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Water Street Solutions

Water Street Solutions Daily Report 2018.1.19
2018-01-19T02:06

Corn was able to close higher today up .01 vs. March. Weather in South America is still the focal point. Argentina has missed some recent rains and the forecast in the 6-10 day range went much drier today for the main corn growing areas. Beyond that the 11-15 day forecast is showing a slightly wetter bias. Some consulting companies have lowered the expected corn crop to 38.2 million tonnes down from the USDA’s estimate of 42 million tonnes. A survey done by farm futures showed expected corn acreage for 2018 to be 90.1 million. Only down .1 from last year’s total. Weather and acreage will be the hot topics going forward. How much will they care about weather problems with a giant carryout is the tough question to answer.

Soybeans closed at the lower end of the range today up .02 vs. March. Weather in South America is even a bigger factor for soybeans right now. Rains have shifted further north in the short term and are only expected to cover about 25-35% of the growing area. On top of this the temps are expected to rise over the same period of time. Analysts have started to lower expectations for crop size. One weather service projecting a 51.7 million tonne crop compared to 56 million tonnes currently predicted by the USDA. This has the funds continuing to unravel a large short position that they had built up. The market is getting to tough resistance points and may need more weather confirmation to push higher. Brazil’s conditions have been ideal except for some heavy rains delaying some early harvest in the northern areas.

Wheat continues to have some underlying friendly fundamentals but just no one who wants to take the chance to be friendly. The drought monitor continues to increase and winter kill in certain areas hasn’t gone away, it just remains un proven. Overall world supply continues to increase and is the main argument for remaining bearish. The International Grain Council raised the global wheat production 1% to 757 million tonnes.  

Live Cattle had a very interesting day. Closing lower on the day but off its lows and after breaking above yesterday’s high. The question going into today is will expected short term demand because of tax cuts for the consumer outweigh an unexpected dip in beef prices? We still don’t have that answer.  The market looks good technically and will need to be watched closely as the nearby Feb contract comes into a possible double top on the chart.

Hogs closed lower on the day down .75 vs. the February contract. The market is at the upper end of its most recent highs. It may have a tough time pushing through with supply up about 4% from last year. The lower dollar has helped the thought process that demand specifically exports will continue to be strong. Cash was a little weaker yesterday which attributed to our lower close today.

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2018.1.18
2018-01-18T02:04

Corn had a modest setback after yesterday’s buying blitz, -1 ½ (Mar). EIA Ethanol reporting was a day later this week due to the holiday. Ethanol production rebounded after last week’s pull back, up 6.53% over last week and 0.66% over last year. Ethanol stocks were up slightly over last week and 7.71% over last year, which is a record high. Corn used in ethanol production was pegged at 110.35 mbu, well above the average needed (104.146 mbu) to meet the USDA annual projection. Ethanol margins have been improving, which should bring plants back into breakeven territory. In exports, Taiwan purchased a cargo of U.S. corn off the PNW, which is indicative of U.S. price competitiveness.

Soybeans rallied on technical considerations, breaking through trend line resistance before settling, +4 ¼ (Mar). Within shouting distance is the 200- bar moving average at 9.79. A serious South American weather story has yet to emerge. While Argentina’s crops continue to battle dryness, there has been sufficient moisture to dampen the bulls’ enthusiasm. And, Brazil has been experiencing highly favorable conditions for another bonanza production. USDA weekly export sales were delayed until tomorrow. There were no new sales announced today.

Wheat is showing some indications that there is not a lot of downside risk, with winter wheats experiencing modest gains: Chicago +3 ¾ and KC +2 ½. The Drought Monitor in the U.S. continues to show extremely dry conditions and we have continued to chew down protein supplies over the last two years. But, the USDA numbers have the final say, and the battle continues over acres to be planted, etc. Minneapolis spring wheat was down -1 ¾.

Live Cattle built on yesterday’s large gain, +.975 (Feb). It is thought that the ensuing months could feature a much larger consumer demand, and continued expansion of exports, according to Hightower. Futures are now at a slight premium to the cash market.

Hogs regained a portion of yesterday’s loss, +.325 (Feb). Futures have continued in this pattern of uptrend, since the low established on Dec 14th. The overall fundamental thought is that it may be difficult for hogs to maintain this trajectory in the face of heavy near-term production expected. However, the economy is strong and consumers will have more disposable income this spring.

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2018.1.17
2018-01-17T01:47

Corn broke out of the post-report doldrums today, +4 ¾ (Mar). Is it possible that concerns of reduced plantings are behind the spike? It is thought that farmers will seed more sorghum, barley and cotton this year based on current prices. If this is the case, corn acres could actually drop by 1.0-1.5 million acres, instead of rising to the 91 million acres that had been forecasted by the November Baseline report. Not to mention that many farmers are intending to switch more corn acres to beans due to profitability. The EIA Ethanol report is delayed until tomorrow, and it will be key for production to resume the torrid pace it was on before last week’s setback. Ethanol margins have improved to a modest degree, with a minority of plants still losing money.

Soybeans made a key reversal throughout the session and fought back over seven cents from off its low to finish + ¾(Mar). South American weather has not provided any fuel for rallies, although it has not been ideal across the entire growing region. If things stay the same ten days from now, there may be more to talk about. Like in corn, chatter of more sorghum, barley and cotton acres could also help out beans, which potentially could be looking at a 500,000 acre reduction if acted upon. Beans snagged a private sale of 130K MT to “unknown” destinations for 2018/19.

Wheat found support in the other grains and a declining U.S. Dollar: Chicago +5, KC +5 and MN EVEN. Egypt purchased several more cargoes of Russian origin wheat at $4 above last week’s prices. The U.S. is now that much closer to being more competitive, especially with the Dollar sinking to new lows. Additionally, it goes without saying that managed funds are in a very large net short position, which is resulting in some short-covering of positions. Export loadings announced yesterday were slightly over expectations, but the overall pace continues to fall further behind last year’s levels.

Live Cattle rose sharply, breaking through both the 100 and 200-bar moving averages to lock-limit-up in the front month, before finishing +2.875 (Feb). Additionally, the spike on the charts filled the gap left early last week. It is thought that talk of beef demand being stronger than originally expected may be the impetus behind this short-term rally.

Hogs fell back after yesterday’s new high, with some profit taking in order, -1.175 (Feb). Is this just a blip or is the outlook for hefty supply ahead in the back of traders’ minds? The CME Lean Hog Index jumped to 71.15 yesterday, a $2.69 increase from last Friday.

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2018.1.16
2018-01-16T02:26

Corn was able to come back and forge out a gain, likely in response to strength in soybeans and chatter centered around outside markets, +2 (Mar). After the report and heading into last weekend, it was thought that managed funds were holding a record net short position of 265K contracts. And, while yield was ratcheted up, the lack of any big surprises and with so much of the growing season ahead both here and South America leaves one to wonder how much downside is still at risk? USDA weekly inspections were a disappointment this week, as they were announced at a mere 548,389 MT vs. estimates of 850K MT.

Soybeans gapped higher at open, and were able to sustain another positive gain, +7 ½ (Mar). It is thought soybeans may be adding back some weather risk premium, as Argentine rains did not give complete coverage to all areas. Managed funds net short positions had swelled to over 100K contracts, leaving some investors feeling vulnerable after a non-bearish report for beans. USDA weekly inspections were slightly over expectations, coming in at 1,231,037 MT compared to projections of 1,150,000 MT. The NOPA December Report today was mixed, with soybean crush at an all-time record high, but oil stocks sharply higher than expected.

Wheat is still laboring under the weight of a heavy USDA report last Friday: Chicago SRW -4, Kansas City HRW –4 ¼ and Minneapolis HRS -1 ¼. However, with the Australian crop reduced another 5 MMT, and on-farm wheat stocks at low levels here in the U.S., the recipe is in place for a back-loaded export season.  The cash wheat market is signaling a possible story down the road, with basis levels that have not been seen in years. Today, the USDA announced weekly wheat loadings at 368,651 MT for the week ending January 11th, vs. estimates of 300K MT. In global news, Russia continues to dominate the headlines, snagging another Egyptian sale of 295K MT.

Live Cattle got a boost from short-term demand, as futures are significantly discounted to the cash market, +.725 (Feb). Supply is high, but with the U.S. economy purring along, demand for beef features should provide support. The Commitment of Traders Report last Friday showed all categories of traders to be in significant net long positions, although down slightly from the week before.

Hogs made a strong push, eclipsing new highs achieved on Jan 10th, +2.325 (Feb). However, big supplies loom ahead, and may be difficult to work through without lower prices. The CME Lean Hog Index has extended its climb to 68.46, which is markedly higher than last week’s 63.63. Hog slaughter continues to come in with strong numbers, up 2.9% over last year.

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2018.1.12
2018-01-12T01:44

Corn strained under the weight of a less-than-friendly report, -2 ½ (Mar). While not much was a surprise, national yield was upped to 176.6 bpa from 175.4 bpa in November. But, this yield was offset by a decrease in harvested acres by 400K, paring back the rise in overall production. U.S. Quarterly corn stocks were pegged at 12.516 bbu, over the average estimate of 12.431 bbu. This resulted in a reduction of the feed residual number by 25 mbu. Ending U.S. stocks in 2017/18 are projected to be up 40 mbu. With an increase in wheat acres and other crops, i.e. sorghum, cotton and soybeans performing better than corn, will this result in a reduction of estimated corn acres come the March Report?

Soybeans found strength in a less-than-bearish report day, surging to the closing bell, +10 ½ (Mar). With funds over 100K contracts net short, investors took action with short-covering of positions. National yield was reduced from 49.5 bpa to 49.1 bpa. Exports were pared down by 60 mbu, but domestic crush offset as U.S. Quarterly stocks were in line with trade estimates at 3.16 bbu. All-in-all ending stocks were raised a modest 25 mbu. Soyoil stocks were reduced 80 million lbs, which is a 5-year low. It would appear that today’s results will not sway many farmers away from planting more beans in 2018.

Wheat reacted with volatility to the Report, due to higher than expected acres, -12 ¾ (Chicago March). Winter wheat seedings were projected at 32.6 million acres vs. estimates of 31.4 million acres and 32.7 million acres last year. U.S. wheat stocks also got a bump by 29 million bushels due to less feed and seed use. Wheat exports escaped the chopping block, unchanged. On the world stage, Russian wheat production was boosted by 2 MMT, but Black Sea stocks are down, neutralized by increased domestic and export demand. Other results: Kansas City HRW –14 and Minneapolis HRS –16 ½ (Mar).

Live Cattle seem to have stabilized after putting in a new short-term low yesterday, +.300 (Feb). With consumers looking forward to keeping more of their paychecks in 2018 and a strong U.S. economy, there is the potential for much better than expected demand on the horizon.

Hogs were able to turn away the bears after the key reversal on Wednesday that carried into yesterday, +.600 (Feb). While the market appears susceptible to selling with average weights up and slaughter higher by 5.5%, the economy is trending strong.

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2018.1.11
2018-01-11T03:35

Corn put in a similar day to yesterday despite news in export sales and a few rumblings of crude oil pushing higher again.  Export sales in corn were within the range and netted 17 million bushels.  To date, the US has sold 1,067 million bushels of corn and would be down 25% from last year so far.  Exports for corn need to pick up the pace over the next few weeks and is usually the case for the time of year.  Brazil’s CONAB 1st season corn production was estimated at 25.2 mln mt vs prior report of 25.0.  2nd season corn production was estimated at 67.2 mln mt and unchanged from prior report. Total production is estimated at 92.3 mln mt vs. 92.2 mln mt from November report, also vs. 97.8 mln mt last year.  Poor export sales vs. a continued strong crude oil market were the main features today.

Soybeans followed through in making a new recent low today.  CONAB estimated production to be 110.4 mln mt vs. 109.2 mln mt in the prior report and 114.1 mln mt last year.  Production numbers are down so far, despite an increase of planted acres 34.9 mln hectares up 3.2% over last year.  Export sales this week amounted to 22 million bushels of soybeans and also within expectations.  For year, soybean sales have totaled 1,523 million bushels which is down 14% from last year.  Lack of positive news in demand and technical selling pushed beans lower on the day. 

Wheat export sales totaled 3 million bushels for the week and also are down for the year, running around 8% behind last year.  Some weather concerns in the plains helped prices recover a bit, with the snow melted off and a return to below freezing temperatures in the next few days.  Snow totals were also lighter then what was expected from the recent storm.   Chicago wheat has been inching up toward the 100 day moving average and sits currently just below 4.50 March futures, Kansas and Minneapolis markets are closer and could provide some resistance.

Live Cattle were able to close well off their lows and could be marking a short term bottom as prices stopped just short of the 100 day moving average.  Livestock markets will be looking to the crop report tomorrow for any surprises and if feed needs should be covered.

Hogs traded lower as a short term top has been marked now and profit taking ahead of any possible changes that could affect feed needs in the report tomorrow.

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2018.1.10
2018-01-10T02:40

Corn traded mostly sideways today. Ethanol production numbers for last week averaged 996 thousand barrels per day. This is down 3.5% from last week. Corn used for ethanol was 103.52 million bu. Corn use needs to average 104.33 million bu. to meet this year’s USDA estimate. The market seems to have played in some of the negative estimates expected to come out of the report on Friday. We haven’t made new lows even with the expectation that the carry out will increase. Do the funds have the power at this point to push it lower from this level? The market already expects bad news on Friday so will it have to be worse than the expectations to make new lows?

Soybeans took the brunt of the negativity today. Down double digits at one point and closing down -.08 ¾ cents. Improving forecasts in Argentina are the driving force. Rain is expected on the 12th and then another system after that is forecasted to supplement. The big question going into the report is will the USDA see it as necessary to lower our expectations for exports. Is Brazil taking the export business or does China just need that much more supply?  Soybeans definitely have risk going into the report with weather premium coming out and a very good argument to lower demand on Friday.

Wheat was the only bright spot today. Holding on to gains and closing .01 ½ cent higher vs. the March contract. Acres will be the key for Wheat in the report on Friday. Estimates are at 31.5 million acres down again this year from last year’s total of 32.7 million. Wheat has a story with winterkill concerns, and less acres being planted every year but it still has a large carryout. That fact along with the anchor that corn is right now is keeping funds from exited too quickly.

Live Cattle did not close well today. Down 107.5 vs February. Closing just a tick above their low and closing at a new low. This most likely means another leg lower. This could be seasonal or concern for short term demand from the East Coast because of the weather. Demand overall has been good with exports up over 11.5% this last year.  We should see that slow this year but should have some sustained growth as long as trade agreements don’t change.

Hogs gave some back today after making new highs. They closed .70 lower on the day bouncing off of their lows.. Hogs have been resilient and may be over due for a correction. Like cattle exports, pork exports have been strong and should stay that way barring any trade issues. Pork exports set a monthly record in November and half of the most recent expansion in the herd is being exported.

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2018.1.9
2018-01-09T02:45

Corn continued range-bound trade ahead of the Report on Friday, +1 ¾ (Mar). There is no fresh news to speak of and trading volumes waned compared to yesterday’s strong selling. Yesterday featured a massive jump in open interest at the CME. The market seemed to take the selling in stride and absorb the impact, and it would appear that bearish downside risk is somewhat limited from here, even if the Report is not bullish. Look for EIA Ethanol reporting data tomorrow to see if strong production resumes from a lighter last week, with ethanol producer margins negative on average.

Soybeans felt continued pressure from selling, as traders are wary of bearish fundamentals heading into Friday, -3 (Mar). South American weather is not a big concern, but one story that has raised a few eyebrows is soybean rust growing across Central Brazil, from plenteous recent precipitation. This could result in decreased yield estimates. Brazil will be out with CONAB estimates on Thursday ahead of the USDA numbers on Friday. Look for China trade data in the overnight.

Wheat was up today across the board: Chicago +4 ½, Kansas City +5 ¾ and Minneapolis +5 ¼. Influencing the market, is the award of soft wheat licenses to the U.S. by Morocco, which was originally thought to be going to the EU. Russia won another bid for 115K MT of wheat in a tender today. It seems as if it is the world against Russia, as they are bursting at the seams with crop to export, and a very formidable competitor from a price standpoint. With regard to the Report on Friday, winter wheat acres will get the most scrutiny. It is expected wheat acres will decrease from an already record low planted last year. Look for a price trend to emerge that may endure until the March report.

Live Cattle were able to reverse course temporarily from the recent plummet, but bumped into resistance at the 200-bar moving average. The February contract settled at 117.675, +.450. It is thought that strong beef prices will help stabilize the market, as there are signs of good consumer demand with extra disposable income to hit pocketbooks soon from Trump tax reform.

Hogs traded mixed across contract months, with the front month February, +.200. The CME Lean Hog Index continues to rise, up another $.59 to $64.22. Like cattle, strong consumer demand resulting from more disposable income should help to underpin the market. According to Hightower, increased competition from more U.S. packing houses has also helped support active speculative buying and a strong uptrend.

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2018.1.8
2018-01-08T02:23

Corn continued to feel the pressure of mounting fund selling, as traders expanded their net short position ahead of the USDA report on Friday, -4 (Mar). There is not a story to serve as a check and balance to bearish mindsets at this time. The CBOT continues to trade in the sideways range pattern that was established last fall. On the other hand, if the USDA does not offer a bearish report, who will keep selling the market lower? USDA weekly loadings data showed corn inspections at 849,226 MT for the week of January 4th, well above expectations of 650K MT. Additionally, a private sale to Mexico of 102,100 MT of corn was reported for 2017/18.

Soybeans saw more traders opting for the short side, as they fortify positions to withstand their perception of the USDA report due on Friday, -4 (Mar). Beans were just shy of expectations on the weekly inspection roll, coming in at 1,183,089 MT vs. estimates of 1,200,000 MT. The daily log showed two sales – a private sale of 132K MT to unknown destination and a second private sale of 120K MT to Egypt, both for the 2017/18 marketing year. China food demand continues to expand as their country has been able to decrease the number of citizens living below the poverty line from 99 million in 2012 to 30 million in 2017. However, overall U.S. soybean exports are down 14% below last year, as record South American crops have provided formidable competition to the PRC.

Wheat needs a fresh story to stem the tide of selling, -3 (Chicago). All three complexes showed some bounce back today, with a measure of selling exhaustion later in the session. KC finished –4 ¼while Minneapolis ended -2 ¼. USDA weekly wheat inspections were announced at 234,418 MT vs. estimates of 300K MT. Now that the brutal U.S. Plains weather story is behind, wheat is battling to stay competitive with global pricing, as the small rally made U.S. wheat more expensive in the global market.

Live Cattle gapped lower for the second session in a row, dipping below the 200-bar moving average, -2.025 (Feb). Friday featured a lock-limit down performance, as traders liquidated positions – today was more of the same. Cash trade has been lower than expected, and the long-term trend is viewed as bearish.

Hogs went the opposite direction from cattle, gapping higher and through resistance at 73.300, which was a high posted previously on November 1st, +1.550 (Feb). Underlying support is coming from solid pork values which held through very cold Midwest weather. The CME Lean Hog Index was up $.88 to $63.63 on Friday. Warm Midwest weather ahead should boost production and may lower cash values.

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2018.1.5
2018-01-05T03:10

Corn overcame a very poor weekly export sales report, + ¼ (Mar). With managed funds in record short position for this time of year, the risk to the downside is limited. The USDA pegged exports at a measly 101,200 MT vs estimates of 600K-1.0 MMT. Corn exports are down 25% on the year. It is thought that the USDA is likely to cut 50 million bushels of corn exports in the report next Friday due to lagging sales.

Soybeans got a lift as forecasted South American weather is light on the precipitation and featuring temps in the 90’s and lower 100’s, +3. It is thought that the La Nina weather pattern will persist, which could affect yield potential the second half of the growing season. Soybeans had a poor showing on the weekly export sales log, with a mere 560,800 MT reported vs expectations of 600K-1.0 MMT. It is likely the USDA will trim 25 million bushels off of their annual export estimate.

Wheat saw a modest correction for the second day in a row, as it has been trading in a gentle uptrend since mid-December: Chicago SRW -3 ¼, Kansas City HRW -2 ¼ and Minneapolis HRS -1. Like the other grains, wheat weekly exports were down, pegged by the USDA at a paltry 131K MT vs. estimates of 250K-500K MT. It is likely some investors took profits on recent gains, with warmer Central U.S. weather in the forecast.

Live Cattle took a plunge below the 100-bar moving average, lock limit down, -3.000 (Feb). Coming into today’s session, cattle were considered slightly overbought. Long liquidation selling dominated the trade, with brutal winter storms on the East Coast and cold temps in the Midwest slowing down restaurant business and beef demand in the near-term.

Hogs were mixed, eking out a small gain in the February contract, +.050. Supply fundamentals continue to be weak and the market is being held up by temporary supportive forces. However, firm pork cut-out values and warmer Midwest temps on the way are helping to keep the bears at bay
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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2018.1.4
2018-01-04T03:56

Corn felt the burden of a less than stellar ethanol report, -2 (March). EIA Ethanol weekly results showed production down to 1.032 million barrels/day, 5.32% lower than last week and 1.05% less than last year. Conversely, ethanol stocks were up 2.67% over last week and 21.10% over last year. Corn used for ethanol was still well over the weekly average needed to hit the USDA yearly projection, but can the pace continue? Heading into the report next week, the grain market is considering competing factors of lower U.S. exports against the prospect of less South American yield compared to last year. With strong demand under the market, any change could stimulate short covering by funds.

Soybeans fought back with a “hammer” formation on the chart, regaining over 8 cents off the session low, -1 (March). The market is pondering South American weather forecasts, as well as WASDE estimates for Jan 12th. While U.S. exports are down from last year, the South American crop is also seen by many to be 5-6 MMT less than last year’s record. With such strong demand from the PRC supporting the market, and with managed funds flipped to a net short position, traders are wary to stick their necks out too far. The USDA report on Jan 12th, is considered the “biggest” of the year, with final production/acreage and supply/demand numbers. Beans have significant downside risk if the report comes out bearish.

Winter wheat saw correction today, as the story of frigid weather across the U.S. Plains seems to have run its course. Chicago -2, Kansas City -1 ¼. Minneapolis spring variety was able to keep positive momentum. +8 (Mar). As U.S. futures prices rise, wheat from the states becomes less competitive against Russia and others. However, providing some support today was a fledgling Dollar, as other currencies have strengthened against the greenback recently.  

Live Cattle traded both sides before settling on a bearish note, -.700 (Feb). This would seem somewhat counterintuitive considering the uptrend in cash and beef prices and poor animal weight gain. With a sharp production decline from the 4th to 1stquarter predicted, expect cattle to find support in a positive seasonal trend.

Hogs were up across contract months, +.325 (Feb). The cold weather supported higher trade in pork products and a firm tone to the cash market, according to Hightower. Look for a possible boost in marketings and pork production with warmer weekend weather extending into early next 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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2018.01.03
2018-01-03T03:33

Corn traded both sides of unchanged before deciding on a negative finish, - ¼ (Mar). It seems most everyone is assuming a bearish outcome for corn and soybeans in the January 12th WASDE report. A bullish surprise would include either a neutral or positive result. Crude oil prices provided a measure of support, as they climbed above $61/barrel for the first time since June of 2015. The EIA Ethanol weekly report was pushed back until tomorrow due to the holiday. Spot ethanol prices have been improving the last couple of weeks, getting some producers back into a profitable margin.

Soybeans continued their post New Year’s ascent, +4 (Mar). Demand is seeing an uptick from China, as the PRC has started to ramp up their FOB soybean offers for February and March. Some of that will be sourced from the U.S., as the Brazilians will be slow to offer new crop soybeans because of late seeding dates and an empty pipeline of old crop, according to AgResource. Analysts are looking for a possible bull run for soyoil, as yesterday’s NASS crush numbers revealed a soyoil yield well below prior years and market expectations. This against a backdrop of increasing domestic demand due to biodiesel tariffs on Argentina and Indonesia. Whispers are getting a bit louder with regard to concerns for South American weather over the next 10-12 days, with heat building and little moisture forecasted.

Wheat saw all varieties gain, as concerns of winterkill across the Plains is getting a bit of traction. Kansas City HRW and Minneapolis HRS finished +6 ¼ and +1 ¾ respectively, while Chicago SRW came in +2 ½ (Mar). Early crop conditions released by several states yesterday showed less than ideal conditions. All of the states showing declines had dry patterns, which impede development, coupled with artic cold in some cases. Longer term, it would be expected that Chicago will see the largest amount of short-covering, due to the massive net short position held by fund managers. Adding to the mix is the fact that wheat has the least amount of planted acres in over 100 years, so any loss will be magnified.

Live Cattle fell in the front month (-.400), while the deferreds were mostly positive. Yesterday’s trade featured a large bar, building in weather premium. Today was an inside day and correction. Look for possible strength in the days ahead as demand is great with a solid economy and consumer mindset. Lower expected production in the first quarter compounded by frigid temps across the Plains also are providing support.

Hogs featured indecision today before ending a positive, +.325 (Feb). The February contract is trading at well over a $9 premium to cash, which is much higher than the five-year average premium to cash of around $4. As in cattle, the cold weather across the country is bringing support, as producer marketings will be at a limited pace. There is chatter though of big supplies needing to be absorbed for January, with hogs backing up in the country.

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 they may not be suitable for all investors.
Water Street Solutions Daily report 2018.1.2
2018-01-02T03:19

Corn was able to follow wheat’s lead today, +2 ½ (March). All of the grains and resulting action are intertwined together to some extent. With regard to wheat, corn is competing for feed usage. And, with regard to beans, the 2.5:1 price ratio that is viewed as equilibrium, plays a corrective role. To start the new year, corn seems to be fighting for more value and acres. Additionally, managed funds are sitting on a record net short position in the grains to start the new year, and do not have much reason to continue selling, leading to some short-covering. Brazil’s Trade Ministry revealed Dec corn exports of 3.99 MMT vs. 3.519 MMT in Nov and 1.01 MMT in Dec of 2016. This brings more clarity to the 38% decline in U.S. corn exports year-to-date.

Soybeans pushed higher to 9.70 (Mar), before fading to 9.64 ¾ and a small gain +3. South American weather is at the forefront, as they received the precipitation forecasters expected over the weekend. However, the next 10-12 days look drier, and with temps over 100 degrees in some areas, it bears monitoring. USDA weekly soybeans loadings were a bit disappointing, as they came in under the expected 1,200,000 MT at 1,139,436 MT. Soybeans can ill afford more poor showings, as exports are running behind last year and now is a critical catch-up period. Numbers released by Brazil’s Trade Ministry showed Dec soybean exports at 2.36 MMT compared to Nov at 2.14 MMT and Dec 2016 at 0.65 MMT.

Wheat received a jump-start from frigid cold temps across the Plains, +6 ½ (Chicago), +7 ½ (KC) and +3 ¼ (MN). With brutal cold across the Plains on dry soils (in some cases), the threat of winterkill is perceived as real. Fund managers showed eagerness to reduce their risk exposure, considering their record large net short position in wheat. However, with the world’s storehouses busting at the seams with grain, it is hard for anyone to be too bearish or bullish. Weekly export inspections were well below expectations, pegged at 274,506 MT vs. estimates of 450K MT.

Live Cattle received support from frigid temps across the Plains along with stronger cash markets, +1.800 (Feb). According to AgResource, sales were generally $3 higher compared to last week. With temps ranging 15-30 degrees below normal, the resulting impacts will likely include lower cattle weights and a slowed down marketing pace.

Hogs fell under the weight of a somewhat bearish supply picture, -1.050 (Feb). As with cattle, some support was found in cold weather. The CME Lean Hog Index as of Dec 27th was down to 61.58 from 62.37 last week.

In Other News, trade deals and NAFTA will be major stories in 2018. January 23-28 is the next round of NAFTA negotiations in Montreal, Canada. Stay tuned.

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.12.29
2017-12-29T01:58

Corn, in fitting fashion, closed out the year with another session in the red, -1 ¼ (Mar). Fund Managers are heading into New Year’s Day with the largest net short in the grains on record. If adverse South American weather materializes over the next several weeks, will this position come back to haunt investors and create upside market risk that will nudge them to cover their shorts? Look for hedge funds to continue to pour money into commodities in early 2018, as they see this asset class as cheap and having upside value potential. USDA weekly corn export sales were just above the top end of expectations at 1,245,500 MT compared to estimates of 600K-1.2 MMT.

Soybeans gained back a portion of yesterday’s losses as traders leveled out some short positions on this last trading day of 2017, +5 (Mar). Weekly export sales were mildly disappointing, seeing that catch-up is needed after a slow start. The USDA pegged soybeans  on the low end of projections at 955K+ MT vs. estimates of 800K-1.5 MMT. Look for the soyoil story to start getting more press as 2018 will offer higher domestic demand based on duties that have been imposed on Argentine and Indonesian biodiesel for the next five years. Biodiesel mandates will require increased domestic stocks, and WASDE may have severely underestimated U.S. soyoil use by 300-400 million lbs, according to AgResource.

Wheat received some support from a frigid forecast this weekend for the U.S. Central and Southern Plains. Many of these areas have dry soils and little to no snow cover, increasing the chances of winterkill. Wheat weekly sales were at the top end of the range, coming in at 440K+ MT vs. estimates of 250K-500K MT. In global news, adding to Russia’s strong performance in the Black Sea Region, the Ukraine is also expecting their winter wheat plantings to be up 2.8% in 2018 vs. last year. Chicago – ¾, Kansas City + ½ and Minneapolis -5.

Live Cattle fell into the close, despite support found in weights dropping, bitter cold temps across the Central U.S., and a firm cash outlook (Hightower). The February contract had the largest setback, -.700. Averaged dressed steer weights were down to 902 lbs from 904 lbs last week, which is 0.66% lower than last year. This is still well above the 5-year average of 893.6 lbs.

Hogs fizzled at the finish, although the front month managed to stay in the green, +.225 (Feb). The fundamentals would seem to point to weakness in the future with burdensome supplies dominating the conversation. Slaughter levels in 2018 are expected to be record highs, with pork production continuing at a brisk clip into the 1st quarter. The question begging for an answer is – are we near a short-term top?

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.12.28
2017-12-28T03:01

Corn was pulled lower by soybeans, as South American weather forecasts are non-threatening, -1 ¾ (Mar). The next 60 days will be critical to trade in this regard. The other underlying tone of concern relates to NAFTA and trade relations in general. Cargill, for one, is mounting a pro-NAFTA campaign to help bring pressure to bear and tout the benefits of the trade agreement. Trump will get to hear from farmers in person on this issue when he visits the American Farm Bureau Convention in Nashville on Jan 8th.  EIA Ethanol reporting showed another strong week for ethanol production, with the week ending Dec 22nd up 1.21% over last week and 6.03% over last year. Ethanol stocks were down slightly by 1.29% vs. last week, but still well over last year by 17.92%. Corn used for ethanol was a solid 113.46 mbu, well over the 104.397 mbu needed to meet the USDA annual estimate of 5.525 bbu.

Soybeans hit a new low as they filled the gap left from Tuesday’s post-Christmas open, -10 ¾ (Mar). South American weather is currently leaning negative, with most parts of Brazil and Argentina on track to receive adequate moisture in the short and longer-term forecasts. Managed funds have continued to press the short side, adding more positions to satisfy bearish mindsets. Related to China, next week should bring more clarity to enforcement of a recent deal struck between the USDA and China. The deal involves Foreign Matter restrictions on U.S. soybean shipments to meet a level of 1% FM and below. Beijing is demanding higher standards due to complaints of higher weed seeds in the mix. They gave the U.S. until January to remedy the situation. The U.S. has decided to label all shipments with the amount of FM, but this has farmers concerned that China will be now able to get higher quality without paying the difference.

Wheat provided mixed results: Chicago – ¼, Kansas City +1 ¼ and Minneapolis –2 (Mar). KC hard red winter wheat is most affected by current weather concerns, due to an expanding Drought Monitor in the Northern Plains and W Midwest combined with sub-zero temps and dry soil. However, it is a bit early for this to seriously challenge the market, but will continue to get attention and chatter among the trade. Weather rallies have traditionally been hard to maintain in Dec and Jan for wheat.

Live Cattle found support in cold weather and strong consumer demand, +1.250 (Feb). Cash cattle  offers are up over last week. Open interest was up yesterday but volumes are lower this week. Boxed beef cut-outs are also showing positive gains. There is a large supply of cattle on the horizon, so it is crucial that slaughter numbers do not slow down. The December cattle contract expires Friday at noon.

Hogs traded choppy on both sides, with an “inside” trading day on the charts, +.525 (Feb). The recent rally has shown an increase in open interest, and technically the market is now slightly overbought. Short-term supplies are leaning bearish, but frigid temps across the mid-section of the country are providing support. Will yesterday’s high be a short-term peak?

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 they may not be suitable for all investors.12
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Water Street Solutions Daily Report 2017.12.27
2017-12-27T03:29

Corn continued its gentle trend of higher highs and higher lows, +1 (Mar). Managed funds were viewed about 240K contracts short in futures and options heading into today’s trade, and there are too many unknowns for traders to hang their necks out much farther. Near-term, South American weather conditions for corn appear slightly bearish, as Argentina’s recent rains should help enable planting of the final 1/3 of the crop. And, Brazil conditions are still looking favorable. Weekly EIA Ethanol reporting was delayed until tomorrow, due to Christmas. Livestock markets have continued in a growth mode, which bodes well for feed consumption and influential to grain stocks reporting.

Soybeans traded weather forecasts again today, as the 12-15 day GFS model turned wetter, -3 (Mar). However, confidence in the GFS model is low as it has shown a wetter bias for weeks that has not all come to fruition. Soybeans received a boost this morning from another Chinese order for 110K MT of soybeans for 2017/18. The U.S. remains the lowest cost option to Asian markets through February and needs to close the export deficit gap. Additionally, the USDA has been able to assure the PRC that they are receiving beans with Foreign Matter at 1% or below, which is in line with their newly enforced requirement. The USDA weekly export sales report will be delayed until Friday this week due to the Christmas holiday on Monday.

Wheat benefited from short-covering ahead of the New Year, +5 ¾ (Chicago March). Kansas City HRW and Minneapolis finished +5 ½and +10 ¼ respectively. The frigid cold temps across the U.S. Plains that have been getting some press, finally showed up in futures results, as Managed Funds are extremely net short and wanting to level out some of their positions heading into 2018. It will be hard for the CBOT to sustain a large break, due to the already heavily sold grain condition. Russia cashed in on another order from Egypt’s GASC for early February shipment, as the Egyptians purchased 180K MT at today’s tender. Russia has been fortunate to have warm weather, conducive to ramped up logistics and exports in December. Their prices have remained steady for the past six weeks.

Live Cattle’s momentum was checked today, as February futures finished -.475. However, feeders were up and cattle have not seen the negative results that might be expected from the bearish Cattle on Feed report numbers. According to Hightower, beef production is expected to trend sharply lower in the 1stquarter, which may be keeping the market from pressing the short side. The Cold Storage report has helped to neutralize bearish vibes, as it showed November beef stocks at the lowest level in three months and 92% of a year ago.

Hogs had another volatile day, reaching a high not seen since Nov 29th, before turning lower and ending, -.500 (Feb). The CME Lean Hog Index fell 24 cents as of December 21st and the near-term outlook is weak for pork relative to beef, due to New Year’s beef consumption traditions. The Cold Storage report is helping to keep the market in check, as frozen pork stocks fell 16% for the month of November.

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.12.26
2017-12-26T02:07

Corn battled to a virtual draw today, + ¾(Mar). USDA weekly corn inspections for the week ending Dec 21stwere under expectations, announced at 609,281 MT vs. estimates of 750K MT. However, it was announced this morning that Mexico purchased 134,148 MT of corn for 2017/18. Impending NAFTA negotiations the second half of January will be closely monitored by the Ag community, with Mexico playing a very important role. Corn export shipments are down 40% from last year. According to AgResource, with managed funds sitting on sizeable net short positions, the risk vs. reward favors the bulls heading into the January Crop Report.

Soybeans saw short-covering in the post-Christmas trade, with support from rising palm oil, proposed legislation for a renewal of the U.S. biodiesel tax, and South American weather uncertainty, +10 ¼ (Mar). From a technical perspective, beans are oversold, with a RSI in the 20’s. USDA weekly export inspections had soybeans right around estimates of 1,300,000 MT at 1,283,200 MT. Soybeans are still lagging last year’s shipments by 13%. U.S. soybean quality was given a boost by the Soybean Export Council, which has evaluated this year’s crop as equivalent quality to last year. Hopefully, this will boost China’s confidence to ramp up their purchases.

Wheat traded in sideways range, falling –2 ½ (Chicago March). Hard red winter also demonstrated weakness, -2 ¼ (KC March), while Minneapolis spring ended – ¼. There is some continued concern about the potential for winterkill over the next few days, as extremely frigid temps will be experienced across the U.S. Plains, with little to no snow cover. Longer term, the extended forecast for the Central U.S. is trending warmer for early 2018. USDA weekly inspections were a bright spot, reported at 493,550 MT compared to projections of 450K MT.

Live Cattle had a break-out session, in spite of Friday’s more bearish than expected Cattle on Feed Report, +2.900 (Feb). The Dec Cattle on Feed report featured significantly larger Nov Placements and total Cattle on Feed supplies at 108% of a year ago. Providing support, the Cold Storage report indicated that frozen boneless beef stocks declined at a greater rate than expected in November, even with Australian imports filling some of the demand.

Hogs showed particular strength in the front month, +1.550 (Feb), while the deferred months did not share quite the same enthusiasm. The Hogs & Pigs report last Friday was seen as slightly bearish, with total number of hogs up as well as breeding inventory. The number of pigs per litter also went up 1%, which when coupled with farrowing intentions up 2.3%, would imply an overall increase of +3% slaughter in the Sep-Nov period. This would all but assure record supplies next fall, according to the Daily Livestock 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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.12.22
2017-12-22T01:50

Corn was able to gain 5 cents for the week, finishing + ¾ (Mar). Strong growth in cattle and hog numbers were reported today, helping the feed outlook. The South American weather maps look favorable as of today, and will be getting a lot more scrutiny moving forward. The Commitment of Traders report will be released later today, and it is expected to show managed funds net short around 235K contracts combined of corn futures and options. The CBOT will re-open at 8:30am on Tuesday.

Soybeans provided uninspired trade on January option expiration day, + ¾ (Jan). The largest open interest strikes at 9.90 and 10.00 were well out of range and did not have much impact. The silver lining after making a new low in the overnight, was a positive close, as soybeans had been down 11 of 12 sessions coming into today. Both Brazil and Argentina have rain in the forecast and U.S. exports are down, providing pressure to price. In exports, the USDA reported a private sale of 252K MT of soybeans to China. Technical indicators are showing oversold, which could help support if the market is to reverse course.  

Wheat posted a correction heading into the holiday. Minneapolis spring led with the largest setback, -5 (Mar). The winter wheats finished -2 ¼ (Chicago) and -2 (KC). The Drought Monitor is showing dryness building across the Central Plains and the South. Those conditions are not likely to improve this winter due to La Nina. January 3rd will feature a monthly condition report for wheat that is expected to show poor growing conditions for the hard wheat variety. Frigid conditions over the holidays with little snow cover could result in a measure of winterkill.

Live Cattle reacted to a bearish Cattle on Feed report, -1.100 (Feb). To summarize, On Feed was significantly higher at 108.1% and the highest since 2011; November Placements were much larger than expected at 113.9%, and the highest since 2007; November Marketings were slightly higher than expected but a record high for November at 103.2%. The Cold Storage report showed total lbs of frozen beef down 4% from last month and down 8% from last year.

Hogs reacted to a slightly bearish report with a bullish flair, +1.400 (Feb). The Hogs & Pigs quarterly report showed the following results: U.S. inventory of all hogs and pigs up 2% over last year but down slightly from September at 73.2 million head; Breeding inventory up 1% from last year and up 1% from last report at 6.18 million head; market hog inventory up 2% from last year but down slightly from September at 67.1 million head. In Cold Storage, stocks of frozen pork were down 16% from last month and down 3% from last year. Pork belly stocks saw an increase of 12% from last month and up 94% from last year.

MERRY CHRISTMAS TO YOU AND YOUR FAMILY! 

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.12.21
2017-12-21T03:25

Old crop corn prices closed up .01 ¾ today.  Corn export sales beat expectations this morning with 61.3 million bushels sold, showing a lot of buying interest at these prices.  Corn closing at the 20day moving average will also have fund managers wanting to clean up sold positions ahead of the end of the year, and could support a decent bounce. 

Soybeans closed down .06 ¼ today.  Fund liquidation over the last couple of weeks  still the driver in lower soybean futures.  Export sales this week of 64.0 million bushels were also above trade expectations but the pace still lacks the forecasted USDA projection.  The United States is still the cheapest origin of soybeans, corn, and wheat at the moment so the pace could pick up. 

After a mixed start to the day, Chicago wheat closed up 3 ½.  Open interest in Chicago went down 3,575 contracts today, and the average estimate for today’s wheat export sales is 450,000 to 650,000 tones. In world news, Germany’s winter wheat area fell by nearly 5.0% to 7.36 mln acres due to unfavorable weather conditions.

Live Cattle closed +.225 today. With tomorrow’s cattle on feed report, the trade is looking for significant expansion in the cattle industry. As a result, the market seems reluctant to move too far in either direction until the report is released at 11:00 AM central time.

Hogs closed + .200. A decline in average hog weights for the second straight week in thought to be the fundamental reason behind today’s gains. With the hogs and pigs report tomorrow, traders are looking for all hogs and pigs on Dec 1 to be about 2% above year-ago levels. 

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.12.19
2017-12-19T02:35

Corn could not break free from the pressure of beans and the heavily net short position and mindset of funds (in corn and wheat combined), + ½ (Mar). Even though there was above expected rainfall in certain Argentine areas over the weekend, the factor keeping some speculators from over-extending to the short side is that the GFS and EU South American weather models are far from agreement, even in as short of a timeframe as the 7-day outlook. Money managers are holding a net short position of 200K+ contracts, and if anything causes them to cover these positions, a bounce will be in order. No new corn exports were reported in the daily log.

Soybeans continued to shed length and price value, -5 ½ (Jan). While South American weather and potential La Nina tends to be the focus this time of year, one should not forget about overall government stability. Brazil, for instance, is seeing volatility with their Real currency, as needed reform programs have been pushed to the back burner. A weak Real affects U.S. exports negatively. Also weighing on soybean futures is the steep decline of palm oil, losing 16% in November alone. In daily export reporting, the USDA announced a sale of 145K MT of beans to “unknown” destination for 2018/19. Sales of late have been a bit disappointing considering that beans off the PNW are the lowest priced option for Asia, However, China has not been quick to resume buying with non-threatening current market forces.

Wheat was mixed in trade today, with support coming from a U.S. forecast that is still too dry and cold: Chicago SRW -1, Kansas City HRW + ¾ and Minneapolis HRS -1 ½ (Mar). Cold temps bring the elevated threat of winterkill to the North Central Plains. The trend the last few sessions has been for positive gains in the overnight, followed by the days being unable to sustain. The Commitment of Traders report showed almost net record fund short positions in both SRW and HRW contracts. There were not any fresh wheat sales reported today, but the U.S. has the lowest bid for Iraq’s latest tender, which will be reported next week if transacted.

Live Cattle traders liquidated more length, especially in the deferred months, with Feb finishing -.150. Key reports this Friday include Cold Storage and Cattle on Feed. Estimates for the Cattle on Feed report (for feedlots with greater than 1,000 head capacity) include: On Feed 106.5% of a year earlier, Placements 105.3% and Marketings 105.3%.

Hog futures seem to be under the control of the bears, -.500 (Feb). This following a volatile day yesterday that saw the Feb contract trade to its highest level since Dec 6th only to sell off sharply into the close. Ample supplies are winning the fight, as it is thought there is plenty to go around to cover retailer holiday needs. Look to Friday’s Hogs and Pigs Report and Cold Storage as a barometer for near-term 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 they may not be suitable for all investors.
Water Street Solutions Daily Report 12.18.2017
2017-12-18T01:44

Corn had another listless day of trading, - ½ (Mar). Export inspections were nothing to “write home to mom about,” coming in well under the expected 700K MT at 594,281 MT. In related grasses, China picked up 168K MT of sorghum in a private sale for 2017/18. Corn seems to be finding support in the upper 3.40’s zone. Hopefully a story will emerge to help scare managed funds out of their large net short positions, which are estimated around 200K+ contracts. The CBOT recently lowered margin requirements for corn futures, maybe a good sign that the market will not go much lower?

Soybeans saw more liquidation with weather in South America not offering any new morsels to tantalize buyers, -5 ¾ (Jan). A drier bias for Argentina and Southern Brazil towards the end of the month could provide fodder to reverse sentiments. Argentina is way behind soybean planting, and typically anything planted after Dec 15th yields less, according to AgResource. Declining meal prices also provided weakness, as investors shed excessive fund length. USDA weekly inspections provided a boost, as they were well over expectations, coming in at 1,774,555 MT for the week ending Dec 14th vs. estimates of 1,350,000 MT. Some fundamentalists think that China may be way under bought for the Jan-Feb-Mar timeframe, but only time will tell.

Wheat continued where it left off last week with modest, incremental gains, +2 ¼ (Chicago March). Kansas City HRW and Minneapolis HRS were mixed, +1 ¾ and -1 ¼ respectively. It will be worth watching the Plains and W Midwest after Christmas, with bitterly cold temps forecasted. This could have an effect on HRW wheat and will be watched closely. Wheat did well on export loadings this week, as the USDA announced inspections of 585,637 MT, well over estimates of 350K MT. Russia’s prices have been hard to beat, as they are down around a dollar from last week in response to an aggressive Romanian offer to Egypt’s GASC.

Live Cattle had a setback today to start the week, -.425 (Feb). It was thought leading into today’s session that new strength in the cash markets and expectations for a drop in beef production in the next quarter could be enough to spark February futures, according to Hightower. The Cattle on Feed report will be watched with anticipation this Friday, to see if large placement numbers are confirmed.

Hogs shed some length ahead of Friday’s Hogs and Pigs Report, -1.125 (Feb). It was thought today may feature gains, with a recovery in the cash pork market, however, the burden of short-term supplies won out. Some positives to consider include ham and belly prices rebounding, a decline in hog average weights last week and news that China’s pig herd is down 6.3% and sows down 5.6% from last year. 

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.12.15
2017-12-15T03:16

Corn bears have remained in control, as the March contract continues its descent lower, -1. December went off the board at 3.36 ¼, which will now be the downside target for the March contract. From a technical perspective, momentum indicators are declining but also in oversold territory. The USDA announced a sale of 134,503 MT to Costa Rica. Low prices and a relative weak Dollar are keeping the U.S. competitive, and export sales are sorely needed by all the grains to catch up to USDA yearly projections. Watch the South American weather forecast and results closely next week.

Soybeans were unable to post positive numbers to end the week, - ½ (Jan). A bright spot included a pair of export sales, one to China for 257K MT and another to “unknown” for 126K MT. The NOPA Crush report showed a record amount of beans crushed in November at 163.55 mbu. Soyoil stocks were over expectations of 1.270 billion lbs at 1.326 billion lbs. However, this is lower than last year’s 1.339. The soyoil yield was 1.2% below the WASDE forecast, estimated to be 11.46 lbs/bu. Overall, the report was viewed as mildly bearish soyoil and slightly bullish soybeans. The market will be closely watching three weather fronts scheduled to cross Southern Brazil and Argentina over the next seven days. Expect the market to react either up or down in the short-term.

Wheat was mixed, finding support in a sale and less acres predicted for next year, Chicago finishing EVEN. The USDA announced a sale of 130K MT of U.S. soft red winter to an “unknown” buyer. All sales are welcome, as the U.S. and rest of the world battle the Russians at every turn. If Informa is right, wheat acres planted in the U.S. in 2018 will be down from last year’s record low of 46 million acres to 44 million acres. Informa estimates winter wheat plantings will total 31.1 million acres compared to 32.7 million last year. And, last year was the lowest acres planted in over 108 years. Kansas City HRW ended – ¾ and Minneapolis HRS +3 (Mar).

Live Cattle finished the week with a bang, +1.875 (Feb). Typically, cattle rally into the April timeframe, but it may be difficult for sustained rallies due to the supply glut. Longer term, the concern is with large grain carry-outs on hand, and if we were to have another record crop year, prices will be driven down which could lead to overfeeding and more tonnage of animal weights. For some, it may be worth considering hedging the latter half of 2018 proactively, with attractive 1stquarter levels. 

Hogs followed yesterday’s volatile trading range with another gain, +.900 (Feb). Getting speculators attention, export sales up for the week of Dec 7th over the average of the last four weeks and 6.8% above last year, as well as a decline in average hog weights last week. Hog production for the week ending Dec 2nd was 546.6 million lbs, up 20.42% from a year ago. 

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.12.14
2017-12-14T01:48

Corn gave in to pressure, fighting the negative pull of soybeans, - ½ (Mar). There is not much news to consider today other than the export report and Argentina weather forecasts. U.S. corn is cheap on the world market, and the hope is that exports will improve. Today’s weekly export sales log pegged corn at 866,900 MT, in the lower half of the range of estimates spanning 750K-1.2 MMT. For the year, corn exports are running 28% behind last year, but exports are a much smaller piece of the pie than with beans. Buyers this week included China, Japan, Latin America and Korea. Related to exports, NAFTA is on the back of everyone’s mind, and the importance for Ag of keeping this trade treaty alive and well. More negotiations between the three trading partners are planned into the January timeframe.

Soybeans felt pressure today from hedge managers starting to unwind long held spreads (long soybeans vs short grains) and weak chart action, with soybeans closing below the moving averages and a multi-month trendline, -11 ½ (Jan). USDA weekly export sales were in the lower end of the range of expectations at 1.58 MMT compared to thoughts of 1.4-2.1 MMT. Soybeans have a ways to go to catch up, running 16% behind last year’s numbers. In biodiesel news, the market is watching to see if the biodiesel tax credit can be reinstated and retroactive. Senator Grassley from Iowa has been fighting hard on behalf of big Ag producing states. Soyoil could prove to be an emerging story, with declining domestic stocks and funds entering short positions, against a backdrop of strong biodiesel demand.

Wheat was able to generate a little short-covering bounce, after descending into new lows, +1 ½ (Chicago March). Wheat was the sole grain to exceed the USDA’s projected range of weekly exports (250K-500K MT), coming in just shy of 600K MT. The market is also keeping an eye on the Drought Monitor, as dry conditions continue to expand in Kansas, Nebraska and Colorado. Kansas City finished +2 (Mar) and Minneapolis +4 ¾ (Mar).

Live Cattle continued down the path of choppy trade this week, regaining what was lost in yesterday’s trade, +.775 (Feb). Open interest was up yesterday by 1,400 contracts, and directional funds are getting short. Not a whole lot of cash trade this week, so futures have been able to hold somewhat steady. With full feed yards, it is hard to envision much of a sustained, late season rally. However, from a technical standpoint, there is a strong trend of futures ascending higher from mid-Dec through the end of the year. Trade will likely get thinner as we get to Christmas, and through the New Year’s holiday.

Hogs saw the Dec contract go off the board today. February futures broke out the latter part of the session for a decent gain, +.825. The pork cut-out fell by almost $5 yesterday, but it did not have a measurable impact on futures – why? According to the Daily Livestock Report, it is thought that traders had already anticipated the seasonal decline and had taken value off the winter/early spring contracts prior to yesterday. Going forward, key metrics to monitor include export demand, retail features, producer currentness (affecting weights) and inventory numbers. Hog daily slaughter numbers are at the highest level all year.

In Other News, the Fed raised interest rates by 0.25%, and plan several more hikes in 2018. Higher interest rates in conjunction with the new tax plan (which is proposed to limit interest rate deductions) may lead to a contraction in land values over the next couple of years. This could be a negative situation for farmers using land for collateral, as more collateral is being demanded for loans. Now may be a good time to start dialogue with the bank to discuss getting ahead of the curve. 

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.12.13
2017-12-13T02:47

Corn rebounded for a small gain, as traders digested the report served up yesterday, +1 ¼ (Mar). As the USDA reported, ethanol demand continues to support corn, in spite of lackluster exports to-date. While the EIA Ethanol report today showed production down from last week, it was still 4.71% over last year, coming in at 7.623 million barrels for the week. Ethanol stocks were down slightly from last week, but still running a hefty 17.29% over last year. Corn used for ethanol was 113.36 mbu, well over the 104.848 mbu weekly average needed to meet the USDA projection for the year. Will production be able to continue at this rate with current demand?

Soybeans were able to find stable footing at the 100-day moving average after yesterday’s post-report setback, +3 ½ (Jan). The USDA trimmed back exports, and the U.S. needs to make up ground in the next several weeks before the new Brazilian crop hits the market in February. The trade is squarely focused on South American weather and any changes to the forecast. Look for next week’s potential rains to be very influential, depending on how much and where they occur. Forecasters are fairly confident that Argentina and Brazil could both see two separate rain events in the next ten days.

Wheat took over the reins today, leading the grains higher with help from a weak Dollar, +6(Chicago March). According to AgResource, wheat’s gains can be attributed to short covering and reduced precipitation chances for the parched Plains next week. Russia continues to fortify its position as the world’s leading wheat exporter, as they have worked out an agreement with Brazil that will put them in first position to supply the difference when Argentina encounters a yield shortfall. The U.S. is on the outside looking in, as previously it was an opportunity to supply U.S. HRW. Kansas City HRW +5 and Minneapolis HRS +5 ¾.

Live Cattle lost ground again today after making a strong recovery yesterday, -.775 (Feb). The USDA revised beef production estimates for the 4th and 1st quarters lower by 95 million lbs and 5 million lbs respectively. Additionally, they lowered the 2018 yearly estimate by 30 million lbs. The market appears to be oversold in its current state. Has it reached a point where selling is drying up?

Hogs are having a hard time overcoming pressure from declining pork prices. However, futures found support at the 200-bar moving average, closing above and posting a modest gain, +.275(Feb). The USDA reported yesterday that 4th quarter pork production is estimated to be 200 million lbs lower, while on the other hand pork bellies are pressuring futures, losing $7.20 on Monday and $11.35 yesterday. 

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 they may not be suitable for all investors.
Water Street Solutions Daily Report 2017.12.12
2017-12-12T01:56

Corn showed modest gains post-report before succumbing to pressure, -1 ¼ (Mar). The report did not produce any fresh news that will move the CBOT out of a sideways trading mode in the near-term. Ethanol demand was raised by 50 million bushels, resulting in U.S. corn ending stocks being lowered by 50 mbu. World corn ending stocks got a small increase, up 500K MT. Keep any eye on whether rains materialize/dissipate over Southern Brazil and Argentina over the next few days, as it will be essential for a South American weather narrative to emerge in order to see any kind of a sustained recovery.

Soybeans responded as expected to a mildly bearish report, -6 ¾ (Jan). WASDE cut U.S. bean exports by 25 million bushels, resulting in ending stocks being raised by 20 million bushels to 445 mbu. World soybean ending stocks were upped to a record 98.3 MMT, directly attributed to the cut in U.S. soybean exports, as the South American soy crop production was left unchanged. USDA daily export sales on the board today included a private sale of 168,300 MT to “unknown” destination for 2017/18. Also, a previous sale of 492K MT to “unknown” was changed to “China”. The hope is China is as under-bought as rumors have purported, with U.S. export sales needing a shot in the arm.

Wheat responded in kind to burdensome report results, -2 ¾(Chicago Mar). WASDE increased U.S. wheat stocks by 25 mbu to 960 mbu, tied to a reduction in U.S. exports. The U.S. is positioned relatively well to compete on the world export stage, but a lot depends on Russian and European export pace. If Russia can continue on its record pace of export loadings, it will be difficult for the U.S. to make headway. World wheat ending stocks were also upped by 1 MMT to a record 268.4 MMT. European and Canadian wheat output were both viewed to be higher, while the Australian crop was viewed steady with last estimates. Other wheat results: Kansas City HRW -1 ½ and Minneapolis HRS -3 ¼.

Live Cattle had a Turnaround Tuesday, reversing course from multiple sessions to the downside, +1.425 (Feb). Trade action took a corrective posture today, as long liquidation selling has been the recent trend, with specs still holding a large net long position.

Hog futures were up modestly in the expiring Dec contract, but down in the deferred months, -.500 (Feb). Speculators continued to shed length, as confidence has been dampened by recent losses. Dec futures will go off the board on the 14th. The recent slide can be contributed in part to a weak pork cut-out and producer selling pressure before the 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 they may not be suitable for all investors.