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Closing Comments


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Closing Comments

Corn found itself mired in sideways trade, looking ahead for Spring weather to become more of a factor, -3 ¾ at 3.72 ¼ (May).  Short-term fundamentals tend toward bearish as Brazil’s crop is expected to be huge and the US farmer still has a good amount of old crop stored away.  The EIA weekly ethanol report was released today and it showed ethanol production down 4 million gal/week but still up 4.5% over last year.  It is the 35th consecutive week that production has been at a record level compared to the same week in the previous year.  Ethanol stocks were also down, after nine straight weeks of increases, by 10 million gallons.  They are also slightly below last year’s same week levels.  On a related note, gasoline demand had a notable increase but is still behind same time last year.  One would think ethanol production would continue to see a pull-back based on the fundamentals, but typically March to June is good from a seasonal perspective.  Chinese tariffs on US ethanol and DDGs have brought exports to the PRC down to a trickle.  These tariffs vary by company and the US Grain Council is working on both problems.  Other areas of the world are picking up the pace, but it will be awhile before the Chinese buying is replaced.


Soybeans have continued to sell off with profit-taking in front of the USDA crop report tomorrow, with ever growing broadcasts of Brazil’s yield, -3 ½ at 10.21 ¾ (May).  Lanworth was the latest to raise estimates, as they are now predicting a Brazilian soy crop of 107 MMT, up from 106 (USDA 104MMT).  Some of the traditional grain traders have taken themselves out of the game temporarily until they receive more definitive news on March 31st regarding US planted acres and yield estimates.  China imported the largest amount of soy since 2010, up 23% over the yearly average.  Strong crush demand from increased capacity is believed to be partly behind the increase.   Keep an eye on 10.17 May as an important level of support.


Chicago Wheat has looked strong on the charts, but experienced a sizeable pull-back today, -9 ½ (May).  Kansas City and Minneapolis also rounded out mid-week with red numbers, -6 ½ and –3 ½ respectively.  Weather has trended negative, but premium has already been priced into the market.  Short-term, the eastern half of the US has a better probability of needed rains and later winter snow is in order for the upper Great Plains, which did not help trade.  Turkey put in for 130K MT of EU wheat, while Japan said they will skip their weekly tender.  There is not much in the way of export activity for the rest of the week.  All eyes are focused on the USDA S & D report tomorrow, although it is considered a minor report.


Live Cattle experienced a fairly volatile session but still finished in the black, reversing five consecutive sessions of losses, +.625 (April).  Market support came in the way of technical buying and futures’ discounts to this week’s cash prices.  Cash prices should continue to benefit from good beef demand, improved packer margins and tighter supplies in parts of the Plains.  The CME Daily Livestock report is projecting US beef production to be up 5% over last year.  The per capita domestic consumption is not expected to change, which highlights the important role of trade, as exports are expected to increase in 2017 while imports are expected to decline.  Another factor affecting the calculation is the growing US population.  Current demand is fighting the push and pull of Lent and grilling season.


April Hogs were able to forge out a small gain, +.375.  Hogs are facing plenty of supplies ahead and are coming off a January that had less than impressive exports.  The front month (April) benefited today from higher cash prices while the deferred were weakened by profit-taking and expected increase of supplies.  Packer margins have remained profitable and retail pork demand has followed suit.


In Other news, farmers’ positive sentiments have retreated somewhat from January, according to Purdue University’s Ag Barometer, which surveys 400 producers, with “caution” being the predominant thought.   Two-thirds of farmers cited soybeans as the more profitable choice over corn in 2017, making the March 31st planning intentions report even more important.  Outside markets influencing Ag are equities (over-heated), interest rates (hikes planned in 2nd and 3rd quarters), and the energy sector (energy has likely put in a bottom and should increase, which would positively affect corn and beans).


The USDA Supply & Demand Report is tomorrow at 11am CST.


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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