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Closing Comments

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Closing Comments

Corn

Corn traded in positive territory for most of the day before weakening to close down half a cent on the day. The market continues to try to violate the key resistance at 3.72, but for the third day in a row could not maintain strength into the later hours of trade. A close above 3.72 would signal a break-out on the continuation chart as well as a significant defeat for the overly short funds. With the market continuing to run at resistance, a significant break-out to the 3.79 area seems the most likely scenario, but a return to support at 3.64 could be necessary before 3.72 will give way.

The market continues to see just enough positive information to support light short covering, but overall volume has been light, even considering the time of the year. Today’s positivity was driven by reports that China imported more corn and corn substitutes in 2015 than ever before; 42.35 million tons were imported, up nearly 35% year on year. However, the market is still concerned with the implications of potentially narrowing the gap between internal Chinese and international grain prices. If the reduction is large enough than one would expect imports to drop drastically with nearly 224 mmt of corn becoming competitive to domestic Chinese use, but this same drop could spur Chinese demand allowing the recent strong pace of imports to potentially continue.

Soybeans

Soybeans are trading aggressively sideways as conflicting supply and demand fundamentals keep the market from trending. The US is entering a critical time period where seasonally bean exports sag decisively lower, but in 2012-2014 they did not, causing the USDA to drastically underestimate demand. Will the USDA be low again? With 63.1% of the USDA forecast already shipped, we are on pace to meet USDA expectations, but continued good sales will lead to the kind of carry out disappearance that have made exports exceptional since 2012.

Brazilian weather remains benign as the crop continues through its critical fill period, with areas of intense stress and perfect growing condition both well represented. Observational data continues to suggest a crop somewhere between 96-98 mmt, with the next hurdle being harvest progress if rains linger seasonally later in the growing season.

Crush margins continue to improve from recent lows, up nearly 20 cents from the lows set two weeks ago. Soybean meal remains a critical directional indicator for the oilseed complex, and it has still not decisively broken out in the downward channel that it has traded in since early December. A break-out will be necessary if beans are to retest recent areas of resistance such as 8.92 and 9.10.

Wheat

Wheat continued to test out new highs today despite flagging into the close with the rest of the grain complex. Talk of banning Russian wheat exports as well as unexpectedly cold weather over the weekend in Russia, Ukraine, and China helped the market to continue the recent short covering rally. Despite disappointing wheat export inspections, export shipments are only running 1.3% behind our 5-year average pace. Wheat exports will still be under pressure as weakening currencies such as the ruble and argentine peso force value buying their way, but the long term negative implications of currency devaluation could begin to produce government activity that offsets their international advantage.

Livestock

Cash markets remain volatile following the slightly bearish Cattle-on-Feed report from last Friday. They traded as high as $135 in Texas and $134.75 in Kansas while cash traded down to as low as $130 this past Friday. Weather is going to be dry over the coming week which could cause some choppy to lower trade in the cattle complex. USDA estimated slaughter came it at 112,000 head which compares to 107,000 last week and 113,000 one year ago. Boxed beef cutout values were down 87 cents mid-day yesterday but closed down $1.04 at $223.79 which was the lowest close since January 5th. Overall with the oversold condition and the chance for better demand news in the futures, breaks should be supported.

Even though most of the information remains negative hog futures continue to add to the premium above the lean index price. April hogs are especially vulnerable for a break but so far there hasn’t been any follow through lower. The five year average shows April futures above the lean index by 5.25 cents and currently we are sitting at an 11.8 cent premium. Futures are definitely into the overbought condition and any weakness could lead to a sharp break. Even with heavy hog slaughter numbers coming in at 434,000 head yesterday compared to 384,000 the previous week and 433,000 last year the pork cutout values traded up to $75.40 which is the highest trade since November 12th.

Closing Market Snapshot

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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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