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Closing Comments

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Closing Comments

USDA raised US production and carry-out estimates vs the October estimate despite challenging midseason growing conditions in many parts of the Midwest. Soybean production surpassed the 2014 record of 3.927 bln bu, pegging this year at 3.981 bln bu. Corn production was estimated at 13.654 bln bu, which would be the third largest production ever with a yield of 169.3 bpa, the second largest recorded.
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Corn

Corn succumbs to larger than expected domestic production and world corn stock increases primarily from China revisions.

USDA projected 15/16 US feed grain supplies raised on higher forecast production for corn and sorghum. Corn production is forecast 99 mln bu higher with the national average yield raised 1.3 bu per acre to 169.3 bu – only 1.7 bu below last year’s record. The average increase from October to November is 1.9 bu. Projected domestic corn use for 15/16 is lowered 50 mln bu as the expected feed and residual use was increased by 25 mln bu due to lower expected prices, but ethanol usage was lowered by 75 mln bu on the expectation of an increase in use of Sorghum used domestically in ethanol production.
Corn exports for 15/16 were lowered 50 mln bu as US corn export sales have lagged and US supplies continue to remain uncompetitive in many foreign markets. US corn ending stocks for 15/16 are projected 199 million bushels higher at 1,760 mln.
This month’s sharp rise in 15/16 global coarse grain supplies is driven primarily from revisions to China’s corn feeding for 13/14 through 15/16. China corn beginning stocks are raised 18.8 million tons for 15/16 due to the impact of lower estimated feed use for the preceding years. More than half the world’s 15/16 corn ending stocks are expected to be held in China. Corn ending stocks outside China are projected 0.3 mln tons higher this month.
In the Midwest, corn production revisions by state vs the October estimates +6 bu in Iowa, +3 bu in MN, NE & ND and +1 in WI & SD. Decreases were found at -4 bu in MO and -2 bu in IL & OH.
December corn flushed out the August contract low by 1 ½ cents before rallying of its midday lows into the close, closing December down 7 ¾ at 3.59. Farmer selling is reluctant at these levels which should provide support at today’s lows then near the $3.50 area.
Near-term the support for corn is likely to need to come from the oversold condition and/or global weather concerns developing over this winter. Moving into 2016 corn will need to defend planted acres as corn has lost seven million planted acres from just two years ago.

Soybeans

Soybeans challenge September lows on record US soybean production forecast.

According to the USDA, soybean production is forecast at a record 3.981 bln bushels, up 93.6 on higher yields. The soybean yield is forecast at 48.3 bu per acre, up 1.1 bushels with the biggest gains coming out of Iowa and Kentucky +3 bu and MN, MN, MO, WI & IL each up +2 bu. Soybean crush is raised 10 mln bu to 1,890 million on higher meal exports. Ending stocks are raised 40 million bushels to 465 million which would be the highest since 06/07.
Soybean oil changes for 15/16 include increased beginning stocks and production, reduced imports and domestic disappearance, and increased exports and ending stocks.
Global oilseed production for 15/16 is projected at 531 mln tons, down slightly from last month. Global oilseed trade for 15/16 is projected at 147 mln tons, up 2.6 mln from last month. Higher soybean imports are projected for China and exports were increased for the US, Brazil and Argentina.
Soybeans broke through nearby support, closing January at 8.55 ½ but was able to close 5 ½ off the day’s low. The market is oversold and now funds are short, so any weather uncertainty will provide support along with Chinese purchasing. Nearby support will be today’s low with the next target in the $8.40 area.

Wheat

Wheat slides on growth in USDA ending stocks and reminder of large global supplies.

The WASDE report projected exports for 15/16 were lowered 50 mln bu to 800 mln and ending stocks were raised by an equal amount to 911 mln. Exports would be the lowest since 71/72 and ending stocks the highest since 09/10.
Global wheat supplies for 15/16 were lowered 0.2 mln tons on decreasing beginning stocks partially offset by a small production increase. The EU production increase was offset by the reduction from Australia and Russia.
Kansas City December gave back 2 ¼ of its recent gains against Chicago, closing the spread today at -30 cents. December Chicago lost -11 today, closing at 4.90 ¾ with nearby support at 4.80-4.85.

Livestock

Cattle and hogs lower on continued fund liquidation on expectation of lower cash prices and plentiful supplies.

Negotiated cash trade was mostly inactive on light demand in all feeding regions. Last week live sales in the TX Panhandle sold at 134. In KS live sales sold mostly at 133.

Cattle traded the expanded limits today but have bounced off their lows after December live cattle were able to take out the recent October lows. Selling may be temporarily exhausted after the recent $15 break in futures.

December hogs have found support and appear to be consolidating. All months are heavily oversold on the fund liquidation. Deferred contracts are maintaining their weakness on continued over-supply concerns but appear to be slowing their energy for lower.

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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