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Closing Comments


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Closing Comments


Corn gave in to pressure, fighting the negative pull of soybeans, – ½ (Mar). There is not much news to consider today other than the export report and Argentina weather forecasts. U.S. corn is cheap on the world market, and the hope is that exports will improve. Today’s weekly export sales log pegged corn at 866,900 MT, in the lower half of the range of estimates spanning 750K-1.2 MMT. For the year, corn exports are running 28% behind last year, but exports are a much smaller piece of the pie than with beans. Buyers this week included China, Japan, Latin America and Korea. Related to exports, NAFTA is on the back of everyone’s mind, and the importance for Ag of keeping this trade treaty alive and well. More negotiations between the three trading partners are planned into the January timeframe.


Soybeans felt pressure today from hedge managers starting to unwind long held spreads (long soybeans vs short grains) and weak chart action, with soybeans closing below the moving averages and a multi-month trendline, -11 ½ (Jan). USDA weekly export sales were in the lower end of the range of expectations at 1.58 MMT compared to thoughts of 1.4-2.1 MMT. Soybeans have a ways to go to catch up, running 16% behind last year’s numbers. In biodiesel news, the market is watching to see if the biodiesel tax credit can be reinstated and retroactive. Senator Grassley from Iowa has been fighting hard on behalf of big Ag producing states. Soyoil could prove to be an emerging story, with declining domestic stocks and funds entering short positions, against a backdrop of strong biodiesel demand.


Wheat was able to generate a little short-covering bounce, after descending into new lows, +1 ½ (Chicago March). Wheat was the sole grain to exceed the USDA’s projected range of weekly exports (250K-500K MT), coming in just shy of 600K MT. The market is also keeping an eye on the Drought Monitor, as dry conditions continue to expand in Kansas, Nebraska and Colorado. Kansas City finished +2 (Mar) and Minneapolis +4 ¾ (Mar).


Live Cattle continued down the path of choppy trade this week, regaining what was lost in yesterday’s trade, +.775 (Feb). Open interest was up yesterday by 1,400 contracts, and directional funds are getting short. Not a whole lot of cash trade this week, so futures have been able to hold somewhat steady. With full feed yards, it is hard to envision much of a sustained, late season rally. However, from a technical standpoint, there is a strong trend of futures ascending higher from mid-Dec through the end of the year. Trade will likely get thinner as we get to Christmas, and through the New Year’s holiday.


Hogs saw the Dec contract go off the board today. February futures broke out the latter part of the session for a decent gain, +.825. The pork cut-out fell by almost $5 yesterday, but it did not have a measurable impact on futures – why? According to the Daily Livestock Report, it is thought that traders had already anticipated the seasonal decline and had taken value off the winter/early spring contracts prior to yesterday. Going forward, key metrics to monitor include export demand, retail features, producer currentness (affecting weights) and inventory numbers. Hog daily slaughter numbers are at the highest level all year.


In Other News, the Fed raised interest rates by 0.25%, and plan several more hikes in 2018. Higher interest rates in conjunction with the new tax plan (which is proposed to limit interest rate deductions) may lead to a contraction in land values over the next couple of years. This could be a negative situation for farmers using land for collateral, as more collateral is being demanded for loans. Now may be a good time to start dialogue with the bank to discuss getting ahead of the curve.


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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