Top Farmer Closing Commentary 01-02-18

CORN HIGHLIGHTS: Corn futures edged higher today with gains of 2-1/2 cents in both front month Mar, as well as new crop Dec. Mar closed at 3.53-1/4 and Dec at 3.86-1/2, both close to mirroring their highest close from last week. Firmer wheat prices, as well as a weaker dollar, were contributing factors. Lack of strong farmer selling and commercial buying were noted as well. Funds remain aggressively short, and this too leaves the market vulnerable to short covering. Even on quiet sessions, when managed money moves out, their contracts can be rather large and consequently put pressure on prices. Also noted is rising internal prices in China, and this is thought to represent continued strong world demand. Yet, exports continue to lag behind USDA projections, which are down from a year ago. Our bias here is that end-users switch to a buy-as-needed approach. As the season wears on, more aggressive buying will likely occur. So far, by being lackadaisical on their buying, it has probably been a cost-saving measure.

SOYBEAN HIGHLIGHTS: Soybean futures traded both sides of steady before finishing with gains of 2-3/4 to 6-1/2 cents. Nov 18 led today's rally, closing at 9.82-1/4. Cold weather suggesting increased meal, as well as oil usage, helped provide underlying support, as did a lack of strong farmer selling, as prices have recently corrected downward more than 60 cents from highs in early December. The strength in row crop commodities may have helped to provide underlying support for beans, which gave away gains from earlier in the session. Yet, our bias is that while conditions have improved in South America, we're not convinced that Argentina, for the most part, is looking at ideal conditions. Forecasters continue to call for mostly dry over the next five days, and only light rain shortly after that. Look for continued light farmer selling to provide support, and export activity to pick up. Attention will focus on the January 12 Supply/Demand report. Most are suggesting the USDA could slightly lower exports, as sales are running behind a year ago, as well as forecasted amounts. We're not so sure of this.

WHEAT HIGHLIGHTS: A very cold forecast and prolonged temperatures well below normal are providing underlying support for wheat prices, as concern over lack of snow cover is keeping traders on the offensive. January 12 will be the next USDA Supply/Demand report, and once again, it is expected to show large world inventories. Any rallies in the near term may be short lived. Yet, wheat is a commodity that has been in down trend for a significant amount of time, and from a historical perspective, generally has price rebounds along the path to new crop production. Our point, we're going to continue to remain patient initiating new sales. However, rallies cannot be ignored either, in particular if you're behind recommendations.

CATTLE HIGHLIGHTS: Cattle futures closed sharply higher today, drawing support from both supply-side concerns and favorable demand outlook. The nearby Feb live cattle contract closed 1.80 higher to 123.35, Jun closed 1.52 higher to 115.17, and Aug closed 1.85 higher to 112.35. Feeder cattle contracts were sharply higher as well, with Jan futures up 3.52 to 149.52, and Mar futures up 4.20 to 146.87. Extremely low temperatures over the past week have been supportive, and look to continue according to the 6-10 day and 8-14 day forecasts. Cold and wet weather is very stressful for cattle and will make weight gain very difficult. Consumer demand for beef has been very strong as of late, and looks to continue. The U.S. economy is moving along at a good clip, and consumer confidence is high. Both are conducive to increasing consumer beef demand. In fact, the USDA sees the average consumer eating 222.2 pounds of red meat and poultry this year, beating the record set in 2004. Cash trade late Friday afternoon was reported at 123.00, 3.00 to 5.00 higher than the previous week. On Friday afternoon, choice cuts closed 62 cents higher to 202.90, and select cuts were 2.07 higher to 192.98. By mid-session today, choice cuts were up another 1.32 to 204.22, and select cuts were up another 2.57 to 195.55. Today's closes were near the highs of today's session, though may be creeping towards short-term overbought levels. Overhead resistance for the Feb contract will be at the 50-day moving average of 123.75. A close above the 50-day moving average would be the first since November 30.

LEAN HOG HIGHLIGHTS: Hog futures finished softer today, after cold weather support was unable to quell fears of a surplus in hog supply. The nearby Feb contract closed 1.05 lower to 70.72, Apr closed 80 cents lower to 74.85, and May closed 20 cents lower to 79.80. Extremely cold temperatures are no doubt making weight gain more difficult, but the freezing temps may also be slowing down marketings. If this is the case, an already heavy hog supply may be backing up in the country. In addition, pork production for Q1 is expected to drop from Q4 production by just 75 million pounds. The normal production drop is somewhere between 150 to 300 million pounds, so the steadier production could dampen normal seasonal cash recovery in the first months of the year. Carcass cutouts closed 19 cents higher on Friday afternoon to 78.22, and were up another 74 cents by mid-session today. Loin prices were down 2.12 today 75.81, but picnics were up 3.29 to 68.34, and bellies were up 4.58 to 114.61, leading the way for higher pork prices. In addition to a mixed to negative fundamental picture, hog futures were under technical pressure as well. The most recent bounce started on December 20 was probably too much too quick, and left prices in short-term overbought levels. Stochastics are starting to return to a more sustainable level.




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