Commodity Index:
Commodity indexes fell sharply as deep losses in US equities spilled over into the raw material markets. It was a week of liquidation in stocks and commodities. Losses in energy components averaged near 9% for the week, and metals were off by an average of 3%. Grain market components were generally unchanged or higher, while soft commodity markets were mixed. The US Dollar Index finished the week slightly higher as interest rates continue to rise. US stock indexes rallied back from deep losses on Friday, but still ended the week sharply lower, while crude oil wiped out 6 weeks of gains. Commodity indexes are expected to start the week under pressure, though we note that bull market that got underway last June remains intact with key support just under last week’s low.
Corn:
Corn futures finished the week off the highs, but still fractionally higher. S American weather and surprising increase in the US export forecast were the key drivers for the CBOT trade. Fundamentally, ethanol production margins remains positive with average margins across the Cornbelt estimated at an average of $.13/gallon versus just $.03 a year ago and an $.08 loss at the start of the year. Feed demand should also remain strong through the first half of 2018 amid record hog herds and larger cattle on feed supplies. Moreover, US corn offers are the lowest in world export markets ($7/MT under Brazil, and $10 under Argentina and Ukraine), and similar discounts are offered out to the summer.
Funds last week covered nearly 48,000 contracts and cut their net short position by more than 60%. The question now is weather the dry weekend forecast for Argentina materialize, and if funds decide to cover the remainder of their position.
A longer term down trend line cross this week just above $3.70, where we look to add to old crop sales, while we expect that spot corn prices continue to find support on any breaks back under $3.50.
Wheat:
Wheat futures finished the week higher in both Chicago and Kansas City, and were just a tick lower in Minneapolis, despite a more bearish February WASDE report. The USDA lowered cut their estimate for US wheat exports, and stocks were again back above 1 billion bushels. Funds bought over 13,000 contracts in Chicago, and 17,000 contracts in Kansas City which put them net long in Kansas City for the first time since mid October. Funds sold just over 800 contracts in Minneapolis, where funds have been net short for 2 consecutive weeks, after being long since last May. US wheat
The chart shows that longer term support in Chicago is offered under $4, and technical resistance is just over $5. Key for the US wheat market is Plains weather over the next 90 days and whether Plains wheat crop ratings can recover. We look to add to old crop sales on rallies back to $4.75-$5 basis Chicago.
Soybeans:
Soybean and meal markets ended the week higher as ongoing concerns for Argentine crops offered support. The Feb WASDE report should have been bearish for the markets, as the USDA made a record large February decrease to the soybean export projection, and conversely a record large increase to the stocks forecast. However, the meal market remained strong following the report release, and as seen in the chart rallied back to a longer term trend line that was resistance mark 2 weeks prior. Rains have fallen across the Northern parts of Argentina, but the heaviest rains have stayed north of the soybean belt, while limited rains are scheduled for the lower 2/3’s of the soybean crop areas over the next 10 days. The spot soybean crush spread is trading at a record seasonal level for mid-February, as world soymeal importers weigh the risks of reduced Argentine exports. A dry forecast next week could trigger the start of a more significant meal rally.
Cattle:
The cattle futures trade was choppy through the week, with intraday trade ranging from tight narrow ranges, to extreme volatility, and the sharp swings has added to the frustration of hedgers and cattle traders. At week’s end, spot futures were slightly lower, but still holding above a down trend line that was broken 3 weeks ago. The near term price outlook stays neutral, though there’s building concern that the market is close to a seasonal top, while the USDA again increased their forecast for 2nd quarter US beef production, which is now expected to increase 12% year over year. Between increase in beef supply, and another 5% year over year increase in 2nd quarter pork production, the US market looks to be very well supplied with red meat heading into the summer, which makes it tough to stay overly bullish livestock prices on rallies.
Hogs:
After a slow start to the week April hog futures turned south on Tuesday and fell sharply into late in the week on fund liquidation that appeared to be largely tied to weak technical conditions and the sharp drop in outside financial markets. While the CME fell sharply through the week, the cash hog market steadily moved higher every day. However, strength in cash hog prices has not been lead by pork prices, and estimated slaughter margins have been squeezed down to nothing. With record large hog numbers, and packer margins now fast approaching break even, the concern in the hog trade is that packers will soon begin slowing chain speeds, and send cash hog prices sharply lower. The February WASDE report offered few changes to the pork outlook, with record production expected into the end of the year.