Stewart-Peterson Market Commentary

Closing Commentary - February 21, 2019

Top Farmer Closing Commentary 2-21-19

CORN HIGHLIGHTS: Corn futures finished with solid gains of 3 to 4-3/4 cents, as the front three months all lead today's gains. Nearby Mar closed 3.75-1/2, while new crop Dec reached a high of 4.04-1/4 before closing at 4.01-3/4. Dec 20 finished up 1-3/4 at 4.14-3/4 after reaching a high of 4.15-3/4. A recovery in wheat by 5 or more cents, soybeans by 7-8 cents and positive talks regarding China all provided an uplift to commodity prices today, with row crops being a big benefactor. Weekly export sales will be released tomorrow instead of today, and this will also include catch up sales over the previous six weeks, which will then make the USDA current. The U.S. and China has started to outline commitments in principle on trade dispute issues. Consequently, this is viewed as a positive and could push the March 1 deadline back another 30 or 60 days. It is said that China may buy an additional $30 billion worth of agriculture products.

SOYBEAN HIGHLIGHTS: Soybean futures gained ground on positive tariff talk with China, as futures moved 5-1/4 to 8-1/2 cents higher. Mar led today's gains, closing at 9.11. New crop Nov finished 5-3/4 higher, closing at 9.54-1/4, an encouraging close back above the upward trendline or, in this case, resistance. The most recent upward trendline from September through early February was violated early this week, but a close back above this trend line may signal the market is not ready to go lower yet. Also supporting prices was this morning's USDA's budget baseline acres at 85 million, versus last year's 89.2 million. This is a fairly substantial shift but again appears to be for budgetary purposes only. Currently, the new crop soybean price divided by new crop corn price is a ratio of 2.37. This would potentially shift beans to corn, but this number is also not very definitive. As a rule of thumb, we have used 2.45 as an area that shifts acreage out of corn to beans.

WHEAT HIGHLIGHTS: Wheat prices rebounded today on hopes of better export talks with China and short covering in row crops as a general synopsis of today's trade activity. Wheat prices have been under heavy pressure lately with no outstanding apparent reason why other than technical selling. We are of the opinion that both small speculators and spread traders were caught on the wrong side of long wheat and short some other commodity, namely corn and soybeans. This created a margin situation and likely liquidation. While today's trade was an inside day, it did at least put the skids on the downward momentum after four consecutive lower closes. Baseline acreage numbers were released today from the USDA with wheat plantings estimated at 47 million acres versus 47.8 a year ago. Export sales will be released tomorrow and will be catch up sales due to a partial government shutdown. Tomorrow's numbers will get the USDA current to where it should be.

CATTLE HIGHLIGHTS: Cattle futures closed moderately lower today, making bearish key reversals after another day of new contract highs in live markets. The nearby Feb live cattle contract closed 70 cents lower to 127.62, Apr closed 60 cents lower to 128.60 and Jun closed 7 cents lower to 119.25. Mar feeders were down 65 cents to 143.22, and Apr feeders were down 55 cents to 145.52. Choice beef values closed 78 cents lower yesterday afternoon to 216.49 but bounced 1.58 higher today at midday to 218.07. Cash trade so far this week has not been very active. Bids in the country are only seen as high as 123 with no actual sales reported. Apr cattle are holding essentially a normal premium to the cash market for this time of year, so today's price action may be foreshadowing some weaker cash trade this week. Apr futures made new contract highs today, trading above the highs made on the 1/31 bearish key reversal. The Apr contract was able to hold support at its 10-day moving average, but the technical picture may be weakening, especially with the current rally possibly becoming overextended. Mar feeders briefly tested their 50-day moving average overhead resistance level but ultimately fell back below their 10 and 20-dy moving average levels.

LEAN HOG HIGHLIGHTS: Hog markets bounced sharply higher today on reports this morning that the U.S. and China have made significant progress for developing a framework for a possible trade deal. The nearby Apr contract closed 2.97 higher to 55.95, Jun closed 2.92 higher to 75.67, and Jul closed 2.60 higher to 78.30. CME lean hog index was down 30 cents to 54.13. Carcass cutouts were up 26 cents yesterday afternoon to 60.17 and were up another 13 cents this morning to 60.30. There is speculation that, with the recent snowstorms in Minnesota and Iowa that the production chain speed could slow down. However, understandably, today's jump was due to trade developments with China. Though pork products were not explicitly addressed, the market feels that a trade deal with China has the potential to lower Chinese tariffs on U.S. pork products significantly. This could, of course, spur large purchases of U.S. pork products to replace losses from African swine fever. The sow herd in China was down 15% in January from a year ago, and we are still seeing reports of the spreading disease. With this recent sell-off, open interest has been increasing, which suggests funds have been new sellers. If the framework described in news reports this morning is deemed viable for further trade progress, we could see funds cover shorts very quickly and new buyers step back in.




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