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Closing Comments

Closing Comments
Corn, after a break-out day to open the week, took a step back as weather has somewhat abated and the planting progress report showed nothing to sound alarms, -5 ¼ at 3.72 ¼ (July) and –4 ½ at 3.90 (Dec). Yesterday’s action saw managed funds buy 82,000 contracts, paring their net short position significantly. The USDA reported yesterday that corn planting progress is 34% complete compared to 17% last week and 43% last year.  The average year-to-date is 34%, so corn is right on track. Many fields are flooded, leaving the question – how much re-planting will be required? Areas that are running well behind with plantings are the Dakotas, Minnesota and Wisconsin. A large dome of high pressure is following the big rains, but there is another system on the way that will bring rain later in the week, mostly in the Central and Southern Plains. Transportation down the Mississippi River could be an issue, as the National Guard is planning to close the river at St. Louis due to high water levels.  Keep an eye on the forecast, as an additional 3-5” of rain is in the works for the wettest areas in southern IL and IN.


Soybeans started off positive but could not resist the negative pull of corn today, finishing –1 ½ at 9.68 ¾ (July) and + ¼ at 9.64 ¾ (Nov). Yesterday saw a good amount of short covering (18,000 contracts), and today it was almost as if the market got its memory back regarding the large stocks on hand and big crops on the way from South America. As far as planting progress, the USDA has beans at 10% complete compared to 6% last year and 7% year-to-date. Illinois, Indiana and Ohio led the way, all well above the YTD average. While weather will cause volatility short-term, beans need a bigger story to change the landscape of abundant supplies. The USDA announced soybean crush for March at 160 million bushels vs. the average estimate of 162.3 million bushels.  Soybean oil stocks rose from 2.206 billion lbs. last month to 2.353 billion lbs., eclipsing the average estimate of 2.246 billion lbs. Will soybean demand continue to stay firm, as Brazilian farmers are holding on to their crop in hopes of higher prices?


Wheat was mixed today after yesterday’s massive onslaught, with Chicago SRW -2, Kansas City HRW +2, and Minneapolis HRS -7 ¼. Some areas of western KS got 20” of wet snow, snapping wheat stems and putting the western 1/3 of the state in danger of major crop loss.  Some of this wheat was only five weeks away from harvest. The USDA’s crop report yesterday does not take into account the damage from the weekend – it was as follows: winter wheat was rated 54% good/excellent, the same as the previous week, compared to 61% last year and 48% on average year-to-date. Spring wheat is 31% planted, well behind last year’s 52% and the year-to-date average of 46%. The Kansas City wheat tour is this week, and scouts will undoubtedly be passing along lots of pictures and stories.  It will be hard to assess how much damage has occurred this early, but there will be lots of speculation.


Live Cattle once again found support in large futures’ discounts to cash, as June went limit up during the session, finishing +2.925 at 127.050. While prices continue to climb and things are great right now, caution is warranted. The cash market is very strong and is driving futures.  However, the funds’ position is extremely long, with record-level open interest. As supplies increase with the concomitant increase in cattle weights, it will be hard for longs to get out of their positions, as fund positions are nearly the same size as corn but open interest is only ¼ of the size. Keep an eye out for a top soon, but for now there are no technical or fundamental signs other than the overbought condition.


Hogs tagged along on cattle’s coattails, finding support in good domestic and export demand, +.875 at 74.150 (June).  The USDA Cold storage report showed frozen inventory was down by 10% over last year, and bone-in ham stocks inventory fell by the largest amount in twenty years. Like cattle, the market is overbought and may need a correction. Traders may be advised to proceed with caution.


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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