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Water Street Solutions

Water Street Solutions Daily Report 2017.1.16
2017-01-16T02:11

Grain markets were closed today to celebrate Martin Luther King, Jr. Day. 

The topic of discussion this week will focus in a large part on Argentine weather, now that the January Report is behind us. Over the holiday weekend, Santa Fe and Corrientes in the north were hit with another round of heavier than expected storms, which will likely increase flooding across the area. Up to 30% of the soybean acres this year are under “Red Alert” according to the Rosario Grain Exchange. The southern third of the country missed the moisture and ironically is suffering from extreme dryness and heat, with more to come over the next 10-14 days. High temps could reach 110-112 degrees, which historically is not common. 

What effect will China have on ethanol by the end of March?  Officials are floating the idea to raise ethanol import tariffs from 5% to 30%. Unfortunately, this will put seven U.S. cargos in jeopardy of cancellation, as U.S. ethanol will no longer be competitive at that level. CBOT corn futures will feel the pressure, as China is viewed as a potential area of demand growth.

Tomorrow will feature the markets back in action, with the USDA announcing export inspections at 10am CST and the NOPA Crush report coming out at 11am CST.

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.
Water Street Solutions Daily Report 2017.1.13
2017-01-13T02:08

Corn had an indecisive trading day before closing a quarter of a cent higher. Corn continued the pattern of this week with lower most of the session, rally midday, before an unspectacular close near unchanged. Argentina continues to inch toward completion of their planting with the Buenos Aires Grain Exchange showing planting progress at 90.7% complete, up 8% on the week. Bird flu continues to break in Taiwan, where overnight the fourth confirmed case was found resulting in the culling of over 17k birds. It is discouraging to see corn unable to sustain strength as beans pull away in value, but for now tight range seems to indicate that buyers and sellers are satisfied with corn prices where they are.

Soybeans followed through yesterday’s explosive action with more short-covering and fund buying to close 6 cents higher on the day. Next week’s CFTC release will give more detail, but pre-report managed money had amassed shorts to the tune of 114k contracts; the explosive 2-day rally could mean that many of those shorts have been liquidated. A flash sale of 132k mt was announced this morning to unknown destinations (China), encouraging given the surge in price that we have had. Early this morning it was reported that China imported yet another y-o-y record 83.9 mmt of soybeans in 2016, with December marking their 3rd largest import month on record.

Both Kansas City and Minneapolis wheat backed up yesterday’s positive move with another one today. Chicago wheat continues to trade weaker than other wheat classes with Minneapolis still the best looking market due to continued lack of quality protein wheat. Factors currently at play are the US dollar falling over the last couple of weeks, a decline in expectations for Russian export business, and of course the reduced acres from the January crop report. Yesterday’s acreage number marked the lowest number of winter wheat acres in the US since 1901. Over the weekend, the freezing rain could impact the crop but is not currently expected to with some snow cover in place already and the warmer temperatures arriving after the weekend.

Cattle managed to keep the momentum going to the upside this week on the charts, albeit in a more up and down fashion. Factors involved were the weather forecasts and how that might affect the herds and strong sales of U.S. meats. Feeder cattle charts look very similar to the live markets, and current trend remains higher for now. Both markets are overdue for a significant break at any time, but the trend remains higher, though both markets are currently acting a little toppy.

Are hogs building energy for the next wave higher or showing signs of a top? The front months look stronger and look to be building for the next wave, in fact, June and July did close at new recent highs today. The back months like August and October are more in question and carry more of the topping action that one should look out for.



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.

Water Street Solutions Daily Report 2017.1.12
2017-01-12T02:22

In corn, the all-important January USDA report released today was favorable, but not in a big enough way to sway futures, +1 (Mar).  Looking at the numbers, the USDA trimmed back yield to 174.6 bu/acre from 175.3, stocks were reduced from 2.403 bln bushels to 2.355 bln bushels, and production came in at 15.148 bln bushels vs. the last estimate of 15.226.  Ethanol production has also been a big driver in stocks usage.  World corn stocks were not affected, other than changes to the U.S. numbers.  Without adverse South American weather the CBOT will likely continue to trade sideways.  Not to be forgotten amidst all of the report excitement, were two corn sales announced this morning, as the USDA reported a private sale to an “unknown” destination of 253,488 MT and a second private sale of 110K MT to Japan.  However, it is expected that the rate of U.S. corn exports will slow significantly when South America begins its harvest.  Look for corn to continue trading in the present range for the near term

In soybeans, the USDA report provided a friendly surprise and the fuel to power a huge gain, +28 ¾   (Mar).  The report estimates included a soybean yield down from last report to 52.1 bu/acre from 52.5 bu/acre, soybean stocks reduced from .48 to .42 bln bushels, and soybean production trimmed to 4.307 bln bushels from 4.361.  In South America, Brazil soybean production is expected to increase 2 MMT compared to the last report and Argentina is neutral.  Some would argue that Argentina is still 2-5 MMT too high considering acres lost to flooding, but we will have to wait for more definitive numbers to confirm this theory.  Soybeans are always a day away from a 20 point break up or down depending on South American weather.   Keep an eye on the risk for future Chinese cancellations, with strong currency levels being an influencing factor.  Initial resistance for beans is around 10.37

Wheat also rallied on the heels of a favorable USDA report, led by KC (+13) and MN (+12 ¼), with Chicago not far behind, +7 ½ (Mar).  The USDA cut winter wheat acreage to a 108-year low, as the report showed estimated planted acres for 2017 down significantly to 32.4 million acres from the estimated 34.14.  Supplies rose to a 29-year high, with wheat carryout up slightly to 1.186 bln bushels vs expected 1.15, and world wheat carryout increased to 253.3 MMT vs. expected 252.0 MMT.  The year ahead will feature a battle of shrinking U.S. supplies with larger foreign wheat stocks.  On the weather front, maps are showing almost 100% moisture coverage across the southern plains and including NE, helping to erase dryness concerns.

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.

Hogs gapped lower in a sharp move to the downside, before regaining some of what was lost, -1.650 (Feb).  The cattle market has seen extreme volatility the last 18 months and a growing number of cattlemen feel the system is broken.   Algorithm traders are seen as part of the problem, according to Craig Uden, NCBA Working Group Chair.  There is also perceived to be a lack of cash transparency with packer contracts.  The online cattle exchange is helping bring change, but solutions need to happen soon for many producers who are on the ropes from losses they have incurred. Cattle feeder profits are in the green for the seventh week in a row.  Weather has been detrimental to weight gain and has slowed transportation to market.  Some farmers prefer not to open the doors to the barn with frigid temperatures.  Retail beef prices have fallen about 10% since last July.  Economists are predicting an increase in production of 3-4% which will increase consumption.  The large supplies will continue to weigh on prices.



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.
Water Street Solutions Daily Report 2017.1.11
2017-01-11T03:50

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.



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.
Water Street Solutions Daily Report 2017.1.10
2017-01-10T02:26

Corn traded sideways, finding weakness today in a bearish South American weather outlook and a Brazilian monthly crop report which raised crop estimates to 84.5 MMT from 83.8 MMT last month, -1 ¾ (Mar). Additionally, ethanol is trending in more of a negative vein, with crush margins at the very low end of the nine month range (however, plants are still profitable even at this lower level). On the plus side, corn had a couple of USDA sales announcements this morning of 241,600 MT to “unknown” and 130K MT sold to Taiwan. It is hard to be bearish corn (with the large yield and supply already baked in to the market) with position re-balancing, the impending acreage war with soybeans, and wheat’s emerging positive position helping to boost the complex. Corn shipments are much stronger than last year – 17.9MMT vs. 10.1 MMT. Sluggish demand into the summer due to Brazil’s bumper crop could put a damper on things. Everyone’s attention is squarely on the USDA production report on Thursday

Soybeans took up where they left off yesterday, regaining the balance of Friday’s losses, +8 ½ (Mar). Although there was bearish news from Brazil regarding their production estimates increasing, and expectations for a negative USDA report on Thursday, beans were able to push up and touch resistance before backing off modestly. The analysts average soybean production prediction for this Thursday’s USDA report is for an increase from last report from 4.361 billion bushels to 4.374, and soy yield from 52.5 bushels/acre to 52.7. Chinese buying interest will now start shifting to our southern neighbors. But, until the South American soy production can be clarified with actual results, the market may trade sideways in a range. Near-term resistance is around 10.16 ½ in the March contract

Wheat futures were mixed today with Chicago and KC – ½ and – ¼ respectively, and Minneapolis posting a small gain, +1 ¾ (Mar).  Applying pressure was a more favorable outlook from forecasters who indicated that there was adequate snow cover to protect plantings from the extreme weekend temperatures. Fund re-balancing is continuing this week as shorts look to level out their portfolios, while expectations for the Thursday crop are bearish for all three complexes. As mentioned yesterday, wheat planted acres in the U.S. last year were at the lowest level since 1970. Will another corrective shift occur this year? If so, acres planted in the U.S. will be down to levels not seen since the 1890’s, and one would think this would provide impetus for better chart action in the future. On the export front, Japan is tendering for 162,777 tonnes of milling wheat to source from the U.S. and Canada. Keep an eye on support at 4.23 ¾ and resistance at 4.30 ¾.

Live Cattle gapped higher today with a big bar on the charts, finishing +3.00 (Feb). The strong showing was led by strength from buy stops and more short-covering following yesterday’s fund-led rally, according to Reuters. Similar to grains, the annual re-balancing of positions has been a key driver this week. Investors will be closely monitoring the Fed Cattle Exchange tomorrow with 5,800 animals on the sale block. A smaller beef supply early in the year is helping keep the trend positive.

Hogs futures were supported by Monday’s higher cash and wholesale pork prices according to traders, +1.300 (Feb). Cash prices are predicted to be $1 CWT higher. The USDA export report on Monday documented a record high in November, at 509.9 million lbs. Other government date showed an increase in all categories of pork wholesale values, excluding ham. Ham demand has tailed off after Christmas with grocers featuring other pork cuts combined with chicken and beef. As with all exports, keep a watchful eye on the Dollar for future price direction.



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.
Water Street Solutions Daily Report 2017.1.9
2017-01-09T04:23

Corn made a nice recover after a poor start to finish positive, +2 (Mar).  Things got off to a good start with a sale reported by the USDA to an “unknown” destination of 112,500 mt.  This was followed by a stellar USDA weekly inspection count of 875,562 mt for the week ending Jan. 5th, compared to expectations of 700K.  Corn is following wheat now ironically, and if wheat has legs, corn will not likely be lagging lower. We are probably in consolidation mode until 2017 fundamentals take over.  It will be interesting to see the battle of the acreage war, because if 3-4 million acres go to beans this year, it will be hard to be bearish corn.  Look for corn to continue positive with fund position re-balancing before the report on Thursday. 

Soybeans touched Friday’s low before making a nice correction today, +10 ½ (Mar).  This in spite of an overall positive South American weather outlook.  Bolstering the soybean cause today was the USDA weekly inspections, announced at 1.457 MMT for the week ending Jan. 5th, vs. the expected 1.25 MMT.  All eyes are focused on the Thursday production report, with expectations for soybean yield to be up over the last report and stockpiles significantly higher than last year at this time.  If the acres swing toward beans in 2017, the odds go up that we come back to earth in the markets.  Soybeans did not have a new sale announcement this morning, as it has been a very dry spell going back until before Christmas.  Look for the next short-term resistance level at 10.07 with support around the 9.84 level. 

Wheat has taken the pole position, with the other grains looking for direction from its positive chart posture.  Much of the strength seems to originate from short-covering and index fund re-balancing this week, with Chicago +4, KC +5 and MN +6.  The USDA reported a private sale of 120K mt of HRW wheat sold to an “unknown” destination.  Last year’s wheat acres planted were the lowest since 1970.  If a couple more million acres are shaved off again this year, we will be looking at the lowest planted acres since the 1890’s.  This combined with a short fund position could give us some fireworks.  There is also a potential demand story developing in India to watch.  On the weather front, a band of heavy rains developing for later this week and early next week could eliminate much of the moisture deficits across the driest areas of the Midwest.  Keep an eye on KC if it can climb up above 4.75.

Live Cattle showed weakness early but finished strong, +1.700 (Feb).  Most would agree that factors are trending bearish.  Wholesale beef values fell on Friday, and are expected to influence cash cattle prices later in the week.  Retailer buying has slowed after the holidays and demand may have been hurt in the Southeast and East where they got a dose of winter precipitation.  The market is overbought and keep an eye out for a test of support on the horizon.  In Argentina, it was reported beef production declined 2.67 million tonnes, but will show positive growth in 2017 due to more favorable policies put forth by President Macri after taking office in December of 2015.  The policies have encouraged growers to cut back on slaughter to increase herd size so they can capitalize on the elimination of export taxes and other restrictions.

Hogs are showing a bull flag on the charts with a current modest setback, -.225 (Feb).  Some traders believe that the recent cash rally supporting futures, may run out of steam soon.  However, packer margins in the Midwest as well as more limited supplies are providing support.  The pork cut-out price has been affected by the decline in ham buying by supermarkets after the holidays.  Investors seem to be focused on technical selling and profit taking.



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.
Water Street Solutions Daily Report 2017.1.6
2017-01-06T03:13

Cornunable to sustain four consecutive sessions of gains, followed soybeans down to finish the week, -3 ¼ (Mar). The CBOT futures felt some pressure from the rising Dollar following the U.S. Jobs Report. The USDA announced export sales well below expectations of 700-900K mt at 429,200 mt, as the holiday week had a measurable impact – 67% below the previous 4-week average. Managed funds were estimated at 90K contracts short after picking up about 10K yesterday. EIA showed another record week of ethanol production using about 110 million bushels of grain to accomplish the task. Informa Economics penciled in Argentina’s production down slightly from the previous estimate of 36.5 mmt to 36.0 mmt. The Buenos Aires Grain Exchange showed corn planting progress at 82.9% complete compared to 71.3% last week. The continuation weekly corn chart posted the highest weekly close since last June. Trade above yesterday’s high should give an opportunity for $3.75 in March, until then its continued consolidation.

Soybeans took a sharp downturn, - 17 ¾ (Mar), as the tug of war continues between the bulls and the bears. Even with weather uncertainty in South America, the looming large supplies and poor export report won today’s bout in the March futures arena. Export sales were announced this morning - a paltry 87,500 mt vs the expected 750K-1.2 mmt. Related to the weather story, it has been the tale of two countries – Brazil is almost out of the woods as many beans were planted early with good subsoil moisture, barring an extremely wet pattern moves in. Because everything was planted early, they should experience very good harvest conditions, which will in turn bump them up a 2-3 weeks on planting safrinha corn. Logistical issues in Brazil seem unlikely at this point, as they have more ports, railways, and better roads than in years past. Argentina conversely, has worse news as they did not have the head start on planting, and then experience dryness and heat. Now, they are dealing with large scale, heavy rains. Informa Economics came out with their number for Argentina production at 55 mmt, down from the previous 56 mmt. March continues to trade either side of the 200-day moving average. March support should be just below at $9.90.

Wheat is dealing with competing forces of a positive Dollar and reports of winterkill from the cold temperatures across a swathe of the growing region. Chicago and KC were down -3 and -1 respectively, while Minneapolis was +1 ½ (Mar). The USDA announced a private sale of 100K mt of HRW wheat sold to “unknown” destination for 2016/17. This was welcome news as the announced export sales were off the predicted 200-500K mt at 183,700 mt. Informa Economics announced their numbers for Argentina production at 15 mmt, up from the previous estimate of 13 mmt. Look for index fund re-balancing next week with significant shorts in Chicago remaining in the market. Minneapolis put in the highest weekly close on the continuation chart since July of 2015.

Cattle continued to show weakness as it did yesterday, -.250 (Feb). The market is overbought and keep an eye out for a test of support on the horizon. Today’s relapse re-affirms a developing peak reversal that could be large in scale. There is potential for a long liquidation as long positions are the highest percentage since last May. Investors are also a bit cautious after weaker cash prices this week, likely due to abundant supplies and sufficient packer inventories.

Hogs also trended lower under stress from bearish forces including a warmer forecast stateside as well as a declining Mexican peso, -.900 (Feb). Today’s close helped to confirm the weekly reversal and the notion that a short-term top is in. Investors appear to be focused on technical selling and profit taking.



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.

Water Street Solutions Daily Report 2017.1.5
2017-01-05T02:55

Corn had another positive trading day closing towards the top of its recent range at 3.61 1/4. EIA ethanol production came out today, up +15k barrels to nearly 1.04 mbbls per day; this increase was especially encouraging since it still led to an overall draw down of stocks by 5k barrels to 18.68 million barrels. The U.S. Farm Bureau put out a statement fully supporting PEOTUS Trump’s pick to lead the EPA, Scott Pruitt, as the previous administration overstepped its bounds with regulations that had a negative impact on farming. In other news, a potential drier outlook for Brazil over the coming weeks could provide resistance to corn, as this dryness should allow safrinha corn in Brazil to go in 2-3 weeks early. This timing should allow maximum yield potential for this shorter season double crop corn, offsetting potential losses from excessive rain in Argentina.

Soybeans backed off today by 2 ¾ cents after yesterday’s strength, as the market continues to wrestle with the prospects of an excellent Brazilian crop and a shrinking Argentine one. A crop scout in Argentina, Michael Cordonnier, has expressed concern that not all soybean acres will be planted this year due to the rains and flooding. More than half is in the northern part of the country. He feels in a worst case scenario, up to 5% of the soybean crop may not be planted. However, conditions outside of the flood zone have been rated good to excellent and are expecting a great yield. In addition, Brazilian production could easily offset the issues of their southern neighbor. Early yields out of Mato Grosso have been better than expected, while northeastern Brazil should remain dry and hot in the near term. Dalian soybean and soymeal futures traded higher today, while May palm oil gave up -42 yuan. Keep a watchful eye on the Dollar as continued weakness could be an important supportive factor to exports over the coming months.

Wheat extended gains today in another strong session finishing up nearly 8 cents in both Chicago and KC Wheat, while Minneapolis lagged slightly up 5 ¾ cents. With the potential for the lowest amount of winter wheat planted in the last 50 years, wheat prices seem to finally be reacting to a potential domestic shortage of acres in 2017. With large fund shorts, strength out of this market could surprise, especially considering the still burdensome over 50% stocks to use ratio that we have domestically. Several countries are in for wheat tenders including Jordan, Japan, Morocco and Ethiopia. The U.S. became more competitive towards the end of the year as a global exporter, and needs to be able to capture more of this market in 2017. Ukrainian farmers planted 20 million acres of wheat compared to 19.3 million last year, but crops are at risk over the next few days, with temps reaching -20C with insufficient snow cover in some areas.

Cattle gave up some of yesterday’s gains after a back and forth session closed near its lows, down .60 in the February contract. The futures market is overbought, but beef prices are still strong. Despite this intermediate strength, the market still feels ripe for a correction with good weather and large supply starting to stifle momentum at these prices. In an interesting note, heifer placements continue to increase month of month in the nation’s feedlots; historically, this lack of retention usually signals the end of a cycle of supply growth and a slow balancing between supply and demand normally ensues.

Hogs continued to regain from Tuesday’s dramatic losses in today’s small range day that closed .27 higher in the February contract. Keep an eye on Mexico buying, as a sharp decline in hams could be on the horizon if Mexican demand changes. Near-term supply and demand fundamentals would seem to indicate futures could be prone to a sharp downside correction. That being said, a run to $70 has not been negated yet, but fundamental and technical support above that mark in February seems unlikely as of today.

With the New Year’s Holiday, all regular USDA weekly reports will be delayed one day from their customary release this week.


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.

Water Street Solutions Daily Report 2017.1.4
2017-01-04T02:47

Corn trended positive for the 4th consecutive day, +4 (Mar). In addition to soybeans’ strong action, factors providing bullish support include better than expected ethanol demand, a large fund net short position and anticipation of strong index fund buying. Will this provide the impetus for a further rally in the face of the huge stockpile of supplies? Corn sales are up sharply over this time last year, as they now equal 62% of the USDA forecast compared to the five-year average of 57%. Keep an eye on March corn support at 352 ¼ with resistance targets near 361 ½ and 367 ¼.

Soybeans were able to make a big rebound from the lack of new buying interest yesterday (Turnaround Tuesday effect in a short week?), finding support on concerns in Argentina of flooding on up to 1.7 million unplanted growing acres, +20 ¼ (Mar). There were no new sales announcements this morning, as the most recent was inked before Christmas on Dec. 21st. The USDA crush report released yesterday afternoon indicated November was at 170.7 million bushels compared to 176.0 in October, in line with expectations. Oil stocks were slightly higher than expected at 1.777 billion lbs, while meal stocks were higher by 27K to 362 TMT. Look for support at 995 ¼ and resistance in the 10.15-10.20 area, with short-term indicators showing oversold.

Wheat, coming off an extremely poor finish yesterday, rallied today with the other grains: Chicago +12, KC +12 ½, and Minneapolis +5 ½ (Mar). Helping the cause were the weak Dollar and the USDA conditions report yesterday afternoon, which showed winter wheat ratings lower across the board in most states, especially Oklahoma. Keep an eye on winter wheat conditions to continue to play an important role to giving market direction in the days and weeks ahead. Ukraine wheat production is reported to be at 23.5 million tonnes according to UkrAgroConsult, compared to the USDA estimate of 27 million tonnes. Accounting for this discrepancy is the loss of winter wheat acreage due to the lack of sprouting in planted areas. Look for support in the 4.00 -4.02 ½ zone, as we may not see significant changes before the USDA report on the 12th.

Live Cattle futures were able to regain some of yesterday’s losses aided by fund short-covering and positioning in anticipation of this week’s cash prices, +.800 (Feb). Cattle seems to be under siege by bearish forces, both technically and fundamentally. On the technical side, the reversal and follow-through technical selling confirmed a near-term top. Friday’s technical reversal was confirmed by the move yesterday below Friday’s lows. Fundamentally, weather is also on the side of the bears as the southern plains are predicted to enjoy warmer and drier conditions than normal in the coming days. Also, there are nearly 23,000 more cattle for sale this week than last week. Typically, beef demand slows after the 1st of the year, as consumers focus on paying off debts incurred from the holidays. Look to the online cattle auction as an important barometer to price direction later in the wee.

Hogs had a great run to end 2016, but showed signs of a technical top yesterday, with a large move to the downside. However, hog futures regained some of the losses today, +1.100 (Feb). According to traders Tuesday’s better cash prices and short covering in the markets helped to boost trade. (USDA pork cut-out values declined from $81.13 to $80.11 on Friday, with diminished post-holiday demand.) As with the other commodities, keep an eye on the Dollar, as exports could be negatively affected if the Dollar continues to show strength.

In Other news of interest, the USDA reported that at least 1/3 of principal farm operators are 65 years or older, with the average age of the American farmer at 58. Farmland owners are expected to transfer 93 million acres in the next 5 years, which equates to about 10% of total U.S. farm ground.
 
With the New Year’s Holiday, all regular USDA weekly reports will be delayed one day from their customary release this week.

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.

Water Street Solutions Daily Report 2017.1.3
2017-01-03T01:43

Corn, having baked in the negative news related to supplies, etc., looks to be poised to move in a positive direction, +3 ¾ (Mar).  Corn prices could be heavily influenced by what happens with wheat this time of year and will look to those markets for price direction. Corn futures would be significantly higher if not for both its own ending stocks as well the surplus in wheat. Today’s USDA Weekly Inspections report was bearish for corn, showing 636,684 mt for the week ending Dec 29thcompared to the expected 900K mt. The USDA production report is also just right around the corner on the 12th. Look for buyers to be much more active than sellers (as funds are short around 110K contracts) and for acceleration if we are able to get above 3.65 March.

Soybeans dropped below the 100 bar moving average today, -9 (Mar). The strong dollar got everyone’s attention today, as it gapped higher. What effect will this have on exports and the possibility of increasing cancellations, come later in January? Soybeans were trading positive in the overnight but the surging dollar and questions about Brazil weather put a damper on things, as March futures traded to a 6-week low. USDA Weekly Inspections were in line, as 1.578 mmt were announced vs. the estimated 1.5 mmt. U.S. biodiesel production is a bright spot, with October usage showing 142 million gallons, up over September’s 135 million gallons and much higher than last year’s 106 million. This was also reflected in the much larger 537 million lbs. vs. 408 million pounds of soybean oil used. In South America, Brazil had phenomenal planting and growing conditions for soybeans this year, however the concern now is over the heavy January rains possibly hampering the mature crop in a timely matter. Keep a watchful eye on future’s action this week, as soybeans appear to be headed lower.

Wheat, of all the grains, is the strongest on the charts, with re-balance buying to cover shorts the topic of the New Year. Today, wheat traded sideways, with Chicago –1 ½, KC -4 ½, and Minneapolis + ¾. The strong dollar is of concern, as it gapped higher today. The dollar does not seem to matter as much as one would expect regarding the typical inverse correlation with exports. USDA Weekly Inspections were in line with an announced 395,417 mt for the week ending Dec. 29th, compared to the expected 400K mt. On the global stage, Algeria is looking for 50K tonnes of the soft variety for March (trade sources believe it could be much larger), while the Egyptian Supply Minister indicated that their stockpiles are adequate for five months, after their recent rash of tenders over the last three weeks. A weekly close above 4.26 will signal higher to come.

Live Cattle, according to the technical indicators, is ripe for a correction. Friday’s sharp reversal is a strong signal that a short-term peak is in place. Today, futures’ trade appeared to confirm this narrative, with February futures -1.175. There is wide support though to the idea that overall beef demand has increased over last year. Slaughter is up 5%, and yet wholesale beef prices at the end of the year were higher than last year. Cash prices were a solid $118 across the board on Friday. Typically, beef demand slows after the 1st of the year, as consumers focus on paying off debts incurred from the holidays. Keep a close eye on market action this week, and also on the dollar, as its ascent could spell trouble for beef exports in 2017.

Will Hogs put in a short-term peak soon? The first signs may have shown up today as February futures finished down sharply -2.650. Hogs showed strength at the finish line of 2016, in spite of an over-bought condition and bearish supply fundamentals - 4% above last year according to the Hogs & Pigs report released in late December. In other news related to hogs, the Peoria Union Stockyards shuttered its doors after 140 years in business, with the last load of hogs sold on Dec. 23rd. Peoria was the last of the major hog auction terminals that dominated the Midwest in the 1950’s, according to Ron Plain a University of Missouri livestock economist. He was quoted as saying, “losing these markets make it tougher on smaller producers who use markets like Peoria because they never sell many hogs at a time and it’s costly hauling them to packing plants.” With many U.S. hog farms consolidating, a growing number of hogs are now being sold to “mega packers”, signaling the end of an era.

With the New Year’s Holiday, all regular USDA reports will be delayed one day from their customary release.



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.
Water Street Solutions Daily Report 2016.12.30
2016-12-30T01:56

Corn, decided it would be nice to end the year on a positive note, +2 ¼ (Mar). Corn has been chopping sideways (with big demand balancing big supplies), resisting the pull lower from soybeans. USDA corn export sales announced this morning were right in line with expectations, weighing in at 958,600 mt vs. the estimated 750K-1.2 mmt. There are several demand factors that are rising to prominence including higher than expected livestock supply, strong exports, and great ethanol margins. In the calendar spreads, March continues to lead price vs. deferred months, a positive sign for the market. Key support areas to watch for March corn are at 3.48 and 3.46.

In Soybeans, the bears won today’s final round in a wild finish, with South American weather uncertainty and a declining dollar unable to wield influence, -8 ¾ (Mar). In export sales, the USDA reported 974,100 mt compared to the expected 1.0-1.5 mmt. This is the first time in recent memory of underperforming soybean exports, but the holidays have contributed a certain amount of volatility to the week. On that note, no new export sales were reported this morning by the USDA. March soybean direction will be decided between a break-out above 10.28 or a drop below 9.97.

Wheat, finished 2016 on a positive note, buoyed by strong export numbers and re-balancing of short positions with Chicago +3 ¼, KC +3 ¼, Minneapolis +2 ½ (Mar).  Wheat funds have been extremely short and demand from traders is picking up. The USDA reported 568,100 mt in export sales vs. the expected 200K-500K mt. Is wheat ready to make a recovery, based on its cheap and oversold condition? Keep an eye on support levels around 4.02 ¾ and 4.00 ½ in Chicago. A weekly close next week above 4.26 will signal higher to come.

Live Cattle, which are in an over-bought condition, succumbed to weakness today (after a great start) with a large move and close to the downside, -1.900 (Feb). Will this be the beginning of a new trend to new lows? The action early next week will help to determine its fate, as strong demand and tight supplies have helped provide support in December and through the holidays. Cash sales remained stellar, as offers were more in the $118-121 range compared to $114-116 last week. And, export numbers have continued to be solid in spite of the strengthening Dollar (index is at a 15-year high). Trade below today’s low will signal the possible beginning of a break in the cattle futures.

Hogs, while having a stellar December, could find that large supplies will weigh down the market in 2017. But, unlike its cattle counterpart, hog futures crossed the finish line with a flourish, +1.500 (Feb). It will be critical for exports to continue to show growth, and short-term the trend is positive. Positive action is also supported by continued strong packer profits and solid pork demand. This, in spite of the Hogs and Pigs report that was released the end of last week, which showed a significant increase in the number of animals that are expected to come to market between Dec and May. Traders may be advised to proceed with caution as there will likely be volatility ahead. Next week’s February target will be a weekly gap at 67.150.


The CBOT will be closed Saturday through the New Year’s holiday, and reopening on Monday at 7pm CT.

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. 
Water Street Solutions Daily Report 2016.12.29
2016-12-29T03:19

Corn was able to get back in the win column today with a small gain, +1 ¾ (Mar).  Because the record world supply and an anticipated large South American crop has already been baked into the equation, it is hard to see a path that takes corn below 3.42 (Mar).  There are several demand factors that are rising to prominence including higher than expected livestock supply, strong exports, and great ethanol margins.  China also announced that they plan to increase the production of biodegradable plastics and animal feed made from corn to exhaust their surplus stocks over the next three years.  Additionally, the Chinese plan to increase farm acres by 3.2 million acres, by diligent land management practices and increasing cultivation.  The EIA ethanol weekly report today showed production -8K bbl to 1.03 million bbl/day, with ethanol stocks -377K at 18.68 million bbl.  Crude stocks were up, while gas stock were down.  Look for support at the 3.44 ½ and 3.42 ¼ levels and resistance at 3.57 ½.

Soybeans have shown volatility back and forth with large moves and ranges that can be typical with thinner trade this time of year. Futures were down moderately, -3 ¾ (Mar).  Although South American weather has been very favorable, there is still enough speculation and uncertainty with Northern and Eastern Brazil’s warm, dry trend to hold off new sellers for now.  There were no new export sales reported this morning.  Presently, March soybeans are finding support at the 10.16 ¾ and 10.13 ½ levels.

Wheat was able to make a turnaround after yesterday’s correction, and was positive across the board: Chicago +3 ¼, KC +5 ¾, Minneapolis +3 ¼ (Mar).  Is wheat ready to make a recovery, based on its cheap and oversold condition?  Recent action and the overflowing world supply make it difficult to not succumb to bearish sentiment.  However, wheat funds are short over 100K contracts and demand from traders is picking up.  The export front has been quiet the last 24 hours other than Egypt announcing they bought 235K tonnes of Russian and Ukrainian wheat for shipment in Feb. and Morocco looking for U.S. and EU wheat.  Although Russia has dominated many offers recently, the rise in the Russian ruble against the dollar and euro will start to have a negative effect for them.  Rebalancing may favor wheat - keep an eye on support levels at 3.99 ¾ and 3.94 ½ in Chicago.

Live Cattle is hard-charging for the 2016 finish line, up again to a new high, +.575 (Feb).  Futures are overbought in the near-term, but the solid chart action and tighter supplies are providing support. Optimism regarding rising cash prices has helped to drive the action this week.  Cattle sales yesterday at the online auction were in a range of $115-116.75, and it is expected that cattle owners will hold firm with an asking price of $120 on Friday.  The beef market is benefitting from favorable profit margins at both the retail and wholesale level, which encourages both parties to feature beef as the preferred selection.  Export numbers have continued to be solid in spite of the strengthening Dollar (index is at a 15-year high). 

Hogs exhibited choppy, sideways action today, down slightly -.450 (Feb).  How long will hogs be able to maintain upward momentum, with bearish supply news weighing in for the Spring?  It will be critical for exports to continue to show growth, and short-term the trend is positive. Positive action is also supported by continued strong packer profits and solid pork demand.  This, in spite of the Hogs and Pigs report that was released the end of last week, which showed a significant increase in the number of animals that are expected to come to market between Dec and May.  The USDA estimates hog slaughter this Saturday to be 300K head, compared to only 5,000 last Saturday before Christmas.  Traders may be advised to proceed with caution as there will likely be volatility ahead. 

Due to the holidays, the USDA export sales report will be released tomorrow morning at 7:30am CT.  The CBOT will have a normal trading session tomorrow and will be closed Saturday through the New Year’s holiday, and reopening on Monday at 7pm CT.



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.
Water Street Solutions Daily Report 2016.12.28
2016-12-28T03:45

Corn rallied nicely yesterday along with the rest of the grains, likely the result of end of the year short covering and possibly mixed weather reports from South America.  Managed funds bought around 6,000 contracts on Tuesday, leaving them at approximately 95,000 net short when trading started today.  However, today was a return to corrective action, with March corn futures -6 ¾.  The ethanol story has continued to be a bright spot, and in that vein it was reported that Elite Octane will be moving forward with plans to construct a second ethanol plant in Atlantic, IA, that will produce 120 million gal/yr and add 49 new jobs to the local economy.  The EIA report was delayed until Thursday this week, and the export sales report will be announced at 7:30am CT Friday. Expect short-term support for March corn at 346 ½ and resistance at 352 ¾ and 355.  

Soybeans gave back some of the big gains from yesterday’s trade which was driven by technical and fund buying, -7 ¾ (Mar).  Tempering optimism is the Dollar, as once again it resumed its sharp ascent up the charts.  The strengthening Dollar is adding weakness to all the grains, as it makes it more difficult for exports to compete in an already competitive arena.   And, South American weather, although not perfect, is still favorable and is not giving any real cause for concern at the present.  Argentina’s biofuels industry group said that 2016 biodiesel production will hit new records, with a 50%+ increase over last year’s levels.  This is due mostly to government policy changes to encourage the use of biodiesel and electric generation in public transportation systems.  Look for March support at 998 ¼ and 990 with key resistance at 1026 ¼.  

In Wheat, was yesterday a one day apparition? The markets were energized yesterday with fund buying, but today returned more to the listless, bearish trade mode we have become accustomed to, with Chicago -8, KC -9 ¼, and Minneapolis -7 ¾.  It is noteworthy that Chicago in particular has a very large short position.  This week has been quiet on the export front with several countries in for smaller quantities of wheat including Jordan, Colombia, Indonesia, Bangladesh, and even the UN (30K mt) for a donation to several African nations. India’s wheat output for this year may improve to 88-89 million tonnes from 86-87 million tonnes due to an increase in planted acreage, according to the director of the National Collateral Management Services.  Keep an eye on a support level at 404 with key resistance at 413 and 419 ¼.

Live Cattle returned to a bullish demeanor, vaulting upward to a new high, +1.375 (Feb), with an assist from short-covering following the recent rise in wholesale beef values.  Prices are expected to be higher in the cash markets this week, and all eyes will be watching the online cattle auction for price direction.  Prices last week were around $115-116, but this week most asking prices are expected to be closer to $120.  There are 24,000 more cattle for sale this week than last week.  A key gauge to monitor will be the size of this week and next week’s slaughter, and also carcass weights, which will give an indication of the position of cattle feeders in the feedlots across the country.  Export numbers have continued to be solid in spite of the strengthening Dollar (index is at a 15-year high). 

Hogs keep churning out positive vibes in the face of a bearish environment, climbing steadily +.350 (Feb).  The action is supported by continued strong packer profits and solid pork demand.  This in spite of the Hogs and Pigs report that was released the end of last week, which showed a significant increase in the number of hogs that are expected to come to market between Dec and May.  Cash prices will likely remain steady the rest of the week.  The average packer margin is $55.45/head, which is up from $47.80 a week ago, according to HedgersEdge.com.  Traders may be advised to proceed with caution as there will likely be volatility ahead.

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.
Water Street Solutions Daily Report 2016.12.27
2016-12-27T01:39

Corn was able to carry momentum throughout the day along with the other grains, +9 ¼ (Mar).  Most of Argentina received the advertised rains over the weekend, with rain totals of 2-4” common.  However, southeastern Argentina was missed, which accounts for 10-15% of the growing area.  Although this seems to not be a game-changer, it did provide support today in the light-trading holiday environment, which can often lead to exaggerated moves.  The USDA announced weekly inspections at 970,506 mt for week ending Dec. 22nd vs. 875K estimated.  Expect short-term support for March corn at 346 ½ and resistance at 352 ¾ and 355.

Soybeans had a technical bounce-back today (getting back up over the 100-day moving average) after last week’s free-fall, +26 ¾ (Mar).  In this 4-day, holiday-shortened week, there are several factors to be watching: end of year and new year money flows, January futures First Notice Day on Friday, USDA January crop report looming in a couple of weeks, and the always discussed South American weather conditions.  USDA weekly inspections were once again in line with 1.709 mmt announced compared to the expected 1.60 mmt.  The supply outlook is bearish and there were no new export sales this morning.  Look for March support at 998 ¼ and 990 with key resistance at 1026 ¼.

Wheat carried strength from the overnight into today, as it benefited from a bounce related to technical correction of its oversold condition, rocketing +16 (Chicago March).  KC and Minneapolis came along for the ride with KC +12 ½ and MN +6 ¾.  USDA weekly wheat inspections announced today were also positive, with 520,975 mt coming in against the expected 400K mt.  However, most news last week was not friendly, with Putin proclaiming his expectations for an even larger Russian crop, the EU and Argentina raised estimates, and India plans to back away from wheat imports.  Keep an eye on support for March at 346 ½ and resistance at 352 ¾ and 355.

Live Cattle had their second straight day of losses following long liquidation and last week’s bearish USDA Cattle on Feed data, -.300 (Feb).  As the Obama Administration winds down, it is taking up the fight on behalf of U.S. beef producers on a decades old ban (1989) by the European Union regarding hormone use in American beef.  Our “beef” with Europe is that the embargo is not science based and violates international trade obligations.  The U.S. intends to relaunch the fight including possible tariffs on European goods, as the belief is that it is more about politics and market access. Fully 90% of the fed cattle in the U.S. receive a growth hormone, and hormones are also widely applied to cattle in 20 other countries.

Hogs were able to fend off early weakness and finish positive, +1.550 (Feb).  The Hogs and Pigs Report  added to the narrative of abundant supplies, as it showed inventory of 71.5 million (up 4%), market hogs of 65.4 million (up 4%), and breeding up 1% at 6 million.  To keep the rally going, the bulls will need to be fed some friendly news.  Catalysts driving the bullish action have included declining open interest with short covering combined with multi-year price lows in October.  Also adding favorable news is USDA data showing less than expected stockpiles of pork cold storage.  The Feb-June spread has blown out so traders may be advised to proceed with caution.  Supply is ample and packer margins are high ($52.65/head).  There will likely be volatility and the market may be headed for a turndown.

In Other news, bird flu is starting to get more global attention as multiple countries are confirming outbreaks.  The Chinese Ag Ministry reported that more than 55,000 birds have been culled in Xinjiang province, Germany’s Lower Saxony government said they have also started culling 55,000 birds, and India with 2,500 in the eastern part of their country.  South Korea is employing armed forces to aid in destroying another 1.6 million birds within 24 hours.  Seventy-eight percent of South Korea’s culled birds are egg-laying hens, which is definitely tightening supplies.
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.
Water Street Solutions Daily Report 2016.12.23
2016-12-23T12:43

We'd like to take a moment first off to wish all of our readers a safe and very merry Christmas. Thanks so much for your continued readership. Best wishes to you and yours for a festive holiday season.


Corn remained under the key 100 day moving average for the 4th consecutive day, - ¼ (Mar).  Futures will likely continue in range bound trade for the next 2-3 months, until we can create a future with a crop more in the 160 bu range – the carryout stockpile is smothering any bullish news that attempts to present.  Support is at the 3.35 area with resistance at 3.65.  The USDA announced a private sale this morning to “unknown” destinations of 110,800 mt of corn.  The U.S. remains in the top spot as the most competitive source of corn, but will be hotly pursued by its South American counterparts come spring.  Ukraine raised their corn export estimates by over a million mt.  Ethanol continues to produce and is still offering great profitability at 80-90 cents/bu, which is at the high end of range of the past few months.

Soybeans continued their long liquidation mode today, -4 ½ (Jan).   The market is down over 50 cents on the week, and the January options expired today (below the 100 day moving average of 9.92).  It is also fairly widely expected that the Jan. 12th report will increase soybean yield to 53 bu/acre.  The question after the first of the year will be – Can soybeans muster any kind of a rally with overshadowing negative technicals and improving South American yield potential?  The rains in Argentina have been just as good as advertised with more on the way for the weekend.  So far, Argentine soybean planting progress is at 75.8% complete, and their Ag Ministry is estimating an increase of around 250K acres in plantings over the previous forecast.  Yesterday, the South Korean state run fishery announced a tender for 90K mt of non GMO soybeans (tender to close on Dec 26th).
Wheat was unable to muster up any motivation to break out of a range, down across the complex: Chicago -2 ½, KC -1 ½, Minneapolis –4 (Mar).  Like corn, this will likely continue to be the pattern wheat will find itself in for the near term.  The negative pressures working against building any kind of momentum include a strong Dollar, large funds holding a very large short position, the rest of the grains trending bearish, and continued expansion of global wheat inventory.  Argentina is 58% harvested and they are raising expectations to a yield of 15.7 mmt from previous predictions of 14.9 mmt.  India also raised expectations in their corner of the globe, pegging planted acres to increase from 64.1 million acres to 68.8 million acres.  However, they are expected to still import wheat through the next marketing year.  Putin also came forward with a prediction that Russia will have a bigger crop than previously expected.
Live Cattle remains in a positive trend, but had a modest setback today, -.500 (Feb).  Traders are wary this rally has more risk due to the overbought condition and moderate weather.  Cattle owners are not in a mood to push cattle this week, with the February contract carrying large premiums to the expiring December.  Cash cattle has continued to demand strong bids, reaching $116 on the southern plains.  These strong cash prices have supported the futures.  It was expected that there would be a loss of interest in beef for the post-holiday delivery period, but instead demand has remained strong.  A noteworthy milestone was achieved today as the CME live cattle contract reached a six-month high.  The USDA report today showed Cattle Marketings during Nov at 117% vs estimated 116% (highest in 10 years), Cattle Placements 115% compared to the expected 112%, and Cattle on Feed 99% which was in line with predictions (lowest in 20 years).
Hogs futures reacted negatively to the report today, falling -1.500 (Feb).  The Hogs & Pigs Report was perceived bearish vs expectations as they came in at 104% of last year compared to the predicted 102%.  Kept for Breeding was at 101% vs 100.3% expected, while Kept for Market was above the expected 102.1% at 104%.  Bearish for April hogs, was the Sept-Nov Pig Crop at 105%.  The bulls will need to heed caution if exports slow with the abundant supply.
The CME grain markets will be closed on Monday in observance of the Christmas holiday.
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.
Water Street Solutions Daily Report 2016.12.22
2016-12-22T02:46

Corn is sticking to the same narrative today, still trading in the low end of a broad range of $3.40 to $3.75, finishing flat (Mar). Corn does not have a compelling enough story of its own to overcome bearish soybean forces and the glut of supply coupled with favorable South American growing conditions - in spite of the positive ethanol story and the U.S.’s pole position as the most competitive exporter for global corn sourcing. On that note, corn did find support today from a USDA reported private sale of 100,400 mt to Mexico and USDA announced export sales over expectations (1.251 mmt vs 800-1.1 mmt). It was also reported that China’s November imports of ethanol were down 48% from last year, but overall for the year are up 51% (essentially all from the US).

Soybeans were in long liquidation mode today, down sharply -12 ¼ (Jan). Traditionally, the week before Christmas experiences a measure of volatility as trade thins. A last level of support to monitor for those of a bullish mindset, is the 100-day moving average at 992. Export sales announced today were larger than expected at 1.813 mmt vs 1.1-1.4 mmt, but were not enough to bolster trade. In addition to South American weather, other negative forces weighing in are the potential of another yield increase by the USDA on the January 12th report and farmer interest in expanding soybean acreage in 2017. China’s November imports of soybeans were up 6% over last year, with U.S. imports increasing 32%, Brazilian imports decreasing 66%, and Argentina increasing 44%.
Wheat once again played follow the leader (soybeans), down across the entire complex: Chicago -2 ½, KC -1 ¼, Minneapolis -4 ½ (Mar). Managed fund traders, who are short 92K+ contracts, are in position to round out a very profitable year. Exports announced today showed that wheat is at the bottom of the expected range (298K tonnes vs 300-500K tonnes). USDA exports for the year are estimated to be up 26%. Russia lowered its export estimate for 2016/17 wheat exports by .5 mmt as a result of increased competition with Australia and Argentina.  The Ukraine raised their projection of this year’s total grain crop by .2 mmt.
Live Cattle remain in a positive trend, but traders are wary this rally has more risk due to the overbought condition and moderate weather. February futures were up a solid +.575. Traders had been expecting lower beef prices for post-holiday deliveries this week, but instead were greeted with solid demand. The closely watched online exchange sold fed cattle from $112-114, up $2-4 over the previous week. Cattle owners are not in a mood to push cattle this week, with the February contract carrying large premiums to the expiring December.  Tomorrow, the USDA will release its cattle on feed report at 11am CT.
Hogs were in sideways mode heading into the home stretch before Christmas, -.175 (Feb). Cash prices were basically unchanged with most processors having adequate supplies heading into the weekend. Packer margins have been amazingly strong, reaching an estimated $48.90/head, compared to $37.40 a week ago. Factors providing uncertainty include concerns of higher revisions for the report tomorrow, plus a warmer weather outlook. The USDA will release the quarterly hogs and pigs report on Friday at 11am CT.
The CME grain markets will close early tomorrow at 12:05pm CT and will be closed on Monday as well for the Christmas holiday.
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.
Water Street Solutions Daily Report 2016.12.21
2016-12-21T02:27

Corn has been trending bearishly taking its cue from soybeans, lower for the 5thconsecutive day, -3 (Mar). The market has traded below both the 50 and 100 day moving averages, and will likely remain range-bound in the foreseeable future. It is unlikely that funds will want to initiate a larger short position this late in the year, as the net short is around 80,000 contracts. The U.S. has been in the driver’s seat as the most competitive exporter, but expect South America to be in hot pursuit come Spring. The weekly EIA ethanol report came out today, showing that production declined slightly from last week’s record of 306 million gal/week to 305 million gal/week (still the 2nd highest ever). Strong production is expected to continue due to solid profit margins and a robust export program. Ethanol stocks were virtually unchanged. Look for corn to continue its broad range trade this winter of 3.40 to 3.75.

Soybeans made an important reversal (although small) from the close below 10.18-10.20 range yesterday, +1 ½ (Jan). This is significant, as a move to the downside a couple cents below yesterday’s low, would have been a strong bearish signal from a technical standpoint. The USDA announced a sale to China this morning for 132K mt of soybeans. The key factors to be monitoring heading into year-end are South American weather, the fluctuation of the dollar and end of year positioning (in a thin holiday trading environment which can cause volatility). Daily charts have entered “over-sold” territory on the indicators which may help to stabilize price, but for now Jan needs to get back above 10.20 to threaten the bears.

Wheat has been rather listless in the trade recently, unable to find a market story to latch onto. The entire complex was down today: Chicago -3 ¾, KC -3 ½, Minneapolis -1 (Mar). Now that we are into the holiday trade with lighter volumes, it is not likely there will be any big surprises or narratives to change direction. Egypt bought another tender of 360K mt of wheat that was distributed as follows: Argentina 120K mt, Russia 180K mt and Romania 60K mt. The U.S. is becoming more competitive with its wheat export contenders, and hopefully will be able to sway some of these sales in 2017. Taiwan bought 93.1K mt of U.S. wheat for Feb/Mar. Adding to the already over-flowing yield numbers, South Africa estimated 2016 wheat production at 1.876 mmt, 110K mt above their last prediction. But, demand does seem to be ramping up with a bevy of countries looking for cargos including, Egypt, Jordan, Philippines, India, Colombia, Indonesia and Bangladesh. While sustained selling in the winter wheats isn’t being found, neither is ongoing buying. Look for continued consolidation for now.

Live Cattle’s hook reversal yesterday was a bearish development, but that did not seem to influence the CME today, as trade trended north, +.725 (Feb). Futures are experiencing unexpected optimism this week despite their overbought condition, with impressive gains all week in box prices, reduced show lists, and asking prices back up in the $115 range for cash cattle.  Cattle are expected to move and transactions to be created through the end of the week, with large premiums of the Feb over the expiring Dec contracts. Related to exports, American beef is considered the best by the majority of premium buyers. However, the post-election dollar appreciation, due partly to the Fed increasing interest rates, will be an obstacle in the coming year and will actually encourage imports. On Friday, the USDA will release its cattle on feed report at 11am CT.

Hogs had their first setback in a while yesterday, but gained back a chunk today, +.900 (Feb). The market has been surging forward, but now appears to be entering the seasonal slowdown that is expected this time of year, with packers having sufficient inventories and curtailing production. Packer margins have been stellar, as they were estimated today at $47.80, up from $39 a week ago – leaving some to second guess whether it is a good idea to shutter plants for back-to-back holidays? Factors providing uncertainty include concerns of higher revisions for the report on Friday, plus a warmer weather outlook. The USDA will release the quarterly hogs and pigs report on Friday at 11am CT


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.
Water Street Solutions Daily Report 2016.12.20
2016-12-20T03:32

Corn trading was light overnight and sessions are thinning as we are approaching the holiday, -3 (Mar).  March corn is back down now to support in the 3.45-3.50 area.  Corn recently tested and held the 100 day moving average, but momentum indicators have flipped and indicate possible bearish moves ahead.  With corn not having a compelling story of its own beyond good demand, beans have become the dominant market influencer, and they did not provide positive support today.  A Brazilian ag consulting firm, Agrural, has pegged corn crop production up 33% over last year’s crop, but with much more ideal conditions this year.  Weekly export inspections were slightly below expectations yesterday, but overall corn shipments are up substantially over last year, 15.3 mmt vs. 8.5 mmt. Look for corn to continue its broad range trade this winter of 3.40 to 3.75.  

Soybeans broke sharply below support at 10.18-10.20 today, down -16 ¼ (Jan).  The question now is if sellers extend losses tomorrow confirming bearish shift.  The key threat heading into the end of the year is speculative long liquidation selling.  Adding to the uncertainty, there were no new USDA sales announced this morning and favorable South American weather continues to point to record stocks ahead.  News from Vietnam that they will halt DDG imports for 60 days, also added to the bearish mindset.  Thinning trade is adding to volatility this final week before the holidays. Daily charts have entered “over-sold” territory on the indicators which may help to stabilize price but for now Jan needs to get back above 10.20 to threaten the bears.

Wheat traded in a range today, unable to take the lead on its own with the other grains down: Chicago -1 ¾, KC -1 ¼, and Minneapolis -2 (Mar).  It was reported that Egypt put in a tender for a January shipment for an unspecified amount of wheat.  It was a battle between Argentine and Russian offers, with Argentina winning the lowest honors this time around.  U.S. wheat was not offered as part of the tender.  Argentina appears to be getting aggressive with wheat offers, having a good crop under their belt.  The strengthening Dollar and record world ending stocks are not helping bullish sentiment in the complex.  The frigid weather across the middle of the U.S. this past week (without much snow cover) has continued to cause concern about potential winterkill, which could show up in the Spring. While sustained selling in the winter wheats isn’t being found, neither is ongoing buying. Look for continued consolidation for now.

Live Cattle has continued to impress with solid demand, but sustained a small setback today, -.425 (Feb).  USDA boxed beef cut-out values have continued to support, closing 76 cents higher yesterday.  Cash prices are back in the asking range of $115 with smaller show lists this week, and most cattle owners are not in a hurry to move cattle with February contract carrying large premiums to the expiring December.  There are 12,000 fewer head of cattle for sale this week than last week.  The Fed Cattle Exchange will once again serve as a barometer for cash price direction, with 5,000 cattle for sale tomorrow morning.  The USDA will release its cattle on feed report on Friday with average estimates of 98.5% on feed, 112.3% placements and marketings of 116%.

Hogs have left us wondering whether they are ready to put in a top, and today they are showing the first signs of weakness, with profit taking and soft cash prices weighing down the CME contracts, -2.100 (Feb).  Potential negative forces working against the current optimism are the record weekly slaughter last week, talk that ham prices may be maxing out, and a break in the cold weather.  USDA pork cut-out values have remained strong, up 88 cents from the end of last week.  This Friday, the government will release its quarterly hog report


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.
Water Street Solutions Daily Report 2016.12.19
2016-12-19T02:53

Corn followed soybeans’ lead again today, down -3 (Mar).  The USDA weekly inspections were under the expected 900K mt, coming in at 769,800 mt for the week ending Dec. 15th.  But Japan helped with a private sale of 128K mt of corn for the 2016/17 marketing year.  Even though the Dollar has continued to strengthen of late, the U.S. still remains the most competitive source into late winter.  Argentina has received the much anticipated rains that have been predicted over much of their critical growing acres with more expected this week.  It will be important for them to continue to receive follow up rain, but in the meantime this helped to reduce the level of crop stress.  Managed money is estimated at about 70,000 contracts short, which is in line with expectations. Corn was able to bounce of inter-day lows at technical support.   

Soybeans pulled the entire grain complex lower today, mostly due to positive news related to Argentine weather, -15 ¼ (Jan).  They have still held support above the critical line in the sand at 10.20.  However, soybean inspections continued their dominance over expectations for another week, with the USDA tabulating 1.731 mmt compared to 1.65 mmt.  Exports and Chinese buying are the dominant reasons why beans have continued to defy the fundamentalists in the face of massive yields/supply and favorable South American weather.  In that vein, it was reported by the USDA this morning of another private sale to China of 264K mt.  The declining value of the Chinese yuan is playing a major factor in Chinese importers looking to lock in the price of U.S. soybeans and booking freight.  This will translate into less of a chance of them canceling and rolling sales to South America (as has been feared), as it will be much more costly. January must keep closes above 10.18 for the bull run to remain intact.

Wheat, like corn, road lower on soybeans’ coattails, with Chicago -4 ¼, KC - ¾, and Minneapolis -3 (Mar).   Wheat also had another strong inspection showing with an announced 478,213 mt for the week of Dec. 15th, vs. 400K expected.   The extreme cold in the plains and Midwest has created some winterkill concern, but CWG doubts that much widespread damage has occurred.  The Commitment of Traders report on Friday showed spec buyers bought 25,000 contracts vs. the expected 5,000. Russia is experiencing a lower export total this month with SovEcon citing a strong Ruble and poor weather conditions at Black Sea ports as the bad actors.  But, they are still performing at a brisk clip, with exports above last year’s totals to-date.  Additionally, poor French yields are helping the Russian cause, with Morocco having to turn to them this year to supply the difference.

Live Cattle continues to surge forward toward resistance in the range of $116-118, ending up +.575 (Feb).  While traders expected lower prices for post-holiday deliveries, they have been surprised by the increase in demand.  At this time, futures are selling at a premium to cash prices.  For the week of Dec. 17th, packers processed 599K cattle, which was 2.2% more than last year and produced 2.8% more beef, according to the USDA.

Hog futures on Friday left everyone wondering whether they were at the end of the run or the beginning of the next leg to $70?  It appears the latter is the direction of choice, as the February contract pushed to a new high, +1.400.  Cash price were steady to 50 cents lower per cwt, possibly due to harsh weather over the weekend pushing deliveries into today.  Pork packer margins declined to $43.85/head, down from $44.55 on Friday.  The USDA estimated last week’s slaughter at a record 2.544 million head, 1,000 more than the previous high of a couple weeks earlier


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.
Water Street Solutions Daily Report 2016.12.16
2016-12-16T02:28

Corn has been up slightly on the week (due mostly to the transition from Dec to March contracts), and was able to hold its ground today, - ¼ (Mar).  Export sales have been strong, at 58% of the USDA estimate for the year, which is above normal.  Will the Dollar continue its rapid ascent on the charts?  It will be watched closely, because although the U.S. is considered the most competitive global sourcing alternative, the Black Sea is close on our heels, and a strong Dollar will not help the situation.  Last night, South Korea was in for another cargo of corn (likely U.S.).  Informa lowered their 2017 corn planted acreage estimate to 90.15 million acres from 90.84 million acres.  The U.S. filed a complaint against China regarding improper administration of the reduced-import tariff program, which limits U.S. export potential. Technically March continues to trade in the middle of its range with nearby resistance at 3.70-3.73.

Soybeans added on to yesterday’s gains, +7 ¾ (Jan), after getting a nice bump early from a good showing by beans on the Dalian overnight, a new export sale, and firming basis levels. It is always a positive to start the day with a USDA reported sale – this time to an “unknown” destination for the 2016/17 marketing year.  Speaking of “unknown” destinations, China is only utilizing 65% of its oilseed crush capacity.  This should continue to drive demand next week, as crush margins in China are just under three year highs and there is a high probability of Chinese currency continuing to depreciate.  Putting a little bit of a damper on the positive news was confirmation of weekend rains making their way into position in Argentina, if this fails to materialize look for renewed strength in next week’s holiday trade.  A close below 10.18 would signal a potential end to the bull-run while a close above 10.40 would indicate a potential break out of the bull flag and stretch toward upside targets of 10.80 and 11.11.

Wheat futures were set up for a poor weekly close, but were able to muster a late flourish, with Chicago flat, KC +2, and MN +6 ½ (Mar) .  The recent Dollar gains are making it difficult for the U.S. to compete on the global stage in wheat, especially taking into account the glut of supplies.  But, today the Dollar was down, and there was not a significant force to drive prices lower.  Informa released their estimate of winter wheat acres planted at 33.21 million vs 36.13 million last year, a significant reduction.  On the international front, Australia’s wheat harvest is 75% complete, while Argentina’s is at 57%. Believe it or not, Minneapolis posted its highest front month weekly close since July of 2015 thanks to the market demand for quality.

Live Cattle futures, while slightly overbought, are in a position to continue to leverage the upside into the new year.  Today they continued to trend bullishly sparked by short-covering, +2.075 (Feb).  Demand has been good for post-holiday deliveries of beef cuts in spite of lower expectations this week, as there has been a surprising $3 rise in box prices.  In cash cattle, there is an wide bid/ask spread of $110/$115, following light sales last week.  Cattle owners seem to be fine with carrying over inventory to next week, with freezing temperatures and languishing performance.  On the export front, American beef is considered the premium quality on the market.  However, similar to its grain counterparts, the post-election Dollar surge is not helping the cause and may encourage imports. Look for $116-118 to be good resistance for live cattle.

Hogs have been looking for a near-term peak with the lowest weekly exports of the year, but instead demonstrated the unpredictability of the markets by exploding to a new high, +2.30 (Feb).  This is impressive action considering the large supply of all meats, but the recent jump in ham prices is also giving support and igniting renewed hog-buying interest.  Wholesale pork prices followed hams, jumping $2.44 per cwt.  Average pork packer margins were pegged at $44.55/head compared to $39.45 a week ago. The slaughter tomorrow is predicted to be 340K head vs the USDA estimate of 259K head last Saturday. Technically today’s breakout is either the end of the run or the beginning of the next leg toward $70. Monday’s trade will decide which


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.
Water Street Solutions Daily Report 2016.12.15
2016-12-15T01:48

Corn couldn’t extend its recent winning streak, finishing -5 ½ (Mar). Export sales came in well above expectations at 1.516 mln mt. December corn went of the board yesterday at a 10 cent discount to March. While the US dollar continues its tear, US corn continues to hold the most competitive export spot with Argentina vying for position past March. Ethanol profitability is helping cash bids in many places, however the grind pace looks to be adding to the ethanol inventory build. US poultry is looking to continue to expand which adds to the corn demand as they eye potential Asian demand due to bird flu.

Soybeans continue to hold strength despite fundamentalists calls for these pricing being too high. A heavily sold US farmer in the old crop has lightened selling pressure on breaks and the South American farmer is reluctant to let go of hard assets on currency fears. Today’s export sales report for soybeans were exceptional at 2.008 mln mt – well above the trade expectations and was bolstered by a flash sale of 132,000 mt of soybeans to China. The NOPA crush report for November saw their member’s crush 160.75 mln bu, a couple mln fewer than the market anticipated. Soy oil stockpiles came in just below expectations. Rains are still on deck for the driest parts of Argentina. Technically Jan is continuing to hold above the 10.20 support and is tightening its trading range. Close below 10.18 would signal a potential end to the bull-run while a close above 10.40 would indicate a potential break out of the bull flag.   

Wheat seems to have been most susceptible to the surging US dollar with Chicago -8 ¾, Kanas City -7 ½ and Minneapolis closed -2 ¾. Export sales came in just above expectations at 531k mt. Recent demand is helping the market from falling apart amid the rising US dollar. UK farm ministry expects their 2016 wheat crop to be off 12% from last year. Russia’s ag minister says the country will be the world’s top wheat exporter this season as it has expanded its port capacity and infrastructure in remote areas.

Live Cattle have been running into technical resistance but have not found coordinated selling on breaks. Feb futures finished -0.425. From a technical standpoint they seem to be trying to muster another stab higher, despite the typical unfriendliness of December price trends. Today’s low needs to hold. Fed Cattle Exchange sales have ranged from $108-111 – just over $1 higher than last week. General packer demand has been light.


Hog prices in the Midwest were steady as packers prepare for a large Saturday slaughter. Futures saw a wide trade range today, poking up through resistance at 62.425 and finishing +0.625 in Feb. Cold weather and wintery conditions are making it more challenging to the pigs to plant but dealers are expecting a softening of bids as plants slow down for Christmas and New Year’s holidays. 


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.
Water Street Solutions Daily Report 2016.12.14
2016-12-14T03:29

Corn recuperated from early weakness to finish +1 (Mar).  The market will be watching if March corn can work up through 3.64 on a closing basis.  The EIA ethanol report is usually the event of the day on Wednesday, and it was announced to no one’s surprise that production is at an all-time high at 801 million gal/wk compared to last week’s 778 million gal/wk.   Producers have been incentivized by ethanol margins sustaining the highest levels in two years, averaging $1/bu and more.  Two competing forces in the market include bullish strong exports driving demand, while gasoline usage has been bearish (4% below last year).  Ethanol stocks were also up to 801 million gallons vs 778 million gallons last week, but still well behind last year’s 854 million gallons.  It is thought that the strong export market will diminish the typical Dec-Feb stock build up, which would then require very robust production next spring in order to keep pace preparing for the summer driving season. March will encounter upside resistance in the 3.67 to 3.73 zone.

Soybeans have been hanging out just above the critical support area of $10.20 and it has been viewed that a close below this could open the door for a sell off.  Today did not feature any positive news (no export announcements this morning) that proved to be game-changing, as soybeans fell –4 ¼ (Jan).  News came out yesterday from China that the government has temporarily shut down 6-8 crushing plants in Dongguan to reduce suffocating air pollution.  This resulted in Chinese meal futures rising to highs not seen for several months as crush margins have surged.  Malaysian palm oil futures were higher also, resulting from a release by their Board which showed production and stocks lower than anticipated.  Another more recent variable added to the mix is the resurgence of Indian soybean production, which has nudged soybean meal prices lower, bringing India back to competitiveness in Asian markets. The question remains as to how this will impact South American and U.S. meal exports, but obviously will have an effect. Jan upside targets of 10.80 and 11.00 in play but the market needs to regain strength and hold above 10.18-10.20.

Wheat has traded higher the last several days, finding support from concerns of winterkill from frigid temperatures in the Plains (that also lack snow cover).  Today Chicago +1/2, KC +4 ¾, and MN +3 ½.  On the Russian front, Ag Administration confirmed that a record crop of 72M mt is in the books (on par with the USDA), as well as a record overall grain total of 117M mt.  Last year, Russia’s exports totaled 25M mt.  The U.S. is becoming more competitive with its Black Sea counterparts, but still was not able to score much if any of the recent global business announced.  It has been reported that India imported 200K mt of wheat, composed of 50K mt Russian and the balance from Ukraine.

Live Cattle had a modest setback today, -.275 (Feb).  The futures market has confounded many, as forecasters were in agreement coming into this week that prices would be decline.  The pendulum swung the other way Monday and Tuesday, as market bulls bought steadily, seemingly based on fundamentals with beef demand remaining surprisingly high, box prices increasing in price daily, and unexpectedly small show lists.  The online fed cattle action today is expecting higher prices than last week.  This will set the tone for the rest of the week and has really become a barometer that is closely watched.  Tomorrow carcass weights will be released, and this is a closely monitored gauge as to the position of cattle feeders in feedlots.  The last report showed steer weights 2# lower, and still 6# over last year.

Hog futures managed to closed incrementally higher, +0.025 (Feb) as the market consolidates following its recent explosive run.  Is the premium of February futures to cash too high? The ham market has experienced a turn lower and could signal a near-term top.  Hams declined $3.74 yesterday to $73.51, compared to $78.05 last week.  Cash hog prices were steady across the Midwest, supported by bitterly cold weather that impeded the flow of pigs to processors.  Farmers typically don’t like to open the doors to their facilities in order to keep out the cold air, as the cold tends to trim back animal weight gain.  Packer margins are still strong at $39/head but down from yesterday’s $40.60.  Because of this they are trying to draw in as many hogs as possible as they close in on the Christmas and New Year’s holidays.

Outside markets focused on the FOMC Policy Statement which indicated that the labor market continues to strengthen and that economic activity has been expanding. The committee decided to raise the target range for fed funds rate to ½ to ¾ percent. Fed Chair Yellen noted the expectation for GDP growth to continue through 2017. Their projected fed fund rate is 1.4% by the end of 2017 and 2.4% by the end of 2018. The US dollar traded higher and crude oil lower on the news. 


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.
Water Street Solutions Daily Report 2016.12.13
2016-12-13T02:27

Corn continued its steady gains, pushing above resistance at $3.61, + ½ (Mar).  Today was relatively quiet from a news standpoint, with no new export sales announced, etc.  Managed money is still short about 70,000 net corn contracts.  If the market gets above 3.64, fund managers will pay close attention.  The star performer yesterday was ethanol, which rose to two year highs.  Ethanol cash margins are very attractive, averaging over $1/bu in the Midwest.  The market is also keeping a pulse on South American weather, where Brazil looks terrific, but Argentina is still leaving the door open to uncertainty.  South American weather is by far the biggest potential story with market impact potential, followed by other factors, i.e. inflation expectations and increasing global demand.

Soybeans gained back most of what was lost yesterday overnight, but this was neutralized today, as beans traded both sides of unchanged – 3 (Jan).  Oil and meal were also lower, there were no new sales to China to report, and Argentina has light rains in the forecast – thus, beans did not have a positive story to draw on today.  It has been a balancing act between the strong Chinese demand story with tightening meal market versus the large yields and positive South American planting, daily weighing against each other.  It has been reported that Chinese officials have ordered six crushing plants to stop operation in efforts to clampdown on air pollution.

Wheat led the way among the grains for most of the session, but finished mixed with Chicago + ¼, KC + ½, and Minneapolis – ½.  A notable difference this week, is the amount of business that has been announced on the global stage from a variety of locations – including Tunisia, Saudi Arabia, Algeria, Ethiopia, Jordan, Indonesia, Bangladesh, Nigeria, to name a few.  A couple of narratives to follow include, frigid temperatures in the western plains that will be lingering for most of the week and the fact that U.S. wheat is becoming more competitive around the world and may start winning some business.

Live Cattle, after a break out day yesterday to a new high, moved bullishly forward, +1.025 (Feb).  Cattle appears to be adhering to the cardinal rule of commodity trading – “When it is obvious, it’s got to be wrong.”  There was wide agreement among forecasters that futures would be down this week, and possibly in a big way.  There is no evidence that this is the case over the last two days.  Traders have corrected the overbought condition and there is the possibility of a bounce to $115+.  Cash prices were expected to decline, but the outlook has changed due to box prices being higher instead of lower, and show lists were steady instead of higher.

Hogs finally put on the brakes today after bumping into resistance at around 62.40, following six consecutive days of strong gains, -.425 (Feb).  Feb hogs will have to prove that they can get through resistance at 62.425.  The movement of livestock to market has slowed due to cold temps and snow and ice blanketing regions across the Midwest.  The average pork packer margins were down an estimated $.45, from $41.05/head to $40.60/head.  As packers prepare to pare back production heading into Christmas, cash hog prices are likely to top out.  The issue to watch will be significant surpluses without notable help from exports in the coming weeks.



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.
Water Street Solutions Daily Report 2016.12.12
2016-12-12T03:42

Corn was able to maintain its chart position today, finishing slightly positive, + 1 (Mar).  USDA weekly corn inspections were on the light side, as 860,927 mt vs 1.15 mmt were reported this morning, however higher than last year.  The December USDA report last Friday showed ending stocks in the states unchanged, and was basically a non-event for the markets.  This will likely not be the case when the “high risk” January report is released, as it may show a decrease in 2016/17 feed use of corn.  The focus is now squarely on South American weather, as this is the biggest opportunity/threat facing the market over the next couple of months.  Currently, Brazil and Argentina’s combined corn production is expected to be 28.1% above last year. Front month contracts led strength today, a good sign. Look for initial upside resistance in March at 3.67 and more firm resistance at 3.75. March closed at 3.60 ¼ today.

Soybean bulls need a daily diet of bullish news in order to maintain positive momentum.  Today, their appetites were not satisfied in spite of a nice menu of positive news, – 6 ½ (Jan).  Easing doubt as to whether the export demand will continue, the USDA reported a private transaction with China for 256,600 mt of soybeans for 2016/17.  The USDA weekly inspections also did not disappoint, as it was announced that there were 1.837 mmt for the week ending Dec. 8th, vs the expected 1.45 mmt.  Exports have declined the past four weeks in typical seasonal fashion, but are ahead of last year.  The COT report on Friday showed managed money to be net long 123K contracts of soybeans, 9,000 meal and 112K oil.  The USDA report was unchanged, but the story is in oil, where carryout was trimmed back 100 million lbs to 1.55 billion.  The breakdown of oil usage showed a large increase in biodiesel while food, feed, and other usage actually decreased.  In Brazil, soybean planting is reported to be 95% complete, which is above the average for this point in the season.

Wheat had a late rally on Friday, and it is thought that this was nothing more of a short covering to finish up the week.  Today, was more of the same choppy action that we have become accustomed to, with Chicago + 1, KC + 1 ¼ and Minneapolis +1 ½.  Now that the USDA report is out of the way, there are not a lot of compelling stories for wheat.  Wheat continues to battle the bearish force of huge supply from key exporters around the globe.  The USDA weekly inspections this morning were positive, as exports were announced at 440,805 mt compared to expectations of 400K mt.  A couple of narratives to follow include, frigid temperatures in the western plains that will be lingering for most of the week and the fact that U.S. wheat is becoming more competitive around the world and may start winning some business (speculation that a portion of the Saudi order over the weekend went our way).  The COT report on Friday showed large spec to be sellers of around 2,000 contracts (5,000 expected), putting their net short position at 141K contracts.

Live Cattle brought a bullish demeanor into the new week, forging out a new high, +2.425 (Feb).  Cash sales in the north and the south were lower than last week, with sellers in the South accepting $110 on low volumes.  Many cattle owners are anticipating a bounce back in price this week.  But, packers will continue to lower bids as slaughter demand tends to tail off this time of year.  On the global stage, Australia cut back its forecast for beef exports for the 2016/17 season by more than 3%, as farmers rebuild cattle inventory after the strongest El Nino in nearly 20 years. Australia is the world’s #4 beef exporter, with key market share in China and Korea at risk to competition from Brazil.

Hogs technical action has been impressive, closing at a new high today, +.625 (Jan), but it may be challenging to hold premium.  Will they be able to continue this trend another few dollars higher? Extreme cold and snow in parts of the Midwest are giving support, as cash hog prices were up to $1 per cwt higher.  The weather could hamper deliveries to packers and some farmers are hesitant to open the doors to their swine buildings to keep the animals warm.  Packers have been able to maintain healthy margins which has enabled them to pay more for supplies.  This may be amplified if an inventory shortage develops. Feb hogs will have to prove if they can get through resistance at 62.425.



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.
Water Street Solutions Daily Report 2016.12.9
2016-12-09T04:04

Corn continues to be a bean follower, which translated into a solid gain today, +6 (Mar).  The always anticipated USDA monthly report proved to boost trade in spite of no big news, with national corn carryout unchanged at 2.403 billion bushels, but up globally by 4 mmt.  A couple of announced buys included a commitment from Taiwan to purchase 65K mt of U.S. corn for Feb/March, while Israel bought 95K mt of Black Sea corn for Feb/April.  There is chatter of a possible sale to China from Ukraine of at least four cargos this past week.  Ethanol margins are at an all-time high for this year (over $1/bu), and the cold weather should prompt extra livestock feed usage.  Trump’s choice to lead the EPA (Scott Pruitt) is causing a little concern related to renewable fuels, as has been reflected in the trade.  But, overall Mr. Pruitt is viewed as Ag friendly and is expected to help alleviate burdensome regulations.

Soybeans have a need to be fed on a daily basis, or the threat of long liquidation may begin.  Today’s menu included a new sale and the USDA monthly report, as beans showed an appetite for big gains, +10 ½ (Jan).  The USDA  pegged soybean carryout unchanged at .480 billion bushels (but above the average expectation).  The world carryout showed an increase from 81.3 mmt to 82.9 mmt.  One might say this news was already “baked in”, as it did not negatively affect trade in the slightest.    South American weather is being closely watched for market direction, with the focus on whether Argentina will get needed rains in December.  The USDA announced the sale of 132K tonnes of soybeans to China for 2016/17.  Current perception in the market is that demand is unusually high this year.  However, total exports to China may not increase that much over last year, as last year featured a late surge of Chinese buying due to South American weather problems.  At this point, there is a lack of evidence that a similar story will be emerging this year.

Wheat was the star grain in the market yesterday and finished bullishly today, drafting off the strength in beans:  Minneapolis +5 ½, Chicago +8, and KC +8 ¾ (Mar).  Wheat has been fighting the bearish force of a huge supply from key exporters. The USDA monthly report pegged wheat unchanged stateside, while global carryout came in almost 2 mmt higher.  Russia’s SovEcon boosted their estimate of total grain harvest by 1.5 mmt to 114 mmt, of which 70% is wheat.  This, in addition to Coceral adding to the storyline by  upping their EU wheat output estimate by 900K mt to 134.7 mmt.  Weather is becoming a prominent concern here in the U.S., as lows will be below zero over the next 7-10 days with accompanying gale force winds.  However, there are three separate systems lurking that could provide snow cover for much of the plains over the next five days.

Live Cattle with sluggish cash news and red packer margins, may be starting to signal that the market is prone to a set-back if hogs put in a top, with trade down again today -.125 (Feb).  According to CME traders, live cattle felt pressure from follow-through selling and earlier fund liquidation.  The trend among investors was to simultaneously sell the December contract and buy the deferred months, in expectation of falling cash prices next week.  Cash cattle in the U.S. Plains traded around $110-112 this week compared to $114-115 last week.  Snow and frigid temps are beginning to impact cattle condition and price, and may disrupt movement of animals to packing plants over the next few days.  Feeder cattle were also pulled lower, influenced by profit taking, fund liquidation and live cattle’s selloff.

Hogs continued their bullish ways for the fifth consecutive day, +.725 (Feb).  Futures have had a solid week of gains due to several factors: record slaughter numbers, with pork cut-out values rising to the highest level since late September; hog weights have remained steady in a period when weights normally increase; there were no capacity problems in the 4th Quarter which is lending optimism of better support for the cash markets into 2017.  Midwest cash prices were around 50 cents per cwt higher again today, as the cold temperatures across the Midwest are having an effect on supplies.  It seems that there is now a shortage of pigs as all the packers are competing for inventory.  Meanwhile, packer margins are continuing to decline as the cash prices are outpacing prices being charged by processors to grocers.


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.