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Closing Comments



Closing Comments


The Federal Reserve released a dovish statement this afternoon, suggesting that it is nowhere close to ending its stimulus program. The Down Jones Industrial Average spiked to a 300 point for the day on the report, with the dollar dropping from its session highs. This would seem to increase the chances that we could see some rebound of money into the broader commodity sector. However, there are many other global factors going on to influence the dollar, which we saw demonstrated in its surge of more than 1000 points higher this afternoon, leaving poised to test 2009 highs.

The Department of Energy reports that ethanol stocks slid to 17.7 million barrels in the week ending December 12, down from 17.8 million the previous week, but up from 15.6 million barrels in the same week last year. Ethanol production rose to a record 990K barrels per day, up from 988K the previous week and up from 928K barrels per day in the same week last year.

The data suggests that ethanol producers used a record 105.1 million bushels of corn in the week ending December 12, up from 104.9 million the previous week and up from 99.9 million the previous year. Estimated corn usage to date is 1.487 billion bushels, up 45 million or 3% from the previous year.

Corn usage to date for the corn marketing year exceeds the seasonal pace needed to reach USDA’s target by 9 million bushels, versus 5 million the previous year. However, that gap is expected to evaporate again early next year.

Trade sources report that 900K metric tons of dried distillers grains and solubles were purchased by users in China last week, with the largest buyer being state-run COFCO. That adds validity to reports that China has approved the GMO trait in Viptera corn. Chinese Vice Premier Wang Yang stated today in Chicago that China has approved imports of Viptera, along with two varieties of soybeans that were awaiting clearance. However, industry representatives continue to say that no documentation of such has been received.

Chinese sources warn that we should not expect to see large U.S. corn exports to China any time soon. DDGS exports should resume, helping to support grind margins, but the industry is already operating at about 105% of capacity, so it’s not necessarily bullish corn demand. Yet, the DDGS business should be supportive for the protein complex.

USDA Secretary Vilsack met with Chinese leaders in Chicago today. The strongest statement he could make was that the two countries are “moving toward an understanding of how we might be able to establish a strategic dialogue on biotechnology.” In other words, they’re getting closer to beginning to talk.

USDA officials confirmed this morning the finding of avian flu in wild birds in the state of Washington. However, they say that no domestic flocks or humans have acquired the disease and do not see it as a market-moving find at this point.

March corn futures continue to consolidate just below their recent highs, possibly forming another bull flag that would suggest higher prices. Areas of resistance eyed by the bulls are layered between $4.22 & $4.26. Upfront demand remains stronger than cash sales.


Soybean and soymeal prices traded both sides of unchanged today as traders attempt to balance strong upfront demand with expectations of a big crop just around the corner in South America. January soymeal traded down to $353.20, approaching major support at the $350 area, at which point it found buying interest.

That helped to support soybean contracts, which managed double-digit gains at one point. However, cash soymeal basis weakened $1 to $5 across key Iowa and Minnesota markets, reflecting emerging weakness in the meal market.

Both soymeal and soybeans ended the day with modest gains that do not instill a great deal of confidence in me. Fundamentally, we have a big crop coming in the weeks ahead from South America, but U.S. farmers are selling at a slower pace than exporters and crushers are seeking to utilize the crop. Supply is expected to eventually overwhelm that demand. Two keys to watch would be soymeal below $350 and soybeans below $10.


Wheat futures found support once again today from possible export restrictions by Russia. Several sources have confirmed that Russia has begun restricting export permits to some destinations, but nobody has been able to determine what those destinations are yet, leaving additional questions. Even so, Russia’s economy is in turmoil, with food inflation a legitimate threat to President Putin’s support, adding validity to moves to restrict exports.

Two sources familiar with the meeting say that Russia’s Deputy Prime Minister Arkady Dvorkovich told exporters in a meeting today that the government was using all informal instruments to restrict shipments. A lobby group stated earlier in the day that Egypt and Turkey were exempt, but that isn’t clear from those who attended the meeting.

Additional support comes from weather models turning colder for Christmas weekend. Confidence remains low, but the winterkill threat has increased for the northwestern 15% of the Plains hard red winter wheat belt, focused on northwestern Kansas, northeastern Colorado and western Nebraska. Much of that region has snow cover currently, but warmer conditions between now and then are expected to erode that protection and the models can’t agree on whether we’ll see a fresh blanket ahead of arrival of Arctic cold.

Traders continue to take profits on Kansas City/Chicago spreads after they held key support at 25 cents. That’s accelerating gains for the hard wheat market. The wheat complex is over-bought and due for a correction, but we can’t rule out higher prices as long as the headlines are flowing out of Russia.


Feeder cattle traded the $3 daily limit lower yet again today, with traders holding long (bought) positions trapped and unable to exit. Meanwhile, their margin calls are rising, leading them to sell the fat cattle and lean hog markets to lower their margin exposure. Fat cattle traded the $3 daily limit lower for much of the morning, spiked into positive territory late morning, before falling back to the daily limit lower late in the regular pit trading session.

Synthetic trade suggested that feeder cattle were still valued at $8 or $9 below futures prices. This suggests that we could see another limit lower day on Thursday. If so, we could easily see follow-through pressure in the fat cattle market as well. The latest CME cash index came in at $235.27 per cwt, down $2.21 on the day. The index is now down $9.72 per cwt from its December 2 record high.

Light cash trade emerged in Kansas for fat cattle at $156 to $157 per cwt on a live basis, down $5 to $7 from the previous week. While chilling, the volume was too light to establish a trend. Tuesday’s slaughter is estimated at 114K head, up from 113K the previous week, but down from 122K the previous year. This week’s kill thus far is estimated at 226K head, up 2K from the previous week, but down 16K from the same period last year.

Chatter in the country suggests that some very heavy cattle are waiting for delivery until early next year. The market also has virtually no weather premium priced into it. Arctic air is expected to bring sub-zero readings back to the northern feedlot region Christmas weekend. Forecast models are not in agreement on moisture with the cold at this time.

USDA is scheduled to release its cattle-on-feed report Friday afternoon. A Reuters’ survey of trade participants reveals expectations that USDA will peg December 1 on-feed numbers at 10.842 million head, or 101.1% of year ago levels. November placements are expected to be 1.796 million or 96.2% of the previous year, while marketings come in at 1.496 million or 90.1% of the previous year.

Tuesday’s boxed beef movement totaled 189 loads, up from 113 loads the previous day and up from 151 loads the previous week. Choice cuts were down $2.64 to $242.88 per cwt, while Select cuts were down $0.42 to $234.25. That narrowed the Choice/Select spread to $8.63 per cwt, down from $10.85 the previous day and down from $14.41 the previous week. Movement at mid-morning today was good at 123 loads, with Choice cuts up $0.41 and Select cuts down $1.71 per cwt.


Lean hog futures felt additional pressure when feeder and fat cattle futures both locked the $3 daily limit lower. That pressure eased as the day progressed, particularly as fat cattle began to trade, but hogs still have their own bearish fundamentals. The cash market is sliding lower and producers fearing even lower prices ahead are pulling hogs forward. Today’s cash market was mostly $0.50 to $1.00 lower once again. The latest CME lean hog index was down another $0.70 to $86.60, its lowest level since February 14 and down $1.75 over the past week.

Tuesday’s kill came in at an estimated 430K hogs, up from 429K the previous week, but down from 435K the previous year. This week’s slaughter to date totals 862K hogs, up 3K from the previous week, but down 9K from the previous year.

February lean hogs settled more than $1 lower, but near session highs. Near-term fundamentals are soft, with a slow slaughter schedule the next two weeks. There’s an expectation that USDA will confirm significant expansion in the hog herd in next Tuesday’s report. However, traders are well aware of USDA’s tendency to throw curve balls and may want to square their positions ahead of Tuesday’s USDA quarterly hogs and pigs report.

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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