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Closing Comments

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Closing Comments

Corn

Corn tried to reverse higher on Monday following what was seen as a friendly crop report, relative to soybeans and wheat. Spread trading added support for corn, along with a belief that corn needed to hang onto strength to get the acres it needs for the 2015-16 crop year. It’s ability to hold Monday’s lows provided additional support overnight, adding gains to Monday’s strength.

However, traders grew disappointed today when March corn was unable to take out the previous day’s high. Chart watchers began to fret about whether corn could actually sustain a gain, especially with soybeans having a bleak outlook and good yields projected for South America’s first-crop corn.

Sellers emerged to press corn down, even as the outside markets began to break lower on broad-based global economic fears. Spread unwinding is believed to have contributed to today’s weakness, making corn a leader to the downside. Selling accelerated as prices broke through levels of support, tripping sell stops along the way. The $3.85 level is a critical level that needs to hold to avoid another wave of chart related selling, but bulls are few and far between in the corn market, as well as the broader commodity sector.

Soybeans

Soybean prices bounced overnight when overnight trade held above Monday’s lows following the post-report collapse. However, strength in the bounce was never very convincing, with prices eventually pulling back, slipping into negative territory as corn led the way lower. Losses in beans were modified initially by spread unwinding and the fact that beans saw their big losses on Monday. However, prices eventually posted double-digit losses as support gave way.

Soymeal basis firmed in the Midwest today as futures gave way. Upfront demand remains quite strong, which is what is reflected in the cash market. However, the job of the futures market is to anticipate value, with traders now clearly focused on expectations for a huge South American crop, followed by up to a 4 million-acre increase in U.S. soybean area this spring. As such, soybeans do not have a bullish friend right now in the futures pit, and with good reason.

March soybeans are sitting just above $10 at the close today. We’ve already sliced through several layers of critical support on the charts. However, consecutive closes below $10 would likely reflect a significant shift in market sentiment as traders look ahead to burgeoning supplies.

Wheat

Chicago March wheat captured some buying interest overnight when the contract failed to take out Monday’s low. Additional support came from trade reports that Russia is tightening quality inspections to limit wheat exports ahead of the planned implementation of export duties on February 1. Additional support was seen in Minneapolis wheat on trade talk that China had purchased more hard red spring wheat from Canada and the United States.

However, wheat eventually gave way to broad-based selling in the broader commodity and equity markets, with traders focused on the competitive disadvantage U.S. wheat faces amid a strong dollar. U.S. exports are very weak at this point, with plenty of cheaper alternatives. It becomes increasingly difficult to hold wheat when corn prices are posting double-digit loses as well. Wheat may not be as vulnerable as the other markets long-term, but it’s going to be difficult to hold prices if corn and soybeans continue to post big losses amid a strong U.S. dollar.

Beef

A few head of cattle tested the market in Nebraska at $264 to $265 per cwt on a dressed basis today, down from trade as high as $275 last week. Packers were said to be offering $164 per cwt on a live basis in Kansas, with ideas that $166 would likely see cattle move. Last week’s trade in Kansas started at $166, moving up to $168.

Boxed beef prices continue to rise, with Choice cuts now just below last year’s record high. Movement totaled 158 loads Monday, down from 163 on Friday, but still a strong showing for a Monday. Choice cuts were up $1.99 to $258.78 per cwt, while Select cuts were up $2.15 to $250.38. The Choice/Select spread dropped to $8.40 per cwt, down from $8.56 the previous day and down from $9.03 the previous week. Movement at mid-morning today was slow at 73 loads, but on firmer prices again. Choice cuts were up another $1.61 per cwt, while Select cuts were up $0.93.

Live cattle futures tried once again to bounce, but selling returned by late morning anticipating index fund rebalancing at the end of the session. Prices eventually locked the $3 daily limit lower late in the session for the first two contracts, which should lead to expanded limits of $4.50 on Wednesday. We have one more day of index fund rebalancing to get through yet, unless we lock the limit tomorrow and they can’t complete their trades.

Feeder cattle followed live cattle futures lower, with the lead January contract finding support at the $20-day moving average of $220.50 per cwt. A weaker cash market added to weakness as well. The latest CME cash index came in at $232.65 per cwt, down $1.04 from the previous day and down $2.57 over the past two days.

Pork

Today’s cash market was mostly steady, to up to 50 cents weaker in Illinois and in the closely watched Iowa/Southern Minnesota markets as supply continues to exceed packer needs. The latest CME cash index came in at $76.71 per cwt, down $0.69 on the day, suggesting accelerating losses once again. The index has been down on each of the past 21 trading days, with losses over that period totaling $11.80 per cwt.

Product movement slowed to 293 loads Monday, down from 326 loads on Friday and down from 342 loads the previous week. The composite pork product price dropped to $82.82 per cwt, down $1.14 on the day. Movement at mid-day today was decent at 215 loads, and at firmer prices. The composite pork product price was up $0.69 to $83.51 on good demand for hams.

February lean hogs are approaching their contract low of $72.95 per cwt. Additional support tends to come in $5 increments below that level. Downside risk remains the primary threat at this point as the supply of hogs increases faster than demand.

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

Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK involved in trading futures and or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL. This information is provided freely and is NOT in the capacity of a trading advisor. NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. Information provided is not to be construed as an offer to sell or solicitation to buy any commodity or security named herein.

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