Commodity Index
The CCI/CRB fell into an open chart gap and recovered to a modest weekly gain. A push above last week’s high will turn all trends upward amid a falling US dollar. Foreign capital continues to seek other non US investment based on the political landscape across the US and the building US budget deficit. Europe is seen as the new investment hotbed with Australia and Canada following close behind. The flow of funds is out of the greenback which is supporting a host of raw material markets. The next upside target for WTI crude oil prices is $66-68.00 with strong resistance noted above $70.00. Since June, AgResource has become more bullish of hard assets as the outlook for the world economy strengthens and emerging world import demand improves. A further recovery in the CBR is expected in coming months.
Corn
March corn tested its contract lows following bearish USDA report amid another week of poor export sales. The USDA’s Stocks/final 2017 production data did not materially affect the structure of world grain markets. But the report did validate the lack of a needed demand driver for a sustained rally. That will now be left to weather and currency values to maintain support. ARC advises against selling breaks. Funds’ huge short position and noted moisture deficits in Argentina and potentially for the winter Brazilian corn crop look to provide support. A rebound in US ethanol production lies ahead, and the pace of ethanol exports will remain stout. End user demand will continue to surface at current prices and Chinese corn values are at a 2.5 year high. It’s late to be bearish of corn.
Wheat
Wheat futures ended 10-14 cents lower solely on post-USDA report disappointment. NASS pegged 2018 winter wheat seeding unchanged from 2017 vs. ideas that acreage would decline 1-2 Mil. And as such, there’s less of a US supply story in 2018 – assuming normal Central US weather.
ARC maintains a neutral outlook and cautions against chasing breaks. It’s possible March CME tests $4.10-4.15 support early next week, but amid expanding & intensifying Plains drought, and cold temps across Russia, we doubt much new selling will emerge. Perhaps more importantly, the US dollar continues to weaken and major wheat exporter currencies continue strengthen. Russian cash fob offers will be stable in the weeks ahead. Better weather is demanded in the US this spring to keep end stocks above 900 Mil in 2018. This is no place to turn bearish of wheat.
Soybeans
Soybean futures recovered on Friday as NASS cut its US soybean yield by .3 BPA to 49.1 BPA. US 2017 soybean production wasa record large at 4,392 Mil Bu, up 96 BPA from the prior year, all on an expansion of seeding. ARC disagrees with the 2018 WASDE Baseline US soybean planting estimate of 91.0 Mil acres, we see seeding at 89.5 Mil acres due to switches into corn, cotton and sorghum.
2017/18 South American weather will be the big determinate in whether USDA’s soy export esimate needs to be lowered even more?
ARC sees the Brazilian soy crop in a range of 110.5-111.5 MMTs and Argentina between 53-56 MMTs. The ‘18 South American soy harvest will not equal last year’s record.
China is short bought in its forward soybean import needs and is expected to be a bigger buyer in the week ahead. ARC sees spot soybean futures caught in a $9.25-10.25 range into March.
Cattle
Cattle futures recovered late week as the futures market discount to the cash market offered support. However, the weekly chart below confirms that US cattle are in a bearish trend with seasonal price highs likely forged in late 2017. The US killed 611,000 head of cattle in the week ending January 13th , up 2,000 head from a comparable week in 2017. US carcass weights are record large at 838# which is adding the US beef supply. The impact of arctic cold across the Plains appears to be limited due the lack of snowfall or muddy pens.
ARC research sees the cattle market consolidating its recent losses for a few weeks, but we maintain a bearish longer term outlook as US cattle weekly kills reach 640-650,000 head during early summer. The large supply of US beef looks to push cash cattle prices lower to a $100-105 mid summer bottom as the market encourages demand.
Hogs
CME hog futures closed mixed to slightly lower as the market reached some of the long held upside price targets. The weekly chart below reflects that February hog futures pushed into an open chart gap left in mid summer, while June hogs pushed near $86.00, a gap left from the expiration of the June futures. Summer hog futures at $85-90.00 are reaching fully priced value levels until more is known about future US red meat demand? Different in 2018 is that US beef production will offer keen competition to US pork during summer amid its abundant supply. This will produce some upside drag in hogs – even amid the expansion of US slaughter capacity.
AgResource’s view of hogs is shifting to neutral, but cash belly prices could again surge near $180-190/cwt on strong demand. Current cash belly prices sit at $127/cwt.