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Closing Comments


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Closing Comments


Corn chopped sideways and down as all ears are tuned to yield reports as they begin to trickle in, -3 ¼ (Dec). USDA weekly corn inspections were below expectations of 920K MT, coming in at 676,819 MT. The USDA is expected to announce corn harvest at 10% complete later this afternoon. Early yield reports seem to be adhering to the theme of better than expected, but not last year’s. Weather in Brazil is tending to a drier bias, but it is early to put too much emphasis on this. But, it does bear monitoring, as there is a greater than 50% chance of a La Nina event, which would reinforce the dry Brazil trend. Informa came out with some projections for 2018, and the big takeaway is acres planted, as they see an increase from 90.66 this season to 91.88 next season. It makes for interesting discussion, but the final number will be dependent on the corn/bean ratio used for insurance early next year.  Ethanol is a bright spot as it has continued to produce net margins averaging around 35-50 cents.


Soybeans found strength in strong demand from China, but ran out of gas on the final straightaway, -1 (Nov). Soymeal was up while soyoil saw some long liquidation, as managed money holds a very long position – over 100K contracts (per the COT as of last Tuesday). USDA weekly soybean inspections were 928,575 MT compared to estimates of 1.2 MMT, below the weekly average needed to keep pace with the USDA annual export estimate. However, two private sales boosted the market. The USDA reported a private sale of 126K MT to “unknown” destination and a private sale of 261K MT to China, both for 2017/18. The Chinese crush has made a nice recovery, and their buying is reflective. November soybeans need to get through solid resistance around 9.80, which includes the 200-bar moving average, in order to achieve the next leg up.


Wheat followed corn’s weakness today, with Minneapolis spring wheat the least affected, – ¼. Chicago and Kansas City winter varieties finished –5 ½ and –3 ¾ respectively. Wheat inspections announced by the USDA this morning were the only grain that exceeded expectations, tallied at 464,375 MT vs. 400K MT. Informa released their latest production estimates, and they show this year’s wheat acres reduced by another 552K with a yield of 63 million bushels less than the USDA. Spring wheat accounted for a large chuck of this, due to weather damage/loss. However, Informa sees wheat acres increasing for the new crop by 770K acres, all from the spring wheat category. Hard red winter acres may be up quite a bit in cattle country, but it is not expected that this will increase harvested acres by much, due to feed usage. Soft wheat will likely be down slightly, and farmers that have been able to double crop acres with soybeans have come out the winners.


Live Cattle are being held in check by large short-term supplies, +.125 (Dec). This week will feature three reports, which will help to give direction to this positive trending market. They include the Slaughter report on Thursday, and Cold Storage and Cattle on Feed on Friday. Slaughter margins have been profitable, at $144/head, which is down $19 from last week but right in line with the same week last year. The beef cut-out values both declined last week to $.46 lower on choice and $4.12 lower on select, according to AgResource. The outlook for a severe cut in production of a record 785 million lbs between the 4th and 1st quarters is keeping the bears at bay.


Hogs settled back into a bearish mindset after a break-out to the upside on Friday, -.425 (Dec). The spike was likely caused by speculation that packer demand may increase after margins leapt to an 8 ½ month high. But, hog futures are being pressured by weakness in the cash market as well as wholesale pork prices falling to new lows. Pork values will need to stabilize in order for the market to find a bottom.


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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