Stewart-Peterson Market Commentary

Closing Commentary - December 17, 2018

Top Farmer Closing Commentary 12-17-18

CORN HIGHLIGHTS: Corn futures ended quietly while continuing their tight range-bound range of the last two weeks. Supportive news is being offset by cautious or potentially negative news. After gapping higher the weekend of the G20 Summit in Argentina, prices have gone almost comatose. The Mar corn trading range has been between 3.87-3/4 and 3.80. A gap was left on the chart on November 30 from 3.78. Managed money continues to add long positions nearing 100,000 contracts, a buildup of well over 40,000 from the previous week. This was news gathered from the Commitment of Traders report which was released on Friday and quantifies the positions through last Tuesday. Yet, an increase in farmer selling is also keeping a lid on rally potential as the National Corn Index price, which tracks multiple hundreds of grain elevator bids, shows prices improving from a September low of near 3.00 a bushel to near 3.50. This is likely enough to encourage producers to keep moving inventory. The carry in the market is also encouraging producers to sell, and when they do elevators will likely hedge. Therefore, funds are buying, and elevators are hedging.

SOYBEAN HIGHLIGHTS: Soybean futures edged higher today keeping its somewhat erratic movement intact. Prices found support today from a good export inspection figure at 35.8 million bushels. Inspections, however, are well behind last year by 40% with this year's total figure near 560 million. This, of course, is due to a lack of strong export business with China this fall. Yet, that picture may be resolved some, but it's likely also that this year's total export sales will not reach last year's. This is no surprise. The weather market, in earnest, occurs from near mid-December and onward for the Southern Hemisphere. Dry pockets in parts of Brazil are providing underlying support and may have had traders on the offensive today. We also believe U.S. farmers have sold significant quantities of beans back in late May and then again recently, which might suggest that commercial hands are strongly long and consequently the ability for bean prices to drop much, at least in the near term, is not strong.

WHEAT HIGHLIGHTS: Wheat prices found support today from expectations of some weather uncertainty in the Southern Hemisphere, as well as higher prices elsewhere with Russia gaining over 4% last week. The technical picture looks supportive with Mar Chi closing at 5.35-1/4, in line with last week's highest close for the week. New crop Jul Chi closed 5 higher at 5.47-3/4, another decisive close above the 50-day moving average which now sets the stage for recovery to between 5.76, the 100-day moving average, and the most recent high of 5.87-3/4 from October 10. Declining projected world carryout should be supportive. However, the problem has been recent USDA reports carryout has actually moved higher and the trade has responded by mostly weaker prices. Yet, reading between the lines, expectations are that quality wheat worldwide for export will be down and that any adverse weather sets the trigger for further price recovery.

CATTLE HIGHLIGHTS: The cattle market started the week off with sizable losses, particularly in the feeder markets. Dec cattle closed 55 cents lower to 119.02, Feb lives closed 85 cents lower to 121.55, and Apr lives were down 65 cents to 123.85. Jan feeders were down 2.20 to 145.37 and Mar feeders were down 2.45 to 143.32. Choice beef closed 1.51 lower on Friday afternoon to 210.96. This was its lowest value since October 23. Choice beef was able to bounce 1.33 higher this morning to 212.29. Cash trade Friday afternoon was somewhat disappointing, with activity centered between $118-$119. This was steady to even slightly lower than the previous week's trade, likely due to tightening packer margins and short upcoming kill weeks. Relatively warm and dry weather for the rest of the week should keep cattle heavy in the Plains. Technically, today looked much worse for the feeder markets than the live markets, but neither were exactly pretty. The best traded Feb live cattle contract made a gap lower session but was able to hold onto support at its 20 and 50-day moving average. Prices closed about halfway up the trading range today, not as negative as the early morning session looked. Prices were likely overbought on Thursday and Friday, and coupled with bearish near-term fundamentals, today looked like an easy sell. Feeders saw similar price action today, with the best traded Mar contract closing below its 10 and 20-day moving average support levels for the first time since December 10. This opens up a near-term downside target of the recent lows at 140.35 for the Mar contract. A break below that level would do significant technical damage.

LEAN HOG HIGHLIGHTS: Hog futures put in moderately lower closes today, falling below their recent trading range to the lowest levels since mid-November. The nearby Feb contract closed 67 cents lower to 63.82, Apr closed 1.07 lower to 68.97, and Jun closed 80 cents lower to 82.37. The CME Lean Hog Index closed 19 cents lower today to 55.17. Carcass cutouts closed 1.37 lower on Friday afternoon to 71.80 but were up 3.17 this morning to 74.97. Bellies were down 1.91 to 122.19, but loins were up 2.15 to 67.22, butts were up 1.46 to 87.02, picnics were up 1.75 to 53.42, and hams were up 8.77 to 61.14. The lower closes today were somewhat disappointing considering the sharp jump in pork values and two additional cases of African swine fever reported in China over the weekend bringing the running total to 90 cases. However, hog markets are still holding a larger than normal premium to the cash market, and this is the time of year when domestic supply is heaviest. The nearby Feb contract gapped lower today, with a nickel in between Friday's lows and today's highs. The nearby Feb contract did make a strong recovery, closing well off the day's lows, but the deferred contracts were not so strong. Today's close below the 50-day moving average was the first for the Feb contract since November 15. Jun tested its 50-day moving average though for the first time since November 9 but was able to close just a hair above it.

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