Stewart-Peterson Market Commentary

Closing Commentary - December 13, 2017

Top Farmer Closing Commentary 12-13-17

CORN HIGHLIGHTS: Corn futures edged higher today 3/4 to 1-1/4 cents, as Mar led today's gains closing at 3.49. Today's trading range was very tight, with most futures near 2-1/2 cents, between high and low. Strength in soybeans and wheat helped provide underlying support in an otherwise lifeless news day. Now that the December Supply/Demand report is behind the market, expectations are that prices will continue to drift into the end of the year. Light farmer selling provides support, but a lack of new friendly news is also viewed as negative. Weather in South America will continue to become a more dominant factor with net-drying noted over the last month in northern Argentina and southern Brazil. Weather could have more impact on bean prices, but that in turn could affect corn. Bottom line is corn is likely to trend in a sideways pattern. Continue to look to sell carry and look for basis improvements to move old crop inventory.

SOYBEAN HIGHLIGHTS: Soybean futures edged higher today with gains of 3 to 3-1/2 cents erasing some losses after five consecutive sessions. Prices clawed back to the 100-day moving average, but failed to close above this key-level in Jan. However, Mar futures did close back above this level, and by some accounts could be fulfilling the right shoulder of an inverted head-and-shoulders formation. This would be considered a friendly formation. However, it's critical that bean prices hold in this 9.90 area, or at least above the 11/14 low of 9.78-1/4. A break below that would confirm prices are pushing out of their downtrend. Weather forecasters appear to be consistent with keeping rain in the forecast for northern Argentina and southern Brazil, however, some have backed away from totals and this has been viewed as slightly supportive. As has been the case in recent years, production numbers have generally edged upward as the growing season has progressed. Therefore, the market may be viewing the southern hemisphere crop estimates by the USDA as potentially conservative. The next 60-90 days will be critical, not only from a weather perspective, but will also give a strong perspective of what demand for China looks like. There are some suggesting a slowdown. Our bias is that China's demand has improved each year, and with their country on an economic path of improvement, we can't help but think demand will once again be record large.

WHEAT HIGHLIGHTS: Wheat futures showed life today, as traders stepped up buying interest, pushing futures 5 to 6 higher in Chi, 4 to 5 higher in KC, and 3 to 7 higher in Mpls. Prices have been in a steady downtrend over the last 3 months, but did show a lack of selling interest early in the morning, and in turn buying interest late. We don't want to read too much into today's activity, but this is the first solid close the wheat market has seen since 12/1. Most days the wheat market is finished in the lower half, or near the bottom of the day. With December's USDA report now behind the market, and a small increase in world projected carry-out as a known fundamental, there may be little new negative news for traders to add to short positions. In other words, the market could be searching for a bottom as expectations for new negative news seem to be far-reaching.

CATTLE HIGHLIGHTS: Cattle futures bounced today on short covering and extremely oversold technical indicators. The nearby Dec contract closed 97 cents higher to 116.15, Feb closed 1.42 higher to 119.15, and Apr closed 1.35 higher to 120.97. Beef values were softer yesterday afternoon, with choice cuts closing 6 cents lower to 205.53, and select cuts down 31 cents to 185.66. By mid-session today, choice cuts were up 29 cents to 205.82, and select cuts were up 32 cents to 185.98. Forecasts still look warm and dry for the central Plains, likely contributing to counter-seasonal weight increases. However, as we approach the end of the year, short traders are probably beginning to exit positions on expectations for a massive drop in production for Q1 of 2018. In November, the USDA forecasted that U.S. beef production will decline by 530 million lbs in Q1 of 2018, from Q4 of 2017. Production does normally decline during that time, but this would be the second largest production drop since 1997. Another reason for the short covering today was extremely oversold technical indicators. The best traded Feb contract ended yesterday's session with the most oversold stochastic reading of the contract's entire life. In just over a month, the Feb contract had shaved almost 10.5% of its value, so the bounce today was not a massive shock. Prices today did close above the 100-day moving average levels, but only about halfway up the daily trading range. Prices still have room to bounce due to oversold conditions, but overall direction still looks negative.

LEAN HOG HIGHLIGHTS: Hog futures took back minimal amount of yesterday's losses, but did not make any real technical progress higher today. The nearby Dec futures closed 20 cents higher to 63.95, Feb closed 27 cents higher to 66.80, and Apr closed 30 cents higher to 71.47. The heavy losses this week left hog prices in oversold territory. Some buying interest was likely attracted, as prices held the 200-day moving average levels on the open, and even traded past the 100-day moving average resistance level early in the session. However, as fundamental numbers were reported at mid-session, selling interest re-entered the market and pushed prices to the narrowly positive finishes. Cash prices for IA/MN Direct Hogs were negative today. In addition, carcass cutouts were closed 57 cents lower yesterday afternoon to 81.12, stabilizing after some sharp midday losses. Pork prices were down heavily again at mid-session today, with carcass cutouts down 4.59 to 76.53. This drop in pork values was led by ribs down 2.49, hams down 8.19, and bellies down 16.34. Since Monday, belly values have dropped a total of 34.89. Previously, strong belly values were a major source of support, though this is very quickly evaporating. As noted earlier, the major support level for the Feb contract at the 200-day moving average was held today. However, despite the finishes in the green, no major progress higher was made and fundamentals still point lower for the rest of the week.




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