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Closing Comments

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Closing Comments

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Weekly EIA petroleum report showed U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.0 million barrels from the previous week. At 488.2 million barrels, US crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total gasoline inventories increased by 2.5 million barrels last week. Distillate fuel inventories increased by 1.0 million barrels last week.
Ethanol data was a bit of a surprise to the market – a bit of a head scratcher – as production was reported at an all-time record high. Ethanol production surged +3.4 percent this week to a 1,008,000 bbl per day rate. The first time weekly US production has officially crossed the ‘million barrel a day’ mark. Despite the big production number, ethanol inventories increased only 2 percent. Gulf stocks are huge, hopefully in preparation of large export shipments.
Commitment of Traders report will be released this coming Monday showing the updated reportable positions as of November 24th.
USDA export sales will be reported Friday.
First notice day for December grains is Monday.

Corn

Corn recovers as traders square for the long weekend.

Corn found some recovery after Tuesday’s selloff, but the rally was tempered on light holiday trade, rolling out of December contracts and ample domestic supplies. The market is longer term anticipating the addition of Argentine corn to the export market as the export tax is eliminated. Estimated Argentine stocks are over 21 million tonnes. However, without a devaluation of the Argentine peso – farmers are still unlikely to quickly unload supplies.
Weak ethanol and blend margins are tempering industrial demand in the near-term. Energy seems to be trying to carve out a bottom but continued record supplies and stable demand has the trade struggling to find a sustainable story for now. Crude oil’s seasonal tendency is for December bottoming.
Some global corn supply concerns are underpinning the market as some analysts are estimating that the real global situation is not a 2 percent year over year increase in carryout, but rather at potential 10 percent reduction. The marketplace will continue to watch El Nino for production risk cues as the 16/17 crop nears.
Processor bids have weakened in some areas lately as basis pushes and free deferred pricing have helped to get ownership through the end of the year. Merchandisers comment they are finding the basis levels that will “get corn moving.”

Soybeans

Soybeans lived up to their “day before Thanksgiving” rally reputation.

Soybeans found buying across the months ahead of Thanksgiving with January leading the way. Soy meal found some modest support but the biggest mover was the soybean oil market.
Soy oil continues to be supported on Indonesian palm oil production concerns from El Nino and lower oilseed production in India. Soft crush margins have the soy oil market concerned that slower crush pace will reduce soy oil supplies in a time of good global demand and anticipated increase in biofuel mandates.
Soybean rallies are hard to sustain on only strength from the oil market. Follow through in soybeans will need meal to participate. Weather headlines from South America are likely the best hope for at least a short-covering rally as we move into December.
Argentine President-elect’s clarification that the soybean export tax would slowly be reduced at 5 percent per year took some of the story from the bears who had anticipated a glut of Argentine soybeans coming to the market.

Wheat

Wheat continues to struggle with ample supplies, cooperative weather and quiet export business.

Wheat continues stuck sideways in an oversold condition. Commitment of Traders shows the large short position of funds in wheat which has the market nervous for a short-covering rally on any global supply disruption.
Europe and Black Sea continue to dominate export business as the strong US dollar continues to leave most of the US business on the outside looking in. The market will continue to watch dormancy of Eastern Europe and the US Plains but for now moisture has helped to moderate recent concerns.
Egypt’s tender received offers of French wheat at $195.54, Russian at $198.95 and Romanian at $200.88. Their recent wheat purchases were fulfilled by Russian, Ukrainian and French origins.
Wheat is a headline crop, it’s just waiting for the headline to trigger the short-covering.

Livestock

Cattle and hogs higher on price gains ahead of holiday.

Improving demand for the first part of December, upcoming winter weather and the completion of long liquidation by funds should help to carve out some at (short term) support here. Sustained strength though will need to be proven by supportive beef prices. Choice beef cutout rose by more than $1 per cwt late on Tuesday, but ample cold storage supplies will moderate near term strength.

In hogs, stability in the cash market seems to have proven last week’s low should be good at least for the short term. Wholesale pork prices rose by more $1.

Weekly hogs show stochastics pointed higher and the MACD flattening out as the market works out of its oversold condition. Funds, While having liquidated much of their long position, have continued to maintain a net long position in lean hogs of more than 15,000 contracts. Since 2012, their net position has ranged from short over -10,000 to long nearly 100,000 contracts.

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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