Demand for Soybeans Captures All Market Eyes

Cattle markets face retail weakness.

Weekly exports were pushed back a day to this morning, and that report came in disappointing.

Trade was looking for sales of 650K to 1,000K and instead only saw a number of 429K. This was a sizable setback from previous sales reports, and it set a negative tone through the day.

We should keep in mind that this sales report reflects last week's sales between Christmas and New Year’s, which should be expected to be slow.

Bears will look at this as two slowdowns in a row on the export report, giving reason to pick up selling expecting a third and convincing report next week. With March starting the day off in the 360 resistance area, it didn't take much of a push to convince this market to move lower.

Trade also spent most of the day likely expecting that the analysts’ estimates for next week’s report will show a bearish number. Those expectations also likely weighed on corn today.

Downside was limited, however, from anticipation of more index fund buying on the close again today. Index buying will occur on either positive or negative trading days so no matter what, that light support will be found on the close until the buying is done.

Bulls

  • Index fund buying is not over yet, so bulls can continue to expect support at the end of each day until the buying is done.
  • Buyers will likely choose to hold off until another setback is seen back down to chart support just under 350.

Bears

  • Weekly exports came in at 429K, which was well below the range of expectations (650K to 1,000K).
  • Most traders will start with a bearish bias going into next week’s reports, which should lead to more pressure the closer we get to those reports.
  • Bears can now make the case that corn has seen three weeks in a row of slowed corn sales on this weekly report.

Cattle Commentary

The closely watched measure of the U.S. stock market, the Dow Jones Industrial Average, touched up to 19,999.63 today. Not quite enough to hit the trade’s 20,000 psychological goal but still close enough. The jobs report was a little disappointing with gains of 156,000 last month. That was under the trade’s 178,000 expectation.

On a positive note, the market found good news in the wage portion of the report. Wages showed a gain from the 2.5% year-over-year increase in November to now a 2.9% gain in December. This is the largest annual growth since June of 2009.

The Atlanta Federal Reserve’s GDP model, called GDPNow, left its estimate of Q4 GDP unchanged at a 2.9% growth rate. This would be a good finish to a year that saw only +0.8% and +1.4% year-over-year gains in the first two quarters. Q3 was also a good one at +3.5%. We will point out that the New York Fed’s own model, Nowcast, sees Q4 at only 1.89% and Q1 of next year at 1.94%.

Though the NY Fed is the main bank in the system, the Atlanta branch’s model gets a little more credibility. Allendale’s meat demand model looks at economic growth, employment, and wages. Demand will, of course, be a big issue discussed at the January 24 - 26 Allendale AgLeaders Conference.

Live and feeder cattle futures ended the week on a down note. Today’s low was the lowest price since December 16 on the February fats. March feeders, the dominant contract, fell to its lowest point since December 12. Wholesale beef prices were mixed to lower yesterday and again today. Though we do have higher retail demand expectations for 2017 compared with 2016, it is not unusual to get a little retail weakness into mid-January as consumers pay off holiday bills.

We do see a small step back in price but not for any large wholesale drop for live cattle. Feeder cattle sellers, for March-May sales, may want to take action and lock in this good price rally while it lasts. We won't take back all of this $18 rally but enough to make you feel uncomfortable. Ask your Allendale representative about a “bear put spread” or other hedging tools. 
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Rich Nelson Allendale Inc. 815/578-6161
This material has been prepared by a sales or trading employee or agent of Allendale Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Allendale’s Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.
 
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