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Closing Comments


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Closing Comments

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Corn has been trending bearishly taking its cue from soybeans, lower for the 5th consecutive day, -3 (Mar).  The market has traded below both the 50 and 100 day moving averages, and will likely remain range-bound in the foreseeable future.  It is unlikely that funds will want to initiate a larger short position this late in the year, as the net short is around 80,000 contracts.  The U.S. has been in the driver’s seat as the most competitive exporter, but expect South America to be in hot pursuit come Spring.  The weekly EIA ethanol report came out today, showing that production declined slightly from last week’s record of 306 million gal/week to 305 million gal/week (still the 2nd highest ever).  Strong production is expected to continue due to solid profit margins and a robust export program.  Ethanol stocks were virtually unchanged.  Look for corn to continue its broad range trade this winter of 3.40 to 3.75.  


Soybeans made an important reversal (although small) from the close below 10.18-10.20 range yesterday, +1 ½ (Jan).  This is significant, as a move to the downside a couple cents below yesterday’s low, would have been a strong bearish signal from a technical standpoint.  The USDA announced a sale to China this morning for 132K mt of soybeans.  The key factors to be monitoring heading into year-end are South American weather, the fluctuation of the dollar and end of year positioning (in a thin holiday trading environment which can cause volatility).  Daily charts have entered “over-sold” territory on the indicators which may help to stabilize price, but for now Jan needs to get back above 10.20 to threaten the bears.


Wheat has been rather listless in the trade recently, unable to find a market story to latch onto.  The entire complex was down today: Chicago -3 ¾, KC -3 ½, Minneapolis -1 (Mar).  Now that we are into the holiday trade with lighter volumes, it is not likely there will be any big surprises or narratives to change direction.  Egypt bought another tender of 360K mt of wheat that was distributed as follows: Argentina 120K mt, Russia 180K mt and Romania 60K mt.  The U.S. is becoming more competitive with its wheat export contenders, and hopefully will be able to sway some of these sales in 2017.  Taiwan bought 93.1K mt of U.S. wheat for Feb/Mar.  Adding to the already over-flowing yield numbers, South Africa estimated 2016 wheat production at 1.876 mmt, 110K mt above their last prediction.  But, demand does seem to be ramping up with a bevy of countries looking for cargos including, Egypt, Jordan, Philippines, India, Colombia, Indonesia and Bangladesh.  While sustained selling in the winter wheats isn’t being found, neither is ongoing buying. Look for continued consolidation for now.


Live Cattle’s hook reversal yesterday was a bearish development, but that did not seem to influence the CME today, as trade trended north, +.725 (Feb).  Futures are experiencing unexpected optimism this week despite their overbought condition, with impressive gains all week in box prices, reduced show lists, and asking prices back up in the $115 range for cash cattle.   Cattle are expected to move and transactions to be created through the end of the week, with large premiums of the Feb over the expiring Dec contracts.  Related to exports, American beef is considered the best by the majority of premium buyers.  However, the post-election dollar appreciation, due partly to the Fed increasing interest rates, will be an obstacle in the coming year and will actually encourage imports.  On Friday, the USDA will release its cattle on feed report at 11am CT. 


Hogs had their first setback in a while yesterday, but gained back a chunk today, +.900 (Feb).  The market has been surging forward, but now appears to be entering the seasonal slowdown that is expected this time of year, with packers having sufficient inventories and curtailing production.  Packer margins have been stellar, as they were estimated today at $47.80, up from $39 a week ago – leaving some to second guess whether it is a good idea to shutter plants for back-to-back holidays?  Factors providing uncertainty include concerns of higher revisions for the report on Friday, plus a warmer weather outlook.  The USDA will release the quarterly hogs and pigs report on Friday at 11am CT.


In Other interesting news, related to the global stockpiles of grains, Rangsit University in Bangkok,  Thailand has begun accepting rice in payment for tuition fees as the nation struggles under the weight of a grain glut that’s hurting farm incomes.  Additionally, farmers are utilizing Facebook and stalls at gas stations to eke out a marketing edge over the competition.


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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