December 13, 2018

Battle of Cash Contracts Versus Weather

Good Morning! From Allendale, Inc. with the early morning commentary for February 21, 2018.  

Grain market traders are struggling with dryness in Argentina causing crop stress and the head winds of producers needing to price cash contracts before the first notice day in March futures. The rally in the US Dollar is also a road bump for US grain and meat exports.

Technical traders are a bit concerned about the outside reversal in corn futures contracts on Tuesday after the nearly six-week rally. Look at the charts from a year ago and the pattern that developed the last 2 weeks of February. Call your Allendale representative to discuss the opportunities.

World Weather, Inc. says, “A majority of Argentina’s production region is still expected to be dry-biased through at least Saturday other than a few isolated showers and thunderstorms in the south late this week. With warm to hot conditions occurring, crop stress will increase; though, not as much in Buenos Aires due to recent rain. This evening’s GFS model run still suggested greater shower and thunderstorm activity in Argentina’s production region next week; though, confidence remains low.”

Safras & Mercado has updated their forecast for Brazil's 2017/18 soybean crop, which they are projecting a 115.6 million tonnes crop, above the previous record last year of 114.2 million tonnes.

USDA Outlook Conference is being held in Washington DC on Thursday and Friday. They will give us their first look at 2018 production acres and their guess on yield for 2018.

Chinese traders have been absent from the markets as their New Year’s vacation runs from Feb 16 through Feb 21, however the celebration continues until March 2.

March options in grains and oilseeds will expire on Friday. The strikes with the largest open interest in corn is the 360 call and the 350 put. In March soybeans the 1000 call and the 980 put as the largest open interest.

FS Bioenergia, a joint venture between Brazilian and U.S.-based investors, said it will build its second corn-based ethanol plant in Brazil's top grains-producing state of Mato Grosso. (Reuters)

Beef cutout values jumped again on Tuesday as good demand deals with tight supplies. The less than 600,000 weekly production is supporting packers profit margin. This week will have a tough time reaching 585,000 head.

Cash cattle this week could trade steady higher after the 130.00 price paid last week. Fed Cattle Exchange is offering 218 head this week.

Cattle-on-Feed Report will be released on Friday. Allendale’s estimates are: On-Feed 108.5%, Placed 99.6% and Marketings 105.5% (with one extra day).

Feb cattle futures contract has narrowed the discount to cash raising the chances for delivery going into its last week of trading.

April live cattle futures closed at a level not seen since Nov 9, 2017. Trend is up with resistance crossing at 130.10 and support comes in at 125.72.

Managed money funds were net sellers last week of 18,500 contracts in lean hogs. Price action in the pork complex has been very choppy this week.

Strength in the US Dollar is creating a headwind for pork exports on the weekly sales data. Cold storage data will be released on Thursday at 2:00 pm.

April lean hog futures are consolidating in a range of 68.00 and 71.25. A close outside this range will carry the market several dollars in the direction of the breakout.

Dressed beef values were higher with choice up 3.35 and select up 2.97. The CME Feeder Index is 148.11. Pork cutout value is up 1.36.

Technical Chart of the Day

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