variable added to the mix is the resurgence of Indian soybean production, which has nudged soybean meal prices lower, bringing India back to competitiveness in Asian markets. The question remains as to how this will impact South American and U.S. meal exports, but obviously will have an effect. Jan upside targets of 10.80 and 11.00 in play but the market needs to regain strength and hold above 10.18-10.20.


Wheat has traded higher the last several days, finding support from concerns of winterkill from frigid temperatures in the Plains (that also lack snow cover).  Today Chicago +1/2, KC +4 ¾, and MN +3 ½.  On the Russian front, Ag Administration confirmed that a record crop of 72M mt is in the books (on par with the USDA), as well as a record overall grain total of 117M mt.  Last year, Russia’s exports totaled 25M mt.  The U.S. is becoming more competitive with its Black Sea counterparts, but still was not able to score much if any of the recent global business announced.  It has been reported that India imported 200K mt of wheat, composed of 50K mt Russian and the balance from Ukraine.


Live Cattle had a modest setback today, -.275 (Feb).  The futures market has confounded many, as forecasters were in agreement coming into this week that prices would be decline.  The pendulum swung the other way Monday and Tuesday, as market bulls bought steadily, seemingly based on fundamentals with beef demand remaining surprisingly high, box prices increasing in price daily, and unexpectedly small show lists.  The online fed cattle action today is expecting higher prices than last week.  This will set the tone for the rest of the week and has really become a barometer that is closely watched.  Tomorrow carcass weights will be released, and this is a closely monitored gauge as to the position of cattle feeders in feedlots.  The last report showed steer weights 2# lower, and still 6# over last year.


Hog futures managed to closed incrementally higher, +0.025 (Feb) as the market consolidates following its recent explosive run.  Is the premium of February futures to cash too high? The ham market has experienced a turn lower and could signal a near-term top.  Hams declined $3.74 yesterday to $73.51, compared to $78.05 last week.  Cash hog prices were steady across the Midwest, supported by bitterly cold weather that impeded the flow of pigs to processors.  Farmers typically don’t like to open the doors to their facilities in order to keep out the cold air, as the cold tends to trim back animal weight gain.  Packer margins are still strong at $39/head but down from yesterday’s $40.60.  Because of this they are trying to draw in as many hogs as possible as they close in on the Christmas and New Year’s holidays.


Outside markets focused on the FOMC Policy Statement which indicated that the labor market continues to strengthen and that economic activity has been expanding. The committee decided to raise the target range for fed funds rate to ½ to ¾ percent. Fed Chair Yellen noted the expectation for GDP growth to continue through 2017. Their projected fed fund rate is 1.4% by the end of 2017 and 2.4% by the end of 2018. The US dollar traded higher and crude oil lower on the news.


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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