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Closing Comments


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Closing Comments

Corn has been up slightly on the week (due mostly to the transition from Dec to March contracts), and was able to hold its ground today, – ¼ (Mar).  Export sales have been strong, at 58% of the USDA estimate for the year, which is above normal.  Will the Dollar continue its rapid ascent on the charts?  It will be watched closely, because although the U.S. is considered the most competitive global sourcing alternative, the Black Sea is close on our heels, and a strong Dollar will not help the situation.  Last night, South Korea was in for another cargo of corn (likely U.S.).  Informa lowered their 2017 corn planted acreage estimate to 90.15 million acres from 90.84 million acres.  The U.S. filed a complaint against China regarding improper administration of the reduced-import tariff program, which limits U.S. export potential. Technically March continues to trade in the middle of its range with nearby resistance at 3.70-3.73.


Soybeans added on to yesterday’s gains, +7 ¾ (Jan), after getting a nice bump early from a good showing by beans on the Dalian overnight, a new export sale, and firming basis levels. It is always a positive to start the day with a USDA reported sale – this time to an “unknown” destination for the 2016/17 marketing year.  Speaking of “unknown” destinations, China is only utilizing 65% of its oilseed crush capacity.  This should continue to drive demand next week, as crush margins in China are just under three year highs and there is a high probability of Chinese currency continuing to depreciate.  Putting a little bit of a damper on the positive news was confirmation of weekend rains making their way into position in Argentina, if this fails to materialize look for renewed strength in next week’s holiday trade.  A close below 10.18 would signal a potential end to the bull-run while a close above 10.40 would indicate a potential break out of the bull flag and stretch toward upside targets of 10.80 and 11.11.


Wheat futures were set up for a poor weekly close, but were able to muster a late flourish, with Chicago flat, KC +2, and MN +6 ½ (Mar) .  The recent Dollar gains are making it difficult for the U.S. to compete on the global stage in wheat, especially taking into account the glut of supplies.  But, today the Dollar was down, and there was not a significant force to drive prices lower.  Informa released their estimate of winter wheat acres planted at 33.21 million vs 36.13 million last year, a significant reduction.  On the international front, Australia’s wheat harvest is 75% complete, while Argentina’s is at 57%. Believe it or not, Minneapolis posted its highest front month weekly close since July of 2015 thanks to the market demand for quality.


Live Cattle futures, while slightly overbought, are in a position to continue to leverage the upside into the new year.  Today they continued to trend bullishly sparked by short-covering, +2.075 (Feb).  Demand has been good for post-holiday deliveries of beef cuts in spite of lower expectations this week, as there has been a surprising $3 rise in box prices.  In cash cattle, there is an wide bid/ask spread of $110/$115, following light sales last week.  Cattle owners seem to be fine with carrying over inventory to next week, with freezing temperatures and languishing performance.  On the export front, American beef is considered the premium quality on the market.  However, similar to its grain counterparts, the post-election Dollar surge is not helping the cause and may encourage imports. Look for $116-118 to be good resistance for live cattle.


Hogs have been looking for a near-term peak with the lowest weekly exports of the year, but instead demonstrated the unpredictability of the markets by exploding to a new high, +2.30 (Feb).  This is impressive action considering the large supply of all meats, but the recent jump in ham prices is also giving support and igniting renewed hog-buying interest.  Wholesale pork prices followed hams, jumping $2.44 per cwt.  Average pork packer margins were pegged at $44.55/head compared to $39.45 a week ago. The slaughter tomorrow is predicted to be 340K head vs the USDA estimate of 259K head last Saturday. Technically today’s breakout is either the end of the run or the beginning of the next leg toward $70. Monday’s trade will decide which.


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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