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Closing Comments


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Closing Comments

Corn opened above yesterdays close and continued to rise eventually finishing at +8 ½ (Mar). With diminishing concerns over South America’s summer crop, the corn market is in search of a new story. The stories competing for attention are demand, acreage, and, of course, continued weather changes.  Now that we are into a new month, will fund flows increase or will they pull back from newly acquired length?  The Semi-Annual Cattle Inventory report confirmed an increase in quantity that should boost feeding expectations, and for the week ending 1/27/17, and the Energy Information Administration (EIA) reported another all-time record production of 1.061 million barrels/day, up 10K for the week. That is a 10.6% increase over the same week in 2016.  And, ethanol margins are back into breakeven territory after falling into the red last week.  Overall, corn demand continues to be better than expected and has helped provide a counter-balance to burdensome supplies.  Look for corn to continue to seek direction from beans. 


Soybeans fought back again today +12 ¼ (Mar), supported by confirmation that private exporters sold 236,700 tonnes of U.S. soybeans to unknown destinations; however, they were still unable to make up the significant losses experienced on Monday. South American weather is being closely monitored and will have a large effect on volatility this month. While intermittent showers in Brazil will continue to put short-term stops on harvest, they are not expected to have a negative effect on overall production just yet. In fact, there are rumblings that Brazil is currently harvesting its largest soybean crop to date.  New sales to China have already begun to transition to Brazil, and concerns of cancellations are always relevant this time of year.  Later this afternoon will feature the USDA crush report which is expected to show December right in line with November.  


Wheat, took the cue from corn and soybeans, posting a large positive reversal.  March futures were as follows: +13  Chicago, +11  KC, and +7 ¼ Minneapolis. The increase is primarily technical due to funds holding large net short positions, and the market is vulnerable to intermittent short covering. After issuing a tender to buy 50,000 tonnes of wheat yesterday, Algeria is back to the buying table seeking two individual 25,000 tonnes of barley shipments between March 1-31.  Russia’s IKAR released their 2017 harvest projection, and it shows a decline of 5 MMT less than the 2016 harvest for wheat.  Overall, the 2017 crop is expected to be strong until further confirmation of the extent of winterkill is tallied. And, Russia has raised its export projection for 2016/17, indicating they have plenty of stocks to cover higher demand as required.  


April Live Cattle gapped lower on open and traded both sides of unchanged (forming a doji on the charts), -.475 (Apr).  Bargain buying provided some recovery, as futures fell to three-week lows earlier in the session.  The Online Fed Cattle Exchange, held every Wednesday, is looked to as a barometer for cash prices, with 5,131 on the sale block today.  Last week’s Cattle on Feed report showed larger than expected cattle supplies, which has continued to apply pressure this week.  April Feeder Cattle were also down, -.700.  Developing trade policies by the new Administration will also continue to be a major market influencer.


April Hogs also traded both sides of unchanged today, finishing -.150.  The front month trended positive while most back months retreated modestly.  The impetus behind February bull-spreading and short covering were the gains in Midwest cash markets. Helping the cause from the demand side was sharply higher wholesale pork prices, which gave rise to a rash of hog buying.  However, there is downside potential with the market overbought and increasing focus on trade issues with Mexico.  Be watching for a test of support at 65.00 (Apr).


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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