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Closing Comments



Closing Comments


The Department of Energy reports that ethanol stocks slid to 17.6 million barrels in the week ending December 19, down from 17.7 million the previous week, but up from 15.7 million barrels in the same week last year. Ethanol production rose to yet another record high of 992K barrels per day during the week, up from 990K the previous week and up from 926K the previous year.

The data suggests that ethanol processors used a record 105.3 million bushels of corn in the week ending December 19, up from 105.1 million the previous week and up from 99.7 million bushels in the same week last year. Estimated corn usage for the marketing year to date is 1.593 billion bushels, up 51 million or 3% from the previous year. Corn usage to date exceeds the seasonal pace needed to reach USDA’s target by August 31 by 12 million bushels, up from 9 million the previous week.

Corn futures were pulled under by a modest increase in farmer sales, weaker soybeans and sharply lower wheat prices today, with money generally flowing out of the broader commodity complex amplifying the move as well. Today’s losses don’t confirm a high, but they are more worrisome in light of the poor outlook for soybeans with a big South American harvest coming.

The longer-term trend remains higher for corn, but the corn market will likely face more struggles ahead if soybeans see additional weakness. USDA’s January 12 crop report needs to feed the bulls to keep this trend going.


Soybean bulls couldn’t find a friend today. Perhaps they had left early for Christmas. The focus was primarily on the supply side of the balance sheet today, which shows better than 400 million surplus bushels here in the United States, with a potentially monstrous South American crop coming. As such, the deferred contracts continue to lose ground to the nearby, which is another bearish sign.

Technically, January soybeans traded within their recent trading range, staying below overhead resistance and holding just above trend line support. A break below $10.2475 on Friday would provide a bearish sign that the complex was breaking down, while a break below $10 would be much more significant. The March contract actually looks a bit weaker, breaking below support at $10.35 today.

Upfront demand is strong, with both exports and crush at a record pace. Prices have been held up by a lack of farmer selling, but the bushels are there, with a big South American harvest looking increasingly likely. It’s difficult to conceive a bullish scenario for soybeans unless USDA has a big surprise somewhere.


Wheat prices came under increased pressure once again today as trade chatter focused on rumors that Russian export duties may not be as large as first feared, keeping some wheat flowing. Sources within Russia report that the duties will likely be a minimum of 50 to 80 euros per metric ton, which would translate into $1.66 to $2.66 per bushel. That would seem to be restrictive, but would allow some wheat to flow. Changes to duties are not expected for another 30 days.

Egypt, which is the world’s largest wheat importer, stated overnight that it believes that exporters are obliged to deliver on wheat contracts for January delivery. However, it also stated that it had alternative sources if exports stopped flowing from Egypt. Cheaper alternative wheat could be sourced from Ukraine, France, Germany, Kazakhstan, Argentina, or even India, with U.S. wheat still priced well above alternative sources.

I’ve been warning of the big price moves that can happen in thin holiday trade and we saw that today in the wheat market. Remaining traders still around tended to line up on the same side of the market, leaving few left to buy the break. Weakness in the broader commodity sector amplified the move. Today’s big losses began to turn the charts bearish, suggesting that we could see follow-through weakness in the days ahead. Unfortunately, we won’t have good volume to test the move until early January, but prices could be much lower by then if the bulls fail to see headline support in the meantime.


The cash cattle market is showing signs of stabilizing after weeks of sliding. Negotiated cash cattle trade opened mid-week at $157 per cwt on a live basis in Kansas last week, before concluding at $160 in Colorado and Nebraska late week. Packers opened at $159, with feeders asking $161 to $162. However, bids quickly firmed ahead of the Christmas break, with trade opening in Kansas at $162 this morning. Bids then firmed to $163 in Kansas and Nebraska as packers tried to find a few more head.

The higher bids are expected to eat into packer margins once again. Those margins had been falling, estimated at losses of $48.50 per head today, up from losses of $113.70 on Monday as product prices rise.

Boxed beef movement rose to 199 loads Tuesday, up from 128 loads the previous day and up from 189 loads the previous week. Choice cuts were up an impressive $3.24 to $242.60 per cwt, while Select cuts were up $1.04 to $231.26. That pushed the Choice/Select spread to $11.34 per cwt, up from $9.14 the previous day and up from $8.63 the previous week.

Movement at mid-morning today was a slow 79 loads, but at firmer prices again. Choice cuts were up $1.17, while Select cuts were up $1.42 per cwt. This week’s anticipated lower slaughter total is believed to be behind the firmer prices for product. Tuesday’s estimated kill came in at 116K head, up 2K from the previous week, but up 71K from the previous year when Christmas was a day earlier in the week. This week’s kill to date is estimated at 231K head, up 5K on the week and up 65K on the year, but slaughter is expected to drop off dramatically later this week, with overall weekly slaughter falling to 400K to 410K head, down from 552K the previous week.

Live cattle futures found modest support from the firmer cash cattle market today, but feeder cattle futures remained under a bit more pressure as demand at the sale barn continues to look soft following the recent break in live cattle futures. The latest feeder cattle cash index came in at $225.03 per cwt, up $0.25 on the day, but down $9.66 on the week.

In fact, the index is down $19.96 per cwt from its December 2 record high. However, most feeder cattle sales dry up for the two-week holiday period, so we’ll have to wait to see where the market is established after the first of the year, but enthusiasm dried up in recent weeks as fat cattle prices fell and corn prices rallied. Breakevens for feeders are believed to be in the $160 to $170s through April.

February live cattle consolidated higher within their recent trading range. Today’s trade in thin volume will be suspect until further tested, but the fact that it was backed up by stronger product prices provides some validation.


The lean hog futures pit reaction to the bearish USDA quarterly hogs and pigs report was muted in thin trade today. Nearby contracts remained under modest pressure, while the deferred contracts bounced following recent losses ahead of the report. Today’s cash market was mostly steady, although they were steady to 50 cents lower in Illinois.

The latest CME 2-day lean hog index was posted at $81.55 per cwt, down $0.99 on the day and down $5.05 on the week. It was the ninth straight trading day with a lower index, with losses over that period totaling $6.96 per cwt.

Tuesday’s slaughter is estimated at 431K head, up 1K from the previous week and up from 246K on the same day last year when Christmas was a day earlier in the week. Slaughter for the week to date is estimated at 866K head, up 4K on the week and up 241K from the previous year.

Product movement Tuesday totaled 413 loads, up from 342 loads the previous day and up from 402 loads the previous week. The composite pork product price dropped to $86.93 per cwt, down $0.59 from the previous day. Movement at midday today was good at 267 loads, although not that impressive for a Wednesday. The composite product price rose $0.12 to $87.05 per cwt.

February lean hog futures consolidated lower going into the Christmas break. First support is at $80, but this market needs to see that stronger demand can keep pork moving as supplies increase and that is yet to be shown to be the case.

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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