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Closing Comments

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Closing Comments

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Corn, along with the rest of the grains, were down sharply early in the session but regained some of the losses, finding weakness with the addition of Chinese tariffs added to U.S. DDG imports, improved rainfall in Brazil and the U.S. Plains, and slowing export demand, -1.  Long liquidation and selling were the talk of the trade today at CBOT, with the USDA production report looming on Thursday.  Futures took a trip down below the 50-day average today and stochastics are starting to lean towards overbought, which could be a sign of ebbing momentum.   Corn by itself will likely have problems without wheat leading the way out.  The EIA released another strong report, showing ethanol production up to another record at 1,049 BPD, besting last week’s record of 1,043 BPD.  U.S. ethanol stocks were lower than last year by 6%.  Until further news emerges, look for corn to continue range-bound. 

 

Soybeans had a wild ride today down 11 ½ from the open, but rebounded to end -2 ¼.  Expectations for the report indicate record stocks next year.  How will the market respond tomorrow?  Unless the USDA has some surprises in store for us, the fundamentals are pointing very bearish, with favorable South American weather being the lead story.  Soybean meal is strongest of the bean complex on the charts and needs to lead soybeans.  There are concerns that Chinese buying is shifting away from the U.S. and going to our southern neighbors, as another day went by without an announced export sale.  Adding to the seasonal nature of this yearly shift, is the uncertainty regarding the new Presidential Administration’s trade policies and posturing with China.  Hopefully, this will all become clearer after the Inauguration and implementation of new policies.  Everyone’s attention is squarely on the USDA production report tomorrow. 

 

Wheat led the way lower today on weakness from favorable weather and talk of corrections to Argentina and Russia’s production numbers for the report this week, with Chicago and KC showing the largest losses, -8 and -6 ½ respectively (MN down only 1 ½).  Brazil made a reversal on their predictions for a big decline in wheat imports, revising the estimate sharply upwards by 440K tonnes a year.  This would be the highest level in three years and comes as a result of surprisingly strong wheat volumes at the end of 2016, with December imports tallying 713,700 tonnes compared to 464,400 tonnes in the same month last year.  Argentina is the main source of wheat for Brazil.  Will the increase in global production be offset by a decrease in U.S. acres planted?  This will be a focus for analysts tomorrow as winter wheat acreage estimates have continued to be reduced over the past few days.

 

Live Cattle finished limit up yesterday with a big spike to the upside.  Today we saw a correction with declining beef wholesale prices and profit-taking by traders, -.400 (Feb).  Fund re-balancing is the topic of discussion this week, and is likely the impetus behind some of the volatility that has been experienced. Packers are expected to offer less for slaughter-ready cattle this week with lower demand and tighter margins.  Investors will be closely monitoring the Fed Cattle Exchange today with 5,800 animals on the sale block.  Look for continued higher in the coming days, preceded by a possible correction. 

 

In Hogs, pork values continue to wane but speculative buying is continuing, with futures +.550 (Feb).  The strong cattle market is playing a role in the continued positive action and influencing thoughts of better pork demand ahead.   USDA pork cut-out values were down to the lowest level since Dec. 19th, losing $1.38 down to $78.02.  Look for continued higher but may get a correction following cattle first.

 

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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