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Closing Comments



Closing Comments


It was an erratic day of choppy price swings in the grain and oilseed complex as traders attempted to digest significant developments in the outside markets ahead of tomorrow morning’s USDA crop report. Traders expect that report to show a modest 20 million bushel increase in ending stocks due to weaker demand, but they also are cognizant of tight near-term available supplies due to a lack of farmer selling.

Corn prices were choppy throughout the day, trading both sides of unchanged, but with a positive bias. Gulf basis slipped to a two-month slow on sluggish exports, but domestic basis continues to hold strong. Domestic demand requires more than 200 million bushels per week flow through the pipeline, but farmers aren’t selling at a high enough pace to meet that demand.

That provided strength for the corn market today, with the expiring December posting modest gains over the March contract on those tight supplies. However, rallies were repeatedly sold today, with light farmer selling seen. Additional pressure came from traders positioning for tomorrow’s USDA crop report, which the trade expects to show available stocks rising modestly as export demand softens.

A Reuters’ survey of trade participants reflects expectations that 2014-15 stocks will rise to 2.027 billion bushels tomorrow, up from 2.008 billion in November. It’s hard to justify a sustained rally above $4 with stocks of that size, with South American weather currently favoring good yields. The primary unanswered question at this time revolves around whether the weather will cooperate in February to facilitate planting of the Safrinha corn crop in Brazil.


Like corn, soybeans and soymeal chopped around for much of the day, trading both sides of unchanged, while hanging onto a positive bias. The reasons are similar, except that demand is stronger, but so is the anticipated size of the approaching South American harvest amid greenhouse conditions south of the equator.

Soymeal remains the primary driver, particularly with trade talk that China may be lifting restrictions on imports of U.S. DDGS. January soymeal prices repeatedly were rebuffed on attempts to push through descending trend line resistance on the charts until the final hour of trade, when they pushed above it into the close, taking out the previous day’s high of $3.67 in the process. January soybeans pushed above that same resistance on the charts Monday, but were unable to test the previous day’s high of $10.505.

U.S. soybean shipments to date for the current marketing year are 24% above the previous year’s level at this point. Seasonally, we’d expect them to ease back over the next several weeks, before rebounding again in late January and then dropping off sharply in late February or March. Farmers remain slow sellers, with processors and exporters aggressively fighting over the few soybeans that are being sold.

There’s little debate that those supplies will eventually increase, particularly after the South American harvest draws demand south of the equator. The job of the futures trader is to anticipate those changes. As such, they must decide if it is worth the risk to build ownership short-term before an anticipated surge in global supplies around the corner. Therefore, the near-term uncertainty of the market, which has posted both sell and buy signals over a short period of time as traders try to sort this out.

The aforementioned Reuters’ survey reflects trade expectations that USDA will peg 2014-15 ending stocks at 427 million bushels tomorrow morning, down from 450 million in November as USDA increases its export target. Herein lies perhaps the greatest opportunity for a surprise tomorrow, if USDA were to have a different vision of soybean demand than the trade. The bottom line is that short-term fundamentals are friendly, with long-term fundamentals looking increasingly bearish.


Persistent rains continue to hamper harvest progress in eastern Australia, although some progress is being made. Meanwhile, Australia cut its production estimates earlier this month and is now cutting its export target. It’s new export target is pegged at 624 million bushels, down 6.1% from its previous estimate. Traders will now look to tomorrow morning’s USDA crop report for further possible changes. USDA pegged Australian wheat exports at 643 million bushels, but many in the trade expected that to drop in future reports.

Russia continues to back down from its verbiage in late November, suggesting that it is nowhere close to restricting exports. In fact, it continues to be aggressive in pricing wheat on the global market. Traders today focused more on the disparity of U.S. prices versus that global market, pushing U.S. values sharply lower.

Kansas City led the way lower for much of the day, with the Kansas City/Chicago spread losing another nickel. That’s not friendly to the market longer-term. The Chicago charts appear to be forming a pennant, leaving the door open for a higher move, but the hard red markets broke lower from the pennant, suggesting lower prices ahead. The trade expects USDA to peg 2014-15 wheat stocks at 654 million bushels tomorrow, up 10 million from the previous month.


Live cattle futures bounced today, correcting oversold conditions following recent sharp losses. The recent sell-off triggered comments about the high being behind us after the big run to record high cash and futures prices in November.

One of the keys to the beef market is the fact that the product market did not post record high levels in November, but lingered at lower levels. Rib primal cuts continued to rally, but much of the remainder of the cuts pulled back, especially loin prices. The rib cuts should trend seasonally lower from this point, supporting more weakness in the product market overall.

Product movement Monday totaled just 115 loads, down from 207 loads Friday, but up from a dismal 76 loads the previous week. Choice cuts were down another $0.56 to $251.98 per cwt, while Select cuts were down $1.33 to 235.36. That pushed the Choice/Select spread to $16.62 per cwt, its highest level since October of 2013. Movement at mid-morning today was slow at 67 loads, with Choice cuts down another $0.33 per cwt, while Select cuts bounced $1.73.

January feeder cattle were supported by their large discount to the cash market today, but most of the remainder of the contracts saw continued pressure from expectations that the cash market is about to tumble. The latest CME cash index came in at $242.49 per cwt, down $2.33 from the previous day as buyers start to cool their enthusiasm amid a breaking fat cattle market and firmer corn.


Both the cash and product markets continue to lack anything to rejuvenate the bulls in the hog market. The closely watched Iowa/Southern Minnesota market was steady to $1.00 lower today, while most other Midwest markets were steady to $0.50 cents lower. The latest CME 2-day lean hog index came in at $88.30 per cwt, down $0.22 on the day.

Product prices bounced modestly Monday, with the composite pork product price up $0.12 to $92.81 per cwt. Movement was decent at 318 loads. However, the product market overall has been slowly leaking lower in value. Movement at midday today was disappointing at 154 loads, with the composite price down $0.34 to $92.47 per cwt despite a surge in picnic demand.

February lean hogs continue to trend lower, although they are oversold and showing some signs of consolidation near $84. Unfortunately, we’re not seeing the strength needed in the product market at this point to sustain a move upward in the cash and/or futures market.

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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