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Closing Comments

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Closing Comments

Continued currency headlines capped commodity performance to finish the week. Euro stimulus talk (nothing actually happened) and Chinese rate cuts and lower reserve requirements sent the dollar (safe-haven) soaring Thursday and found follow through buying today. Equities in Europe and the US were higher.

Argentine election Sunday. A clear winner is not expected without a subsequent runoff. The implication to Ag there is the export tax policy. Many of the top candidates are talking about reduction of certain commodity export taxes. This would help with Argentine supply to the world market, but like politicians everywhere – talk on the trail doesn’t always turn into policy reform.

Commodity Weather Group this week noted that El Nino is continuing to strengthen. Current analogy year is ’82/’83 and the market will primarily be watching to see if with the strength comes a rapid shift to La Nina. Typical summer risk of hot/dry in the Midwest is only 10-20%, however current analysis of analogue years shows hot/dry risk at 38%. If the market sees a rapid shift, coupled with the current dry conditions – this could be the supportive factor for corn as 2016 progresses.

Corn

Corn shrugs off early losses on processer demand and slowing harvest selling pressure.

While talk of good corn yields in the west and sales in areas short on storage weighed on the market this week – strong basis in the east and continuation of bull spreads provided some support to finish the week.

US corn harvest is estimated to be 75%+ percent done, which should limit further harvest time hedge pressure on the market. At this stage, the harvest low should be fairly well confirmed. Market action has shown that sellers are reluctant below the 3.75 Dec level and processors, especially in the east are working hard to secure ownership vs a farmer reluctant to release ownership at these levels.

Corn ran out of sellers by midweek but couldn’t push through the 3.80 Dec resistance area. From a technical standpoint, the Stochastics are pointed higher after coming out of an oversold area, the MACD has stabilized and a three-day fade buy is setup right now that will signal potential strength his coming week upon taking out today’s high.

Soybeans

Soybeans battle headwinds of the higher dollar and while continuing to find business with China.

Rains in north central Brazil and concern that the above expectation US yields will be reflected in the upcoming USDA report on November 10 will likely provide resistance to the market in the near-term.

Profitable Chinese crush margins, a growing Chinese sow herd, profitable (although not as profitable as a few days ago) US crush margins and the announcement by the Chinese of approving new sources of US pork continue to support the market.

Technically soybeans have been able to maintain their upward channel, but have struggled at any attempt toward the 9.20 Nov area. Now that Nov options are off, the market may be able to look to demand and SA weather – if the currency markets can stabilize.

Wheat

Wheat runs out of sellers late in the session. Asian buyers come to the US and global production conditions still uncertain.

Large global wheat supplies, rains in the plains and a bit better Russian weather pressured wheat this week. But the fund position is very short and headline concerns could provide additional short covering opportunities to come. ABARES warned that strong El Nino could lower the Australian wheat crop.

Export continues to be disappointing, but has been able to drum up some business over the past few weeks in spite of the premium the US has in the global market. Ethiopia has tendered a whopping 1MMT of option origin milling what for shipment in the next four months.

Technically Kansas City still cannot gain ground on Chicago. The market will be watching for export business, weakness to appear in the dollar and any weather issues to trigger short covering. Wheat is oversold, but rallies will still struggle beyond 5.30 Chicago without news.

Livestock

Cattle on Feed matches trade expectation while Hog margins narrow.

Cattle on Feed came in at analysis expectations with On Feed Oct 1 at 102% of a year ago, Placed at 96% and Marketed at 98%. This leaves the number of cattle moved into US feedlots in September falling to their lowest level since the govt began compiling the data in 1996. The industry is still slaughtering fewer cattle than the number of animals on feed, suggesting that packers last month had difficulty coping with the backlog of heavy animals.

China, the world’s largest pork consumer, will soon resume imports from 14 US pork plants and warehouses after halting some shipments last year over the use of ractopamine, which promotes lean muscle growth. While a date was not released for the resumption, the decision should mean a boost to eventual pork exports.

Closing Market Snapshot

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All opinions expressed in this commentary are solely those of Water Street Advisory. This data and these comments are provided for information purposes only and are not intended to be used for specific trading strategies. Although all information is believed to be reliable, we cannot guarantee its accuracy or completeness. There is significant risk of loss involved in commodity futures and options trading and may not be suitable for all investors.

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