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Closing Comments

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Closing Comments

Corn, which received a good boost from soybeans early, faded late but still finished positive +1 ¼ (March).  Corn has been a follower of soybean action (as corn does not have a good story of its own), as yesterday corn was able to eclipse four moving averages: the 10, 20, 50 and 100 day.  The report from Stats Canada for corn output estimate was 13.19 mmt vs. the expected 13.1 mmt compared to 13.56 mmt in 2015.  Adding to the positive export inspection news yesterday, the USDA confirmed this morning that South Korea booked a private sale of 10.8 million bushels.  The U.S. is once again back in the top position to sell corn to Asia, given recent weakness in both futures and Gulf basis.

 

Soybeans had a somewhat volatile day, up +18 at one point during the day before falling to near flat and bouncing back the last hour, finishing +4 ½ (Jan).  The Dalian exchange and Chinese spec trading has been one of the key drivers behind recent rallies, and today the Dalian soybean futures were lower, while meal and oil were up.  Stats Canada released the soybean production estimate at 6.46 mmt against the expected 6.2mmt.  The September report showed 5.83 mmt and last year was at 6.37 mmt.  Keeping the momentum alive today were two large private sales, one to an “unknown” destination of 14.7 million bushels, and a second to China of 7.7 million bushels.  This strong demand is fighting hard against record yields and favorable South American weather to keep soybeans marching up the charts.  In South American weather, Argentina is developing some dry areas that have started to get attention, but do not yet appear to be a threat.

 

Wheat was back to its indecisive, choppy ways in the March contract with Chicago -2 ¼, KC -4 and MN -2 ¼.  Stats Canada released their report today and it showed a 2016 “all wheat” estimate of 31.73 mmt against the expected 30.7 mmt.  Other factors pulling against wheat are Argentine selling of better than expected yields, and optimistic estimates of higher than expected Aussie yields in 2016/17.  The September report was at 30.49 mmt.  On the Black Sea front, a local firm in the Ukraine, Kernel, said that it is planning a new 4 mmt export terminal to be completed in 2018.  Russia had a record November over any previous November (according to customs data), shipping 2.74 million tonnes of wheat.  Two pending tenders that are due to close on Dec 6th are originating out of Japan and Jordan, for approximately for 42K mt and 50K mt respectively.

 

Live Cattle futures experienced large gains today, led by technical selling and anticipation of lower cash prices by the end of the week, +2.075 (Feb).  At this time, inventories seem to be in equilibrium with no bulge in supplies on the radar and weekly slaughter numbers are remaining up, in spite of declining margins at the beef plants.  The online cattle auction tomorrow will be carefully watched for price direction signals, as the futures have stayed dollars below cash prices.  Another barometer will be the carcass weights that will be released on Thursday, as they indicate the position of cattle in the feedlots.  As we move closer to Christmas, beef is showing up to be the strongest feature meat among retailers and food service providers, with the largest growth in total pounds.

 

Hog futures had a blockbuster day, reaching a high not seen since the first half of September, +2.675 (Feb).  Packer margins were higher today than yesterday (which was an already attractive level), as packers are staying in the game, not wanting to miss out and end up short of inventory.  As the weather gets colder across the Midwest and hog weight gain slows, packer supplies will be impacted.  Cash prices will likely top out in the next week, as packers slow down and retailers have ample supplies, coming into the final home stretch before Christmas and New Year’s.

 

In Other news, crude was down today, as there is skepticism emerging as to whether the OPEC cartels will actually reduce production.  Other competing interests that could undermine the agreement, are Russia’s plans and the reaction of U.S. shale producers.  It is feared that with the majority of the planned production cuts falling on the Persian Gulf producers, the other OPEC members may ignore their quotas.  Keep an eye on this situation, as crude is a major market influencer.

Closing Market Snapshot

 

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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