Stewart-Peterson Market Commentary

Closing Commentary - December 09, 2016

Top Farmer Closing Commentary 12-9-16

CORN HIGHLIGHTS:Corn futures finished with strong gains, capping a very nice week, particularly for a USDA report week. Dec corn futures closed 6 cents higher to 3.525, taking out last week's highs and gaining 15 cents on the week. World ending stocks were reported at 222.3 mmt, 4 mil tonnes higher than the November estimate and 3 mmt higher than the average guess. Today's strength was drawn from zero change to US ending stocks, estimated at 2.4 billion bushels and 13 million bushels below the average guess. It appears that traders expecting a bearish report entered the market early, with a morning sell-off to the 10 and 20-dya moving averages of 3.44, but with the reports released at 11.00, short positions covered and buyers stepped back in and closed at the highs of the day. An inverted head-and-shoulders formation in the 12/17 daily futures chart gives prices an upside target of 4.10 with plenty of time to reach that. However, this time of year typically brings choppy to sideways trade, as traders buy dips and sell rallies. Strength on a winter Supply and Demand report Friday is impressive.

SOYBEAN HIGHLIGHTS:The lack of a bearish Supply and Demand report today left soybean futures with a surprising lack of resistance and a 10-11 cent bounce. The January futures contract closed 10-1/2 cents higher to 10/375, and the March contract closed 10-3/4 cents higher to 10.405. January's close today concluded a modest week's gain of 10 cents. Similar to corn, many traders were expecting a negative report, but with US stocks left unchanged and just minor increases in world ending stocks, short covering and speculative buying quickly flooded the market. Three straight days of large bean sales also provided support. Today's up day was especially impressive, considering the follow through in the US dollar, which we think was a major reason for the soybean sell-off yesterday. Similar to corn, we expect choppy trade in the near future as high frequency traders attempt to use South American weather reports to scalp trade, or make many small trades, aiming for small profits as opposed to strategies like "buying and holding". Though a lack of fundamental factors in the near term leaves us with little confidence as to which way the trend will go, a strong close today is a good sign.

WHEAT HIGHLIGHTS:A very welcome session full of short covering in the wheat market today gave the most heavily traded March contract its biggest gains since mid-October. The Dec contract was traded just 10 times, but finished 9-1/2 cents higher to 4.0025, and the Mar contract closed 8 cents higher to 4.1625. Weather concerns for winter wheat in the US persists, and news that India may get rid of import duties also supported prices early in the session. However, the lack of a bearish Supply and Demand report gave way to lots of short covering and new long positions. Though analysts have been saying for a while that wheat prices are too cheap, maybe this is finally becoming true. Gains in wheat markets today are especially impressive, considering the strength in the dollar over the past few sessions, which is very important in such an internationally traded commodity. The fact that the winter wheat crop is still being raised in the US gives speculative of fundamental factors' added weight, particularly with how forecasts have been shaping up lately.

CATTLE HIGHLIGHTS:Cattle prices edged lower with minor losses of 12-32 points as December led today's drop, closing at 108.72. After last week's weekly reversal downward on Dec futures, this week's minor gains suggest prices are consolidating. For the week, Dec cattle closed 50 cents higher. Cold and snowy weather is helping provide support this week, as the storm systems in the northwestern Plains, as well as forecasts for parts of the Midwest to see very cold temps with heavy snow, we believe provided support late in the week. A significant recovery in hog futures was viewed as beneficial as well with cash prices gaining near 15.00 in the hogs sector the last three weeks. Estimated slaughter today was 113,000, which is the same number as a week ago. Cutout values are holding firm with gains noted this morning of 77.00 at 190.25 and select gaining 43 at 171.85. The choice/select differential would argue that feedlots are relatively current.

LEAN HOG HIGHLIGHTS:Lean hog futures finished mixed with nearby Dec gaining 105 points as reversal of bear spreads continues in the hog market. April closed 40 lower and May 57 lower. Recovery in December has been nothing but impressive with the market bottoming in mid-October at 40.70 and now rallying 16.00 to 56.72. The 40-day moving average acted as overhead resistance today. Summer months are holding in the mid 70s with June at 76.57 and July at 76.65. We believe these two months have a little more room to work higher but should be viewed as opportunities to sell, given the 20.00 premium to the Dec and 23.00 premium to the cash index. Daily slaughters remain adequate to heavy with 437,000 estimated today, compared to 435,000 a year ago. Cutout values this morning traded at 75.81, down 7 cents. We like the overall demand for hog and beef prices despite a higher US dollar. This tells us the futures market likely overdid it to the downside. Once again, this indicates how far markets can move and the use of strategy to defend against price moves most likely outperformed outlook. The recent recovery should be viewed as opportunities to begin treating the market defensively once again, especially on deferred months where we have been patient waiting for a recovery.

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