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Closing Comments



Closing Comments


The Department of Energy reports that ethanol stocks jumped to 17.8 million barrels in the week ending December 5, up from 17.3 million the previous week and up from 15.4 million barrels in the same week last year. Ethanol production rose to a record 988K barrels per day during the week, versus 962K the previous week and 944K barrels per day in the same week last year.

The data suggests that ethanol producers used a record 104.9 million bushels of corn during the week, up from 102.1 million the previous week and 101.7 million the previous year. Estimated corn usage for the marketing year to date is 1.382 billion bushels, up 40 million or 3% from the previous year. Corn usage to date exceeds the seasonal pace needed to hit USDA’s target by August 31 by 5 million bushels, versus exceeding it by 3 million the previous week.

Brazil’s official agricultural agency, CONAB, estimated its current corn crop at 78.7 million metric tons, or 3.098 billion bushels, up from 78.1 mmt in November. However, nobody will really know what the size of Brazil’s corn crop will be until we get a better handle on February weather patterns in that region. That’s the time period when farmers there must rapidly harvest soybeans and plant the safrinha, or second-crop, corn before March 1 for it to make before the dry season. Historically, the safrinha corn crop accounts for 60% of its annual production. The above unknown is likely the reason why USDA chose to leave its Brazil corn production estimate at 75 mmt in its December crop report.

Commodity Weather Group stated today that the chances of normal or below normal rainfall currently outweigh the risk of a notably wet February in soybean and safrinha corn areas of northwest Brazil, based on notably warm waters in the southwest Atlantic and the weak El Nino background state. That’s a good sign for getting the corn crop planted. Local analysts project a 5% reduction in corn area if the weather is favorable, but up to a 40% reduction if it is not. The 5% reduction would not be considered to be that impactful for the market.

USDA left its production estimate unchanged for corn on the domestic balance sheet in its December crop report, which is typical for December. It will release its final U.S. production estimate in January. However, it did make minor changes in the global balance sheet. Most notably, USDA cut its Argentine corn production estimate to 22 mmt, down from 23 mmt in November, due to delayed planting and high input costs in a world of high inflation. However, modest increases in other primarily importing countries resulted in ending stocks rising to 192.20 mmt, up from 191.50 mmt previously.

Domestically, USDA increased corn usage by 10 million bushels, dropping ending stocks by a similar amount to 1.998 billion bushels, versus a 19 million-bushel increase that the trade anticipated. Most significantly, USDA failed to cut its export target as some anticipated, including myself. USDA kept its ethanol corn usage estimate unchanged at 5.15 billion bushels, as it should have done. Ethanol production is pushing the limits now, but it is expected to slow significantly early next year.

In the end, farmers still aren’t selling, domestic corn demand is strong, but there’s a big crop coming in South America and U.S. supplies still top 2 billion bushels. Soybeans are the leader, with corn still the reluctant follower. However, it’s likely going to be difficult for corn to hold its ground if/when soybeans fall out of bed.


Brazil’s CONAB posted a big jump in its estimate for the size of the Brazilian soybean crop this morning. It now pegs the crop at 95.8 million metric tons or 3.520 billion bushels, up from 90.5 mmt or 3.325 billion in November. That compares to last year’s crop of 86.7 mmt or 3.186 billion bushels last year. Private forecaster Lanworth, which utilizes satellite technology in developing its estimates, puts the crop at 98 mmt or 3.601 billion bushels. Lanworth also puts Argentina’s crop at 59.2 mmt or 2.175 billion bushels, which is well above most other estimate near 55 mmt.

The CONAB numbers set the back drop for USDA’s December crop report. The agency increased U.S. soybean exports by 40 million bushels, dropping ending stocks by a similar level. That’s a bigger adjustment than the trade anticipated, but within line with what we expected to eventually occur.

That would seem friendly to the market, but instead, prices dropped sharply. The CONAB production estimates are believed to be the first of many production increases in the weeks and months ahead from South America if the weather remains favorable. USDA wasn’t really expected to adjust Argentine and Brazilian production estimates in December, but it is expected to do so in future reports. This is a futures market, which has a responsibility to anticipate such changes.

Supplies may be tight now, but they are expected to increase dramatically in the next 60 to 90 days. Domestic supplies may have dropped to 410 million bushels when the trade was expecting 427 million, but that’s still a lot of soybeans, with an even bigger supply expected soon if greenhouse conditions continue in the weeks ahead.

The charts still have not confirmed a seasonal high for soybeans, but the bulls are on warning. Follow-through will be key. USDA will be reporting export sales for the week ending December 4 tomorrow morning. The scope of those sales will likely play an influence in the type of follow-through we see.


USDA boosted hard red winter wheat supplies by 15 million bushels in its December report, while adding 5 million to durum stocks as well. It partially offset those adjustments by cutting 5 million each from hard red spring and white wheat. The net result was a 10 million-bushel increase in stocks to 654 million bushels, matching trade expectations. The net increase all came from imports into the United States.

Globally, we saw increases in production from Canada and the Former Soviet Union. The net result was an increase in global wheat stocks to 194.90 million metric tons, up from 192.90 mmt previously. We are not in danger of running out of wheat on the global market, with U.S. wheat one of the higher-priced sources.

Wheat prices saw additional losses following the USDA report. Fears of Russian wheat export restrictions are fading in the rear view mirror, but prices remain above levels seen just before the Russian talk started in late November. As such, we likely are vulnerable to additional weakness, although there will probably be times of modest bounces.


Live cattle futures posted a modest bounce in the nearby contracts today, but the tone remains bearish. Packers are said to be offering $162 to $164 per cwt in the Plains, while feeders are asking $170. Last week’s trade was primarily $166 to $168 per cwt.

The packers have effectively pushed the market over, with seasonal weakness in product demand providing little for the bulls to stand on currently. The packers will have a bigger challenge after the first of the year. Demand is expected to rise seasonally once again, although Australian imports will likely fill part of the hole. There’s little weather premium in the market as well, but that’s always an unknown in the Plains. Even so, there are also rumors in the industry of very large cattle being held until the first of the year.

Product movement Tuesday totaled 151 loads, up from 115 loads Monday and up from 148 loads the previous week. Choice cuts dropped another $1.47 to $250.51 to stimulate that demand, with Select cuts up $0.74 to $236.10. That dropped the Choice/Select spread to $14.41 per cwt, down from $16.62 the previous day. Movement at mid-morning today was good at 114 loads on firmer prices. Choice cuts rose $0.17 to $250.68, while select cuts rose $1.51 to $237.61 per cwt.

Feeder cattle saw follow-through selling today, briefly touching the $3 daily limit lower early. Prices firmed off those lows as the fat cattle market found footing, but still posted losses of near $1. The latest CME cash index came in at $241.71 per cwt, down $0.78 on the day and down more than $3 over the past two days.


Lean hog futures firmed modestly today, correcting oversold conditions. Product movement has improved in recent days, but it took lower prices in order to achieve that demand. Wholesale prices firmed the past two days, but were weaker again today. Cash hogs and product prices still continue to trend lower, suggesting that this may be short-term strength in the futures market.

Today’s cash market was mostly steady, although Illinois was steady to $1 lower. The latest CME 2-day lean hog index came in at $88.35 per cwt, up a nickel from the previous day, but down a dime from the previous week.

Product movement was good at 375 loads on Tuesday, with the composite pork product price up $0.64 to $93.45 per cwt. Movement at midday today was good at 304 loads, but the composite product price was down $1.62 to $91.83 on weak ham and picnic prices. It would be the lowest composite price since the first week of February if it holds.

February lean hogs are building support near $84. However, we need to see more strength in the product market to justify sustaining anything more than a bounce in the futures market at this point, with PED virus problems still falling short of trade expectations.

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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