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Closing Comments

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Closing Comments

Grains were generally higher on “turnaround Tuesday”, garnering strength from money flow on higher prices in the energy sector. The Bloomberg commodity index gained over 1% today.
Oil prices are higher on concerns over production in Libya and Brazil, while global oversupply looms above the market. Libyan production has suffered from the armed conflict while Brazil’s largest oil sector union began a strike on Sunday. The market is anticipating a growth in crude stocks and reduction in distillate and unleaded stocks in tomorrow’s EIA report.
The dollar strengthened again against the euro and the yen as investors brace for the Fed to tighten interest rates as soon as the December policy meeting.
Shares of ADM dropped more than 8 percent after the group reported lower third-quarter profit due to weak ethanol margins and slumping North American grain exports.
Monsanto’s Climate Corp announced a definitive agreement to sell its Precision Planting farm equipment business to Deere & Co for an undisclosed sum.
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Corn

Corn finds support from the energy market.

According to research from Bloomberg, the record Chinese corn crop is likely to drop 5.8 percent, the most in 15 years, after a summer drought and late season rains. At a time when global stockpiles are dropping for the first time in five years, a smaller Chinese harvest may boost domestic prices already inflated by government intervention. Two thirds of China’s corn is fed to hogs, a nation that consumes more than half the world’s pork.
Informa was out with their November USDA estimated corn yield at 170.1 vs the USDA 168.0 bpa estimate and total production at 13.718 bln bu vs 13.555 bln bu by the USDA in the last report. This fed the bearish fears of a rise in production in the October report, but was shrugged off for the balance of the trading session.
Brazil’s trade ministry reported October corn exports at 5.547 mln mt, up from September’s 3.455 mln mt. This is a record export pace as Brazilian prices have been able to undercut US Gulf prices by $10 to $15 per tonne.
March/Dec carry narrowed again to 8 ¼ carry.

Soybeans

Mixed trade in soybeans with soy oil higher and soy meal lower.

Soybeans find strength difficult to sustain as the market continues to be concerned about a rise in the total US production in next week’s USDA November crop estimates.

Informa released their estimate on soybean production for 2015 with a yield expectation of 47.9 bpa vs the USDA October estimate at 47.4 bpa and production at 3.952 bln bu vs 3.888 by the USDA in October.

Concern in Brazil developing regarding profitability of soybean production. The weak real/strong dollar has given them a competitive advantage on the export market but with 70% of the countries fertilizers and ag chemicals needing to be imported, their cost of production has continued to increase as the exchange rates make imports expensive.

Weaker global soymeal prices and the strong dollar brought weakness into meal after attempting an early session rally. Unwinding of long soymeal/short soyoil spreads seemed to be at work today as well.
Meal is in an oversold condition on both long term charts and daily charts. This should limit selling pressure from here, but sustained strength for now will likely require a winter weather problem in South America.

Wheat

Wheat find technical buying and a supportive commodity environment today.

Export business generally slow but the short managed money positions seem to be providing support and eastern mills searching for quality are helping the domestic trade.

For a change of pace Minneapolis led the wheat complex with deferred contracts in Minneapolis closed 8 ½ to 9 ¼ higher on the demand for quality. December KC closed 4 ¼ higher while Chicago added 8 ½. The KC continues to hover at a near 30 cent discount to Chicago.

Livestock

Cattle lower but range-bound while Feb an April Hogs extend losses past yesterday’s lows.

December cattle continue to hold a premium to the cash market. The trade sees a relatively tight short term supply setup as a supportive force, however many indicators point to higher than expected production just ahead.

This afternoon had boxed beef cutout values lower to sharply lower on light demand and offerings. Select and Choice rib, round and loin cuts steady to weak while chuck cuts weak to lower.

Hogs continue their weakness on fears of ample supplies coupled with weakening demand. Cash hog prices were steady to $1 lower on sufficient packer inventory for the rest of the week. Long liquidation should be nearing an end as the hog futures are deeply over-sold, but supportive news is hard to find to stem the selling.

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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