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Closing Comments

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Closing Comments

The much anticipated Argentine election has the center-right opposition candidate as the victor by a narrow margin. The President-elect Macri has promised the elimination of corn and wheat export taxes and currency policy friendly to Argentine exporters. Longer term implication is likely the increase in production of corn and wheat in a country that currently plants 62 percent of its farmland to soybeans. Immediate impact was pressure on the soybean complex in overnight trade but sellers were pushed aside as the day trade continued.
Brazilian weather currently has some concerns as the season gets started, but none yet to be considered market moving. Southern Brazil is now dealing with too much moisture and central and northern areas are concerned about the hot / dry pattern. As key growing seasons of December and January near, the market will become more concerned about weather impacts on crop production.
The euro is at a seven-month low against the dollar, being weighed down by expectations that the European Central Bank will ramp up its monetary stimulus next month.

Corn

Corn starts the day week but finishes on its daily highs on fund short-covering and friendly weekly inspections.

Friday’s Commitment of Traders report showed Managed money had added significantly to its net short position for the week ending November 17th. During that same period futures price increased just over two cents.
Weekly export inspections came in at just above 19 million bushels. Still putting corn export pace well behind what is needed, but illustrates the fact that US corn is now beginning to participate again in global sales.
Combining the size of the net short position with the now somewhat friendly export news (best inspections in six weeks) along with the fact that basis continues to strengthen as processors run short on ownership – brought a friendly trade to the corn market today.
The trade will also be on the lookout for the EPA final release of the RFS biofuel mandate targets. Past history would suggest the release will come this week, possibly Friday.
First notice day for December futures is November 30th.
Tomorrow’s resistance for December will be 3.70 and March at 3.77. Dec-March spread moved back to 5 ¾ carry today.

Soybeans

Soybeans start the morning on new lows with news of Argentina’s new president but sellers get sidelined throughout the day on short-covering.

Soybean started the week at 6 ½ year lows, taking out last week’s lows on the news of the newly elected – pro-business Argentine President. While longer term the election is likely more bearish to global corn and wheat supplies as Argentine farmers are more able to plant those crops, the initial threat was a release of Argentine soybeans and meal to the global market.
However, the morning weakness was short lived as sellers became scarce on technical buying and the concern that prices are too low as we now enter the South American growing season with very little weather premium priced in to the market.
USDA announced 251,000 mt of soybean was switched from unknown destination to China.
Weekly crop conditions showed US winter wheat improved condition ratings one point again this week, now at 53 percent vs last year this week at 58 percent.
Farmers are, for good reason, reluctant to sell here as the typical seasonal pattern is to build price uncertainty into the winter. South American weather headlines coupled with Chinese demand should provide support and short-covering rally opportunities in the next few months.
Technically January soybeans cleared out the recent lows before reversing and closing above a recent trend resistance line. Jan trading above 8.67 ¼ should give an opportunity to around the 8.90 are initially.

Wheat

Wheat finds strength on short-covering.

Wheat inspection came in just below the trade expectations for the week at slightly under 10 million bushels.
Last week’s Commitment of Traders report showed Managed Money nearly doubled their net short position over the week ending November 17th. Increasing their shorts by 20,464 to -41,409. With headlines, this keeps the market poised for short covering rallies.
Brazil may need to import 6 mln tonnes of wheat. 20 percent of the wheat crop has been harvested in Campos Novos region and the quality is “terrible”. Yields are running significantly lower than average and coupled with the low quality will create a shortage of milling quality wheat.
Australian wheat is looking more expensive now on recent rally in the Australian dollar. This should pressure Australian prices in an effort to get supplies moved.
The strong US dollar continues to be a headwind to the wheat market as Europe aggressive offers sales and the dollar/euro currency find seven-month lows. Sustained strength in wheat will be unlikely until a broader weather concern can create trade concerns. In the meantime, short covering rallies are still likely winter events for intermediate strength in the market.

Livestock

Cattle higher but Hogs struggle to maintain early strength. USDA cold storage report today.

Cold storage highlights showed total red meat supplies in freezers were down 3 percent from the previous month but up 21 percent from last year. Total red meat is a record high for the month of October, since the data was first recorded in 1916. Total pounds of beef in freezers were up 3 percent from the previous month and up 34 percent from last year. Frozen pork supplies were down 8 percent from the previous month but up 13 percent from last year. Stocks of pork bellies were up 64 percent from last month but down 39 percent from last year.

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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