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Closing Comments


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Closing Comments

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Corn, having baked in the negative news related to supplies, etc., looks to be poised to move in a positive direction, +3 ¾ (Mar).   Corn prices could be heavily influenced by what happens with wheat this time of year and will look to those markets for price direction.  Corn futures would be significantly higher if not for both its own ending stocks as well the surplus in wheat.  Today’s USDA Weekly Inspections report was bearish for corn, showing 636,684 mt for the week ending Dec 29th compared to the expected 900K mt.  The USDA production report is also just right around the corner on the 12th.  Look for buyers to be much more active than sellers (as funds are short around 110K contracts) and for acceleration if we are able to get above 3.65 March.


Soybeans dropped below the 100 bar moving average today, -9 (Mar).  The strong dollar got everyone’s attention today, as it gapped higher.  What effect will this have on exports and the possibility of increasing cancellations, come later in January?  Soybeans were trading positive in the overnight but the surging dollar and questions about Brazil weather put a damper on things, as March futures traded to a 6-week low.  USDA Weekly Inspections were in line, as 1.578 mmt were announced vs. the estimated 1.5 mmt.  U.S. biodiesel production is a bright spot, with October usage showing 142 million gallons, up over September’s 135 million gallons and much higher than last year’s 106 million.  This was also reflected in the much larger 537 million lbs. vs. 408 million pounds of soybean oil used.  In South America, Brazil had phenomenal planting and growing conditions for soybeans this year, however the concern now is over the heavy January rains possibly hampering the mature crop in a timely matter.  Keep a watchful eye on future’s action this week, as soybeans appear to be headed lower.


Wheat, of all the grains, is the strongest on the charts, with re-balance buying to cover shorts the topic of the new year.  Today, wheat traded sideways, with Chicago –1 ½, KC -4 ½, and Minneapolis + ¾.  The strong dollar is of concern, as it gapped higher today.  The dollar does not seem to matter as much as one would expect regarding the typical inverse correlation with exports.  USDA Weekly Inspections were in line with an announced 395,417 mt for the week ending Dec. 29th, compared to the expected 400K mt.  On the global stage, Algeria is looking for 50K tonnes of the soft variety for March (trade sources believe it could be much larger), while the Egyptian Supply Minister indicated that their stockpiles are adequate for five months, after their recent rash of tenders over the last three weeks.  A weekly close above 4.26 will signal higher to come.


Live Cattle, according to the technical indicators, is ripe for a correction.  Friday’s sharp reversal is a strong signal that a short-term peak is in place.  Today, futures’ trade appeared to confirm this narrative, with February futures -1.175.  There is wide support though to the idea that overall beef demand has increased over last year.  Slaughter is up 5%, and yet wholesale beef prices at the end of the year were higher than last year.  Cash prices were a solid $118 across the board on Friday.  Typically, beef demand slows after the 1st of the year, as consumers focus on paying off debts incurred from the holidays.  Keep a close eye on market action this week, and also on the dollar, as its ascent could spell trouble for beef exports in 2017.


Will Hogs put in a short-term peak soon? The first signs may have shown up today as February futures finished down sharply -2.650.  Hogs showed strength at the finish line of 2016, in spite of an over-bought condition and bearish supply fundamentals – 4% above last year according to the Hogs & Pigs report released in late December.  In other news related to hogs, the Peoria Union Stockyards shuttered its doors after 140 years in business, with the last load of hogs sold on Dec. 23rd.  Peoria was the last of the major hog auction terminals that dominated the Midwest in the 1950’s, according to Ron Plain a University of Missouri livestock economist.  He was quoted as saying, “losing these markets make it tougher on smaller producers who use markets like Peoria because they never sell many hogs at a time and it’s costly hauling them to packing plants.”  With many U.S. hog farms consolidating, a growing number of hogs are now being sold to “mega packers”, signaling the end of an era.


With the New Year’s Holiday, all regular USDA reports will be delayed one day from their customary release.

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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