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Closing Comments

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Closing Comments

Corn futures showed indifference today, trading in a range and holding below the 200 day moving average, -2 ¼ (Mar).  This sideways pattern will likely continue without some sort of weather issue or other major development. The technicals need help from fund short covering or a rally in soybeans, to build on last week’s high of 3.71 (Mar). Positive factors in corn’s favor include solid export sales reports, a positive ethanol story, and an impending acreage war with soybeans.  In South America, Argentina’s Buenos Aires Grain Exchange estimated their crop to be 99.3% planted, while production is estimated by Informa to be 35.2 MMT, down from the 36.0 MMT forecasted previously.  Brazil is pegged at 89.0 MMT.  Look for front month corn to fight resistance in the 3.70-3.75 area.

 

Soybeans had a rough close after reaching seven cents positive early, down -10 ¼ (Mar).  Soybeans are in need of a steady diet of positive news to offset the positive weather premium for South America.  Fundamentally, the market is still too long and looking to lighten up. Without any weather issues for the next month, Brazil’s bumper/record setting crop will likely offset any production decline from Argentina, leaving the market with record supply.  According to traders, Informa has Brazil soybean production forecast at 106.5 MMT, while Argentina is predicted to be 55.0 MMT.  The Brazilian Real is positioned for its highest weekly close in 18 months, but does not seem to be affecting the seasonal Chinese buying shift to our Southern neighbors.  Look for an initial support target at 10.09 (March) and close-in resistance at 10.40 ½ .

 

Wheat was not able to build on its positive day yesterday and closed lower across the complex, with Chicago -4 ¼, KC -3, and Minneapolis -2 ¾.  However, both the Chicago and KC markets settled higher for the week. Managed money in Chicago continues to hold a significant short position – the question being – what will need to happen to cause a shift in this position?  Positive factors for wheat include reduced winter wheat acres, dry extended forecast for the Plains, and the reduction of spring wheat acres by as much as 1.5 million acres (according to the University of North Dakota).  Stats Canada reported all wheat stocks above estimates, 25.0 MMT vs 24.2 MMT, adding to the burgeoning global stockpiles.  It was also announced that Japan bought 108,442 MT of wheat (23 TMT Canada, 64 TMT U.S., 21 TMT Australia.)  

 

Live Cattle futures were able to build on yesterday’s gain based on technical buying and short covering, +.150 (April).  The rally yesterday was driven by higher cash prices in the North in conjunction with lower carcass weights and technical support.  Thursday featured the report on carcass weights and it showed a decrease of 9 lbs. on average.  National cattle inventory numbers released at the end of January showed increases in almost every category with the standout being beef heifers held for breeding at 101% when most estimates pointed to a sub-100 level.  The USDA reported exports to be down slightly from last week, with about half of the sales headed to Japan.

 

April Hog futures were up today propelled by support from increasing pork belly prices, +.675 (April), while front month was down slightly.  Pork bellies have seen a meteoric rise in prices the last few months, to the consternation of bacon lovers across the country, with August – $80, Dec. 30th – $114.52, and currently $174.86. However, with pork production up 3-5%, there seems to be plenty of supply.  Packer margins declined from $32.80 last week to $26.15 this week.  One of the unknowns, that also ties to trade negotiations, is whether Mexican imports will be affected, as they account for 30% of all US pork exports.  If exports were to slow, this would be a burdensome weight on the market.

 

In Other news, the stock market is on a torrid pace today, well up over the vaunted 20,000 mark, on news that President Trump plans to roll back financial regulations affecting Wall Street.  The Executive Order he plans to sign repealing Dodd-Frank is largely ceremonial, as only Congress can re-write the legislation.  But, Trump views regulations on multiple fronts as being harmful to the economy, and he aims to set a new mood and direction.

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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