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Closing Comments

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Closing Comments

US jobs growth surged in October and the unemployment rate hit a 7 ½ year low of 5.0% in a demonstration of economic strength that the market interpreted as a sign of a hike in interest rates before the end of the year. Non-farm payrolls increased 271,000 last month, the largest rise since December of 2014. The dollar was up strong on the news.
Fed comments out of St. Louis stated an expectation of the dollar stabilizing in its current trading area.
President Obama rejected the proposed Keystone XL oil pipeline from Canada. TransCanada will be able to challenge the decision under international trade agreements.
Today was the first day of the five-session “Goldman roll” rolling December grain contracts out to March.

Corn

Corn finishes lower but well off lows, resisting pressure from the higher dollar.

The trade is positioning ahead of the Tuesday supply and demand report on the expectations of growth in ending stocks and production. Analysts are anticipating a small growth in production with an average anticipated increase in yield of 0.2 bpa.
Slow export sales and high gulf prices continue to challenge US corn’s global competitiveness, but strong domestic demand and slow farmers sales has continued to support the cash market with basis improvement most notable at processors.
Commercial buying continues to return to the market on breaks near 3.70.
Brazilian imports of ethanol rose to 2.5 million gallons in October as local demand continues to climb. All of the imports were from US origins.
Funds reportedly sold 5,000 contracts of corn in today’s trade. Today’s COT report showed that as of Tuesday, corn speculators increased their net short futures position by -4,931 contracts to -29,731.
December was able to close off its lows and above the 3.72 support area. December will face nearby resistance in the 3.87 area and strong resistance around 4.00. March got back ½ cent of its carry from December, but the bull spreads are still in control of the spreads at 8 ¾ cents.

Soybeans

Soybeans move the shorts to the side on Brazil uncertainty and China returning to buying interest at these levels.

Cooperative weather in Brazil, large Brazil acres and a slowdown in US soy sales sparked weakness yesterday, but early morning weakness couldn’t continue to bring additional sellers into the market to finish the week.
The trade is watching north and northeastern Brazil for return of the hot / dry pattern as well as next week’s planned trucker strike. With ships currently running more than 40 day delay for loading, the trucker strike will likely be limited in its short term impact on export pipeline.
Today’s COT showed that as of last Tuesday, speculators increased their net short position by -24,004 to -50,299.
For the week, January soybean futures are off -18 ½ cents. Today’s low was able to reach 1 cent from the low from September. Stochastics are oversold on the daily.

Wheat

Wheat mostly shakes off the higher dollar with KC leading the complex for a change of pace.

Kansas City and Minneapolis wheat was able to close higher and lead the complex in spite of the strength in the dollar index.
Spot cash basis bids for hard red wheat were flat in the southern US plains today and offerings were thin as producers wait for higher prices. Rains fell in the southeastern portion of the hard red wheat belt since Thursday but skipped dry areas of eastern KS.
Concern over Australian harvest wetness and the condition of 40 percent of the FSU wheat going into harvest continues to keep the wheat market shorts on edge, regardless of current global supplies.
The COT report showed that in Chicago wheat, speculators trimmed their net short futures position by 9,658 contracts to -65,726.
Today, KC finally took a leadership position in the complex. Below is a chart of the history of the spread between the markets, illustrating how rare it is for KC to trade at a discount to Chicago. If KC can begin leading the complex higher, a low in the multi-year bear market should have been scored in September.
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Livestock

Cattle find indecision after recent losses while nearby hogs extend losses and deferred contracts find support.

Nebraska fed cattle trade at $135 per cwt, up from $130/$131 on Thursday but $3 lower than a week ago. Boxed beef prices Friday afternoon averaged $211.45, down $8.41 from last Friday. The choice/select spread is at 8.41.

Cash hog prices on Friday traded 50 cents to $2 per cwt lower, continuing the downtrend fueled by ample seasonal supplies. The wholesale pork price Thursday afternoon fell $0.63 per cwt to $75.78 with losses in all categories except port bellies. From Monday to Thursday, packers processed 1.734 million hogs, 8,000 more than the same period last week.

Despite falling cutout values, declines in hog prices raised packer margins. The average pork packer margin for Friday was $36.10 per head, up from $28.80 a week ago.

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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