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Closing Comments

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Closing Comments

In the FOMC Policy Statement, Fed Funds decided to keep interest rates unchanged between .25% to .50%, as many have been expecting. They did say they were concerned about the economic outlook, but also would not rule out an increase to interest rates in March. The labor market improvement and housing sector improvement gave the incentive to leave rates unchanged, and did so with a 10 to 0 vote.

USDA noted that the weekly export sales numbers will be delayed until Friday.

Corn

Corn had another exceptionally light volume session of two-sided before closing unchanged on the day. EIA inventory reported showed a dip in production of 21k barrels to a pace of 961k bbl per day, but stocks also dipped by nearly 500k bbls to 21.4 million barrels. Distillates were again lighter as well as refinery capacity, but the build of motor gas stocks and crude oil continue to climb.

The market remains in a two week consolidation range with persistent failure to break through 3.72. The lack of follow through could be signaling that corn is over-bought in the short-term and will need to retrace if it is to break through this first serious line of selling resistance. Overall, friendly and negative factors seem to currently be in balance with potential for short term change coming from drier than expected Argentine weather, the continued currency battle between the dollar and other world currencies, and the potential for China to lower domestic prices on corn.

Soybeans

Beans continued their recent choppy pattern, trading higher in the face of generally bearish fundamentals, before closing at the highest mark since December 22. While fundamentals are somewhat light, they seem to point generally lower, while trade has remained well supported since the January USDA report. Prospects for lowering seasonal demand due to both waning exports and weaker crush margins are linked with the slow start to a Brazilian harvest that seems to be on track for yet another record production year. Fears of the size of Brazil’s crop, and their willingness to force it into the export market seem to be capping the market around recent resistance at 8.85. Fresh losses in the Chinese equity market have also sparked fears over demand retreating in the coming months; however, there seems to be no correlation between Chinese demand for grain and equity values, as they finished this year with over 7% more bean imports despite the crash beginning in July.

Potentially friendly fundamentals as El Niño continues to impact Indonesian and Malaysian palm oil exports could slide as much 2-3 million tons in the coming year. To put this number in context, Argentina exports about 5.5 million tons of soy oil per year, while the US exports only about 1 million tons of soy oil per year. This shortfall will be hard to make up with current crush margins poor, so soy oil should be more supported as demand grows over the next several months. Dryness in Argentina also remains supportive the market, though mixed forecasts could begin to alleviate their situation as early as the 6-10 day outlook.

Wheat

US wheat prices fell in-line with the European action today and mainly under pressure on news that Russia might consider removing or cutting its export taxes. This after a day earlier was considering limiting export limits due to its falling currency. Funds were reportedly net sellers of 5,000 contracts on the day, and the fact that many contract months ran into the same upper trend line contributed to the selling pressure.

Livestock

Nearby fed cattle contracts have run into the 100 day moving average again and have held the rally in check today, and would be watched as a resistance area to get through. Cash sources in were reporting cattle bids at $130 in Texas though nothing has been reported to trade.

The USDA on Friday will release their semiannual US cattle inventory report and forecasted at 102% for total cattle and calves. The 2015 calf crop is expected at 102% of the year earlier period, beef cows at 103% and dairy cows at 100%. That report will be release at 2:00 pm January 29th.

The Hog market continued the march higher today and even picking up the pace a little over the last couple of days. The February contract has now reached the 200 day moving average though, and might be an area where hogs take a break in the short term.

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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Aaron Hodge | Market Associate
WATER STREET ADVISORY® | www.waterstreet.org
(309) 680-1200 | ahodge@waterstreet.org

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