Stewart-Peterson Market Commentary

Closing Commentary - January 16, 2018

Top Farmer Closing Commentary 01-16-18

CORN HIGHLIGHTS: Corn futures moved higher today, finishing with modest gains of 2 to 2-1/4 cents. Mar closed at 3.48-1/4 and new crop Dec at 3.82-1/2. Forecasts for drier weather in Argentina, along with strength for soybeans for the second consecutive session, helped provide underlying support, as did the general thought that January's report is finally out of the way. The report, of course, indicated higher yield and more carryout, but should be the last set of negative variables for the 2017 crop. There is, perhaps, the likelihood of adjustments somewhere down the road, but it's also likely that continued low prices will create a better demand picture for 2018. Talk of potential inflationary concerns may be keeping the market somewhat active as well. As fun money is beginning to move into commodities as noted by the CRB Index, which has made an upturn in 2017. The CRB Index reflects a basket of commodities.

SOYBEAN HIGHLIGHTS: For the second consecutive session soybeans finished on a firm note gaining 5-1/2 cents in Nov, closing at 9.89 to 7-1/2 cents in Mar, closing at 9.68. Also, for the second consecutive session prices closed near the high of the day. A strong opening and follow-through looks impressive with futures closing above the 21-day moving average, the first time this has occurred since early December. Is the tide turning? The USDA report is behind the marketplace and drier weather forecasts for both Brazil and Argentina seem to be enough to have traders begin to either buy or exit short positions or both. Managed money came into today's trade aggressively short the market with estimates near 96,000. Funds are long meal and net short soybean oil. Our bias is the market will pay very close attention to South American weather and anything less-than-ideal will have traders on the offensive, as was noted Friday, and again today. Perhaps, just as important is the effects of a potential La Nina pattern on palm oil production. Palm oil is the largest crop of vegetable oils in the world, and as its crop goes so does soybean oil, a very important and integral part of many industries including cooking.

WHEAT HIGHLIGHTS: Wheat futures struggled throughout the session, as traders were aggressively buying beans and selling wheat reversing recent spreads. By days end, Mar Chi wheat closed down 4 at 4.16-1/2, KC down 4-1/4 at 4.22, while Mpls new crop Sep gained 2-1/4 closing at 6.23-3/4. We're a bit surprised that the winter wheat performed as poorly as they did today, considering crop ratings are not likely to be very impressive and continued general dry patterns are discouraging. Yet, the reversal downward on Friday, with a negatively construed Supply/Demand report was enough to push prices through moving averages and create additional selling today. We would not chase the market downward selling at this time, as we believe that mostly dry conditions in the Plain states, as well as ideas that the world crop is about as big as it can get, should help provide underlying support.

CATTLE HIGHLIGHTS: Cattle futures started the week out with a positive session, trading higher on talk of increased demand prospects. The nearby Feb contract closed 72 cents higher to 118.10, Apr closed 92 cents higher to 120.37, and Jun closed 72 cents higher to 112.35. On Friday, the USDA increased production estimates for 2018. Beef production for the year is expected to be 5.5% higher than 2017, and Q1 production is expected to come in 3.3% higher than Q1 of 2017. Despite growing supply, the market may be underestimating the impact of economic strength on consumer demand for high quality beef products. Export demand to Asian countries is also expected to grow. In addition, on the off-chance that the U.S. does withdraw from NAFTA, that would tighten U.S. cattle supply drastically as the U.S. imports a huge amount of feeder cattle from Mexico. The Feb contract made up some technical ground today. Dec futures closed above the 200-day moving average for the first time today since January 5. In addition, stochastic oscillators are implying that futures may be trying to pull out of oversold levels.

LEAN HOG HIGHLIGHTS: Hog futures traded sharply higher today with strong speculative buying and bullish pork values. The nearby Feb contract closed 2.32 higher to 73.90, Apr closed 1.82 higher to 76.15, and May closed 2.00 higher to 81.00. For the week ending last Tuesday, speculative traders increased their net long position in hog futures by 6,400 contracts to a total of 54,800 contracts. Sharply higher carcass cutouts on Friday likely added to that speculative long position. Pork values closed 1.28 higher on Friday to 81.09, and were up another 36 cents at mid-session today to 81.45. Bellies were up 1.18 to 136.67 vs 127.48 at this time last week. Loins were up sharply as well, 2.07 higher to 72.78. Feb and May futures gapped higher on the open today. The Feb contract closed at a new record high. Such a large jump in prices may bring hog futures back to overbought levels quickly, but speculators seem to like buying strong pork demand.

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