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Closing Comments



Closing Comments


Recent Department of Energy reports have reflected a record pace of ethanol production necessitating an estimated 105 million bushels of corn per week, with export and feed usage more than doubling that total. Farmer selling hasn’t measured up to that same pace, providing support for corn prices, which is evidenced in the basis market. Chart signals continue to be supportive as well.

However, gains have become increasingly difficult to sustain as traders begin to worry about when the farmer might begin to sell, particularly with a big South American harvest just around the corner. Corn fundamentals are not as bearish as soybeans, but sustaining a rally above current levels becomes a more difficult argument if weather remains favorable south of the equator and if soybeans come under greater pressure from a big harvest in South America.

March corn matched the July 9 high of $4.1575 before pulling back. However, the day’s trading range was a mere 2 cents overnight and just over a nickel overall for the session as activity slows ahead of the Christmas break. The markets will close at Noon CST on Wednesday, reopening at 8:30 a.m. on Friday, when trade volume will likely be quite thin.

While not a guarantee of future performance, it’s interesting to see that March corn settled higher on the last trading day before Christmas in 11 of the past 12 years. They were higher the first trading day after Christmas in 9 of the past 12 years and steady in another year.


Soybean exports have been flowing out the door at a record pace. I also believe that the next NOPA crush report will reflect record demand from processors for soybeans. Regardless, demand from these two sectors has certainly been stronger than the pace of farmer sales, providing support on the basis market, which has provided strength in the futures market as well.

However, soybeans are much more vulnerable than corn from a big harvest in South America, particularly with a rise in Midwest soybean acres expected next spring as well. As such, rallies are becoming increasingly difficult to sustain as the South American harvest approaches.

Today’s soybean market rallied on chart strength after bouncing off support Monday, but it was unable to penetrate overhead resistance off the November and December highs. As such, gains rapidly evaporated, leading to a mixed close for the day. First key support that needs to hold is at $10.24 for January soybeans, while resistance tomorrow will be at $10.46.

Like corn, soybean prices have a tendency to firm into the holiday, although past behavior doesn’t guarantee future performance. It’s interesting to observe that January soybeans settled higher on the last trading day before Christmas in 11 of the past 12 years, while doing so on the first trading day after Christmas in 8 of the past 12 years, although it settled lower the past two years.


Wheat futures posted an impressive rally this fall, with Chicago rallying near $2 and Kansas City topping $1.50 on expectations that Russia will restrict exports. They are in fact doing so now, but alternative supplies remain more than adequate to meet that demand without any U.S. bushels needed. In fact, U.S. prices are 75 to 80 cents above alternative supplies from Europe and the Black Sea region.

Never fear though, because fund managers are still buying friendly chart signals. As such, Chicago traded double-digit gains again today, although settlement prices fell just short of double-digit gains. Unfortunately, the market has a lot of air beneath it, leaving it vulnerable to a sharp break an some point. The Kansas City/Chicago spread is also weakening again, falling below 30 cents again today.

Wheat doesn’t have as good of track record around the Christmas break as corn and soybeans, although there is a slight bias toward firming. For now, this market has not yet confirmed a top and remains in an uptrend. As a producer, it’s important to recognize that there is not fundamental support beneath the market to support prices at these levels. History tells us that wheat can trade illogically for an extended period of time, but at some point the house of cards will crumble unless the fundamentals change first.


Monday afternoon’s USDA cold storage report revealed that tight beef supplies in the freezer are beginning to build. Beef in the freezer as of December 1 was up 5% from the previous month as consumers look for alternatives, while still 12% below the previous year’s level as slaughter numbers remain low. The trend suggests that demand is shifting to cheaper alternatives.

Estimated slaughter on Monday came in at 115K head, up 3K on the week, but still down 6K from the same week last year. A sharp drop in prices, combined with some stability in product prices, brought packer margins to estimated losses of $83.15 per head, an improvement from losses of $113.70 on Friday.

This week’s overall slaughter numbers are expected to drop dramatically as packers close for the Christmas break. Packer inquiries are quiet this week, with contracted supplies higher and the week’s kill expected to be down substantially due to the Christmas break. However, feeders are generally asking for better money as they anticipate a rebound in packer interest over the next couple of weeks.

Boxed beef movement dropped to 128 loads Monday, down from 185 loads the previous week, but still above the 113 loads seen the previous week and the most active Monday for movement in three weeks. Choice cuts were up $0.79 to $239.36, while Select cuts were up $0.34 to $230.22. A drop in this week’s kill is expected to provide support for product prices.

Movement at mid-morning today was decent at 109 loads, with prices sharply higher as slaughter slows. Choice cuts were up $3.22 to $242.58, while Select cuts were up $1.29 to $231.51. This pushed the Choice/Select spread to $11.06 per cwt, up from $9.14 on Monday.

Feeder cattle would have locked the daily limit lower if the limit had not changed last week. Demand at the sale barn is rapidly eroding as corn prices rise and fat cattle prices decline. The latest CME cash index for feeder cattle came in at $225.70 per cwt, down $4.93 on the day. The index is down $19.29 from its December 2 record high, with losses accelerating. Weakness in the feeder cattle market is weighing on the fat cattle market.


Monday afternoon’s USDA cold storage report revealed an interesting twist. Demand for Christmas hams was much stronger than anticipated, amid high beef prices. Ham supplies on December 1 were down 40% from the previous month and down 17% from the previous year. However, virtually all other cuts are growing in supply. Hams accounted for roughly 20% of all pork supplies in the freezer, but the sharp drop in hams was enough to pull total pork supplies lower, with all pork in the freezer down 7% from the previous month and down 11% from the previous year.

The overall drop in freezer supplies provided modest support for futures today, along with position squaring ahead of today’s USDA quarterly hogs and pigs report. More on that later.

Most Midwest cash hog markets were trading $1 lower, with a few steady to $1 lower. The latest CME 2-day lean hog index came in at $82.54 per cwt, down $1.35 on the day and down $4.76 on the week. The index has posted losses in each of the past 8 trading sessions, with overall losses during that period totaling $5.97 per cwt.

Product movement Monday rose to 342 loads, up from 272 loads the previous day and up from 263 loads the previous week. The composite pork product price firmed to $87.52 per cwt, up $0.69 on the day. Movement at midday today was good at 240 loads, with the composite price up $0.08 to $87.60.

Estimated slaughter on Monday came in at 435K head, up 3K on the week, but still down 5K from the same week last year. The supply of hogs available to the packer continues to trend higher. Packer margins are estimated at more than $20 per head, but they have almost more hogs coming to them than they know what to do with as producers pull supplies forward fearing lower prices.

USDA released its quarterly hogs and pigs report this afternoon. The report overall was bearish, showing more expansion than anticipated by the trade, with the greatest pressure likely in the deferred contracts.

December 23 Quarterly Hogs & Pigs


Trade Est.


percent of previous year

All hogs December 1




Kept for Breeding




Kept for Market




Pig Crop

September to November




Weight Groups

Under 50 lbs.




50 to 119 lbs.




120 to 179 lbs.




Over 180 lbs.





September to November




Farrowing Intentions

December to February




March to May




Pigs per Litter

September to November




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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