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Closing Comments


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Closing Comments

Corn was not able to win the tug-of-war with the bears today, closing below the 200-day moving average, -5 ¾ (372’4 May).  Corn found some support in the USDA Outlook Forum’s acreage projection, as they have corn planted acres at 90 million vs 94 million last season.  However, the end of March will bring more clarity, as last year the prediction was also 90 million acres but actual came in at 94 million.   The average corn price/bushel is estimated to be $3.50 for 2017.  It will be worth watching how cheaper supplies in Brazil and Argentina affect the balance of power among world sellers and buyers.  At this time, it is thought that South America cannot compete with the US for Mexican corn business, as they are still running at close to a 15% premium when all factors are considered.  The EIA weekly ethanol reports showed production down to 304 million gal/wk compared to 306 last week, but still 4% above last year.  Ethanol stocks increased again to 952 million gallons from 945, now back to near record levels.    


Soybeans did not receive the acreage news well today, with May futures down, -11 (10.22’4).  The USDA Outlook Forum pegged bean acreage this season at 88 million acres, which would be 4 million acres more than last year.  Soybean average price was penciled in at $9.60/bushel.  Global 2016/17 corn crop is expected to be 1.049 BMT, according to a release by the International Grains Council yesterday.  This is an increase of 4 MMT over the previous outlook.  Agroconsult is promoting the idea that Brazil’s soybean production should hit 108 MMT vs the USDA 104 MMT and that exports should exceed the USDA projection of 59.5 MMT by over 1 MMT.   They have already shipped 3.8 MMT, with another 3 MMT already on the books for next month.  Not only that, but the dry conditions are speeding up harvest.    Will May soybeans finish the week with a 6th consecutive low tomorrow?


May Wheat was able to generate minimal momentum in spite of positive news regarding acreage and exports:  Chicago -2 ½, Kansas City + ¼, Minneapolis +1 ¼.  The USDA Outlook Forum’s estimates for wheat acres confirmed current thinking of record low numbers, as they predicted 46.0 million acres planted this season vs. 50.15 last season.  Average price seen in 2017 is expected to be $4.30/bushel.  On a global scale, the International Grains Council  left overall 2016/17 wheat production unchanged from the previous outlook, at 752 MMT.  Two areas of interest include Australia, which is expecting to obliterate their previous records, as well as Kazakhstan (where the best quality wheat in the world grows), which reduced their production outlook.  Keep an eye on support levels at 4.41’4 and 4.33 May.


Live Cattle remained in an up-trend in today’s session, +.450 (April).  The deferred futures are offering up $13-16 discounts with the surge in cash prices.  Later in the summer the market could get weighed down with supplies considering the surge in placements over the winter, as the USDA Outlook Forum gave their 2017 beef production forecast of 26 billion lbs, which is 3.1% up over 2016.  The diversity of export destinations should help cattle, as world demand is strong.  Terry Branstad, the Governor of Iowa and Trump’s choice to be his ambassador to China, indicated he will make opening doors for beef exports to China a priority when he begins his term.  He feels strongly that there is no good reason why the Chinese should continue to restrict US beef, considering Mad Cow Disease is long in the past.


Hogs have experienced a steep decline on long liquidation selling the past two sessions, -1.175  (April).  Futures found weakness in a sharp decline in pork belly prices as well as doubts about the US being able to sustain the strong pace of exports.  The National Pork Board is increasing their focus on growing export markets with a 13% increase in funding to promote pork.  It is crucial that demand stays strong to keep prices from declining later in the year due to abundant supplies.  The USDA Outlook Forum pegged pork production for 2017 at 26.2 billion lbs, up 4.9% over last year.  Will we see another 10-12% come off hog futures in the coming weeks?


In Other news, President Trump sent a letter of support to the National Ethanol Conference attendees in California to reassure them of his recognition of the value of renewable fuels to the national economy and to energy independence for the United States.  This was well received and will help to allay concerns in the industry regarding the new Administration’s planned 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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