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Closing Comments

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Closing Comments

 

Corn in fitting fashion, closed out the year with another session in the red, -1 ¼ (Mar). Fund Managers are heading into New Year’s Day with the largest net short in the grains on record. If adverse South American weather materializes over the next several weeks, will this position come back to haunt investors and create upside market risk that will nudge them to cover their shorts? Look for hedge funds to continue to pour money into commodities in early 2018, as they see this asset class as cheap and having upside value potential. USDA weekly corn export sales were just above the top end of expectations at 1,245,500 MT compared to estimates of 600K-1.2 MMT.

 

Soybeans gained back a portion of yesterday’s losses as traders leveled out some short positions on this last trading day of 2017, +5 (Mar). Weekly export sales were mildly disappointing, seeing that catch-up is needed after a slow start. The USDA pegged soybeans  on the low end of projections at 955K+ MT vs. estimates of 800K-1.5 MMT. Look for the soyoil story to start getting more press as 2018 will offer higher domestic demand based on duties that have been imposed on Argentine and Indonesian biodiesel for the next five years. Biodiesel mandates will require increased domestic stocks, and WASDE may have severely underestimated U.S. soyoil use by 300-400 million lbs, according to AgResource.

 

Wheat received some support from a frigid forecast this weekend for the U.S. Central and Southern Plains. Many of these areas have dry soils and little to no snow cover, increasing the chances of winterkill. Wheat weekly sales were at the top end of the range, coming in at 440K+ MT vs. estimates of 250K-500K MT. In global news, adding to Russia’s strong performance in the Black Sea Region, the Ukraine is also expecting their winter wheat plantings to be up 2.8% in 2018 vs. last year. Chicago – ¾, Kansas City + ½ and Minneapolis -5.

 

Live Cattle fell into the close, despite support found in weights dropping, bitter cold temps across the Central U.S., and a firm cash outlook (Hightower). The February contract had the largest setback, .700. Averaged dressed steer weights were down to 902 lbs from 904 lbs last week, which is 0.66% lower than last year. This is still well above the 5-year average of 893.6 lbs.

 

Hogs fizzled at the finish, although the front month managed to stay in the green, +.225 (Feb). The fundamentals would seem to point to weakness in the future with burdensome supplies dominating the conversation. Slaughter levels in 2018 are expected to be record highs, with pork production continuing at a brisk clip into the 1st quarter. The question begging an answer is – are we near a short-term top?

 

Happy New Year!

 

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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