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Closing Comments


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Closing Comments

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In Corn, the all-important January USDA report released today was favorable, but not in a big enough way to sway futures, +1 (Mar).  Looking at the numbers, the USDA trimmed back yield to 174.6 bu/acre from 175.3, stocks were reduced from 2.403 bln bushels to 2.355 bln bushels, and production came in at 15.148 bln bushels vs. the last estimate of 15.226.  Ethanol production has also been a big driver in stocks usage.  World corn stocks were not affected, other than changes to the U.S. numbers.  Without adverse South American weather the CBOT will likely continue to trade sideways.  Not to be forgotten amidst all of the report excitement, were two corn sales announced this morning, as the USDA reported a private sale to an “unknown” destination of 253,488 MT and a second private sale of 110K MT to Japan.  However, it is expected that the rate of U.S. corn exports will slow significantly when South America begins its harvest.  Look for corn to continue trading in the present range for the near term.


In Soybeans, The USDA report provided a friendly surprise and the fuel to power a huge gain, +28 ¾   (Mar).  The report estimates included a soybean yield down from last report to 52.1 bu/acre from 52.5 bu/acre, soybean stocks reduced from .48 to .42 bln bushels, and soybean production trimmed to 4.307 bln bushels from 4.361.  In South America, Brazil soybean production is expected to increase 2 MMT compared to the last report and Argentina is neutral.  Some would argue that Argentina is still 2-5 MMT too high considering acres lost to flooding, but we will have to wait for more definitive numbers to confirm this theory.  Soybeans are always a day away from a 20 point break up or down depending on South American weather.   Keep an eye on the risk for future Chinese cancellations, with strong currency levels being an influencing factor.  Initial resistance for beans is around 10.37.


Wheat also rallied on the heels of a favorable USDA report, led by KC (+13) and MN (+12 ¼), with Chicago not far behind, +7 ½ (Mar).  The USDA cut winter wheat acreage to a 108-year low, as the report showed estimated planted acres for 2017 down significantly to 32.4 million acres from the estimated 34.14.  Supplies rose to a 29-year high, with wheat carryout up slightly to 1.186 bln bushels vs expected 1.15, and world wheat carryout increased to 253.3 MMT vs. expected 252.0 MMT.  The year ahead will feature a battle of shrinking U.S. supplies with larger foreign wheat stocks.  On the weather front, maps are showing almost 100% moisture coverage across the southern plains and including NE, helping to erase dryness concerns. 


Live Cattle gapped lower in a sharp move to the downside, before regaining some of what was lost, -1.650 (Feb).  The cattle market has seen extreme volatility the last 18 months and a growing number of cattlemen feel the system is broken.   Algorithm traders are seen as part of the problem, according to Craig Uden, NCBA Working Group Chair.  There is also perceived to be a lack of cash transparency with packer contracts.  The online cattle exchange is helping bring change, but solutions need to happen soon for many producers who are on the ropes from losses they have incurred. Cattle feeder profits are in the green for the seventh week in a row.  Weather has been detrimental to weight gain and has slowed transportation to market.  Some farmers prefer not to open the doors to the barn with frigid temperatures.  Retail beef prices have fallen about 10% since last July.  Economists are predicting an increase in production of 3-4% which will increase consumption.  The large supplies will continue to weigh on prices.


Hogs found support in rising cash prices and yesterday’s wholesale pork rebound, +.350 (Feb).  Hog merchants are predicting mostly $1 higher cash prices for the end of the week and expect a slaughter of 250K head Saturday.  Look for continued strong exports (mostly to Mexico) to be a key driver in 2017.


In Other News, the next Head of the Ag Department is still unclear after PEOTUS Trump’s news conference yesterday.  The Ag Secretary is the last unnamed department head of Trump’s Cabinet, with several candidates being evaluated.  Mexico indicated they are ready to start NAFTA negotiations to help settle some of the uncertainties with the new U.S. Administration.  Japan also is hoping to make a clear case of its impact on the U.S. economy during meetings with Trump officials, seeking to distinguish itself from China related to trade.


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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