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Closing Comments

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Closing Comments

 

Corn started out November on a positive note, +2 ½ (Dec). While corn harvest has continued to pick up, several states are lagging well behind average, including NE (18%), IA (26%), IL 11% OH (13%) and IN (12%). Early season re-planted acres are the culprit in most cases. The EIA Ethanol report featured a familiar line as production is up as well as stocks. For the week ending October 27th, production was up 3.33% over last year. Ethanol stocks grew even more, as they increased by 8.79% over last year. But, offsetting are unleaded gasoline stocks (down 5%) and crude inventories (off 6%), based on strong demand. Corn used for ethanol was well above the weekly average needed to hit the USDA end of year projection.

 

Soybeans made a solid advance higher, with no particular fundamental news other than it is the start of a new month, +7 ¼ (Nov). There is also anticipation in the market over private crop estimates that will be released today and tomorrow by FC Stone and Informa, with some short-covering and positioning ahead of that. With later planted beans seeming to be bringing in 3-6 bpa less in many cases, it does not take much to encourage rumors and speculation. Beneficial rains in Brazil and normal South American weather patterns are keeping rallies in check.

 

Wheat had mixed results with the winter varieties registering small losses and spring wheat a small gain: Chicago SRW – ½, Kansas City HRW – ¾ and Minneapolis HRS +1 ¼. The wheat complex is weighted down by large supplies and stiff export competition from the Black Sea Region. According to Hightower, the BSR has grown their share of the export pie to an estimated 16% in 2018, as compared to just 10% five years ago. Russia’s export capabilities continue to expand, and this is on the back of record yields. Additionally, China and Russia have recently signed protocols that will allow Russia to import wheat into China. Wheat futures have an uphill battle and need help from corn and beans to break out of their rut.

 

Cattle continued their steep march to new highs, +.975 (Dec). Cash prices for cattle and a sharp advance in beef values continue to provide support. Futures are holding a significant premium to the cash market, but with beef production expected to be significantly higher in November, this may be difficult to maintain. In the meantime, retail booking is strong and speculative buying is active with high open interest.

 

Hogs have been benefitting from aggressive buying from fund traders and speculators, and the CME Lean Hog Index and pork values have been on the rise. However, the market is overbought and has a burden of large short-term supplies hanging over its snout. Today saw a correction and profit-taking as both the December and February contracts experienced setbacks, -1.400 and –.850 respectively.

 

In Other News, the University of Missouri came out with more definitive numbers on dicamba damage, tallying up 3.6 million bean acres that were damaged from 2,700 complaints. New label restrictions from the EPA will govern dicamba’s use in 2018. On a macro-economic level, the U.S. Central Bank will be out with their interest rate announcement this afternoon. And, if new proposed tax plans are enacted that spur more economic growth (with already low unemployment), will this drive large funds into the commodity market looking for inexpensive ways to hedge against inflation? It will be interesting to see if this could help to develop a bullish environment for the commodity complex in 2018.

 

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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