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Closing Comments

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Closing Comments

Thin holiday volume and continued bearish sentiments kept pressure on the energy, metals and grain markets. Excellent exports for corn had been accounted for by the market, but does show improved global activity for corn. Wheat continued its weakness on lackluster demand. First notice day had December-March spreads in grains weaker (except Minneapolis Wheat).
The Baltic Dry Index (BDI) traded higher for the fifth session after posting new contract lows. The BDI is a “practical” economic indicator of global economic activity by measuring what it costs to ship raw materials around the world. To compile the index, members call dry bulk shippers around the world to see what their prices are for 22 different global shipping routes. Global shipping rates have dropped to long-term lows on the slow-down in commodity demand, the expansion of ship building and the drop in energy prices. The index may be an early sign of some stability or improvement of global economic activity.
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Corn

Corn runs out of new buyers on holiday trade in-spite of impressive export sales numbers.

Corn export sales were the feature on a holiday trade day with 15/16 sales of 80.2 mln bushels coming in well above already increased expectations for the week as the US becomes more globally competitive. This was significantly above last week, the 4 week average and proved to be a marketing year high. Mexico proved to be the top buyer. 16/17 sales were notable at more than 20 mln bushels with Mexico being more than 90 percent of the purchase. The market wasn’t surprised by the number though as a majority of the Mexican purchase had been announced a couple weeks ago.
On the ethanol front, this week’s energy report showed the pace of ethanol running at a record level however the trade is suspect of the ability to maintain the pace. Average Midwest profitability is running around 15 cents/bushel with plants in the East closer to breakeven. Trade will be watching for the EPA mandate announcement.
Fear of Argentina’s likely upcoming elimination of the corn export tax weighs on the market as Argentina has been recently on the sidelines of the global export business as of late.
The highest priced corn right now is in South Africa as their severe drought has driven corn to record price levels and their wheat production continues to be revised lower.
Abengoa’s CEO stepped aside in light of asking for creditor protection.
Corn held at recent trendline support today and will need to prove there aren’t fresh sellers below here or risk March corn another 10 cents lower.

Soybeans

Soybeans stalls out to finish the week but does post a key reversal on the weekly chart.

Soybeans export sales came in middle of expectations at just over 43 million bushels while meal for 15/16 came in near expectations at 254,900 mt and soy oil also met expectations at 12,800 mt.
Clarification from Argentina should take some of the fear off the market as it is unlikely that there will be a soybean tax ‘holiday’ and actual export taxes will likely be gradually addressed. The greater issue that Argentina will have to deal with is its precarious financial condition and how to address their currency exchange. In the near future, Argentine peso value will likely have as much or more impact on farmer selling as the actual export tax rates.
The number of Asian soybean rust cases in Brazil has nearly doubled from the previous year due to heavy rainfall in the south triggered by El Nino.
While not impactful on yield, interesting to note that Argentina’s current soybean seeding pace is the second slowest since 2005 due to the cool/wet planting period. Greatest delays have been in Cordoba.
The market will continue to watch weather developments in southern Brazil (too wet) and dry pockets in northern and central Brazil as the main growing season nears.
Global palm oil production continues to be challenged in Indonesia and Malaysia, providing support to soybean oil and canola futures.
Board crush margins continue to struggle as meal still can’t catch a bid.
Seasonally soybeans should find support into the end of the year as South American weather uncertainty gets priced into the market and farmers hold tight on sales. The large fund short position is at risk of a short covering rally with a headline. Ample US supplies and any slowdown in China’s shipments will cap rallies without a greater S.A. issue.
January support at 8.60 and resistance around 8.83. Soybeans rallied 30 cents this week and have stochastics nearing overbought as well as areas of technical resistance which could have the market due for a small setback. The weekly chart posted a key reversal and has stochastics pointed higher which could be supportive for a longer term up-trend here.

Wheat

Wheat follows path of least resistance lower on lack of weather headlines and ample supplies.

Wheat, true to form, came in at the low end of the export sales expectation with just over 11 mln bushels. The strong dollar and competitive European offers continue to weigh on the US competitive position in wheat exports. France continues to capture far away business as more demand is needed to absorb the surplus supplies.
As far as global weather right now, condition of FSU wheat is in the background but not the forefront of the trade right now while India is facing hot/dry wheat conditions and drier than normal conditions in Spain and North Africa have gotten wheat off to a poor start there.
The European Commission lowered their estimates for this year’s soft wheat crop slightly to 149.1 mmt. Just off last month’s estimate at 149.2 mmt and still a record crop. French wheat crop remains in good condition with their rating unchanged from last week.

Livestock

Livestock get a generally sideways holiday trade with nearby months having the best support.

Adverse weather has some operators said to be reluctant to sell animals. At least two slaughterhouses in the Plains were expected to reduce their slaughter rates Friday due to tight supplies but lost production could be made up on Saturday.

Weekly cattle slaughter as of November 14th showed -1.05 percent below a year ago at 558,029 head but production is 0.96 percent above a year ago level.

Hog slaughter as of November 14th showed in increase vs a year ago of 7.66 percent while pork production is 7.23 percent above a year ago.

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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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