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Closing Comments



Closing Comments


The Department of Energy reports that ethanol stocks rose to 17.3 million barrels in November 28, up from 17.1 million the previous week and up from 15.1 million the previous year. Ethanol production during the week dropped to 962K barrels per day, down from last week’s record high 982K barrels, but up from 913K barrels in the same week last year.

Estimated corn usage to make ethanol dropped to 102.1 million bushels during the week, down from 104.2 million the previous week, but up from 98.3 million bushels in the same week last year. That brings estimated corn usage for the marketing year to date for ethanol production to 1.278 billion bushels, up 37 million or 3% from the same time last year. Corn usage to date exceeds the seasonal pace needed to reach USDA’s target by August 31 by 3 million bushels, versus 2 million the previous week.

USDA’s daily export reporting system today reported that Mexico bought another 7.7 million bushels of U.S. current-year corn. Mexico is one of our larger customers and continues to absorb a portion of this year’s big crop.

March corn traded down to $3.7725 overnight, which essentially tested neckline support on a bearish head and shoulders formation. Violating that neckline would project to the $3.45 area as I draw it out. However, the neckline held, encouraging bargain buying amid strengthening crude oil prices, strong domestic demand and slow farmer selling. This market remains vulnerable amid good growing conditions south of the equator, but it has not yet confirmed a fall top.


January soybeans broke below the neckline of a bearish head and shoulders formation late on Tuesday, with follow-through selling overnight. That projects to another test of the harvest low at $9.1225 as I measure it. However, demand is strong enough and producer selling slow enough that we likely won’t draw a straight path to those potential lower targets.

The charts remain bearish, but a resurgence in soyoil prices and lingering strength in soybean demand led to a last minute rally that erased losses in the soybean market today. The reversal would be encouraging if not for projections of more than 400 million bushels of surplus stocks in the current  year, with nearly-ideal growing conditions in South America arguing for even bigger global supplies.

Soymeal basis remained largely stead across the Midwest today, reflecting ongoing tightness in the protein market. Lines at some ethanol plants to pick up dried distillers grains and solubles were said to be longer than lines to deliver corn due to the tightness of protein supplies. Therein lies the periodic surges in soybean buying. Yet, rallies are increasingly being sold as weather favors big yields in South America.


Egypt released another snap tender to buy wheat late on Tuesday, with the resulting offers revealing the disparity in global prices. It ended up buying 6.4 million bushels of wheat from Romania and Ukraine in the tender. U.S. soft red winter wheat was offered at 78 cents per bushel above the Ukrainian offer following the recent rally in prices.

Trade talk today focused on a scheduled meeting of Russian government employees over the possible tightening of grain export standards. The group postponed any decision on export restrictions for an undetermined time, avoiding talk of taking steps to restrict exports. In fact, Russian wheat was offered in Egypt’s latest tender.

That tender confirmed Russia’s presence on the global market while also demonstrating how high U.S. prices are relative to the rest of the world. That differences is made worse by the U.S. dollar trading at its highest level since March 2009. Wheat prices posted double-digit losses once again today as buyers try to shed long (bought) positions built over the past several days.

Excessive rains are hurting wheat quality in 15 to 20% of Australia at harvest, focused on eastern areas. Winterkill to some degree is likely occurring over 10 to 20% of the winter wheat belt in the Former Soviet Union due to thin snow cover amid sub-zero temperatures this week. Winter wheat is also under-developed in portions of the Plains and Midwest. However, it’s been historically difficult to sustain rallies on these factors in December.

Losses the past two days have been significant, but technically they’re a mere correction of sharp gains in the previous days. Fundamentally though, it would be unusual for wheat to sustain a rally in December when U.S. exports are so uncompetitive on the global market amid adequate global supplies.


Rib primal prices show signs of topping at record levels, with chuck cuts struggling. The bears argue that this supports the notion that the product market will now trend seasonally lower. Futures traders have been nervous about possible tops for six months, so the above talk fed the concerns, leading to a sell off. Selling garnered extra support on reports that cash cattle were trading in Iowa at $168 per cwt on a live basis, down $2 to $2.50 from the previous week in that area.

February live cattle broke below the 50-day moving average for the first time today since the end of August. First significant support sits at $165.55, but a probe to $162 can’t be ruled out. Supplies are expected to remain tight through the winter, but cheaper pork prices and a strong dollar could significantly curtail demand. Product demand turns seasonally lower in the last half of December, making this a convenient time for traders to take profits.

Packer losses are estimated at more than $120 per head as retailers balk at current prices for boxed beef. Product prices dropped on Tuesday, leading to a pickup in demand following a post-holiday slowdown. Movement rose to 148 loads Tuesday, up from 76 loads the previous day, but down from 154 loads the previous week.

Choice cuts were down $1.12 to $256.36 per cwt Tuesday, while Select cuts were down $1.68 to $243.66. That pushed the Choice/Select spread to $12.70 per cwt, up from $12.14 the previous day, but down from $13.20 the previous week. Movement at mid-morning today jumped to a strong 133 loads, with Choice cuts up $0.86 and Select cuts down $0.20 per cwt on the day.

Feeder cattle futures gave way to selling pressure in the fat cattle market, even though futures prices are already at a big discount to the cash market. Demand remains strong at the sale barn after the Thanksgiving break. The latest CME cash index came in at $243.94 per cwt, up $3.49 on the day and down just 10 cents from the record high.


Today’s cash market was again incredibly steady, with supply and demand in good balance and packer margins estimated at a modest $4.50 per head. The latest CME 2-day lean hog index came in at $88.45 per cwt, unchanged on the day.

Traders had built a significant premium into the deferred contracts on expectations that the PED virus would again take its toll on pig numbers as cold air arrived this fall. However, losses do not appear to be as significant this year, leading traders to remove some of that premium. February lean hogs have next significant support near $86, but they’ll find more air under the market if they break below that.

Product movement jumped to 343 loads Tuesday on lower prices. The composite pork product price dropped $1.76 to $92.16 per cwt. It was a 10-month low for the composite price, suggesting additional vulnerability for the cash hog market. Movement at midday today improved, but was unimpressive for a Wednesday at 224 loads. The composite price was down another $0.76 per cwt on broad-based weakness.

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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Arlan Suderman | Senior Market Analyst
WATER STREET ADVISORY® | www.waterstreet.org
(316) 729-4599 | asuderman@waterstreet.org

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