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Closing Comments

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Closing Comments

Follow-through buying in beans and the late rally in the meat complex were the primary highlights of today’s session. The market was given plenty of input yesterday with the holiday shifting the Commitment of Traders, export shipments, as well as a surprise EPA update to the RFS to yesterday afternoon. Here are the highlights: funds remain stubbornly short grains, much less long meats than normal, shipments were disappointing in everything but beans, and we are going to be required to use basically what we had planned to as regards corn for ethanol purposes in 2015 and 2016. The only mild surprises of yesterday’s announcements have some overlap, as the funds have moved long soy-oil, and the increased bio-diesel mandate moving forward could be more supportive the soybean oil-shares.

Economic releases out of Brazil continue to worsen, with one chief economist commenting that today’s GDP report read more like an obituary than an economic growth report, and another said depression might be a more appropriate label than recession for the economic climate in Brazil right now. With growing unemployment, up over 3% in the last year, and inflation limiting domestic consumption there is no easy fix moving forward for our largest competitor for international corn and bean exports. As you can see in the below graph, the trend is well established and could lead to a much tighter holding pattern of grain, as well as reduced expenditure in ag infrastructure unless things turn around radically.

Corn

Corn traded both sides of unchanged today before closing positive in the wake of yesterday’s RFS, best characterized as better than it could have been, and also not as good as expected.

Today’s market remained directionless as corn intermittently followed wheat lower and beans higher at various points in the session. We traded into short term resistance extending all the way back to this summer’s highs, and failed to close through it yet again. 3.76 in the March contract will be a serious hurdle moving forward as it represents both the sentiment of the negative November USDA report day and our first line of technical resistance in this market. Failure here could mean a resumption of the trend lower to find value buyers for corn; trade through here will represent the first shot across the bow of an overly short fund position.

Heavy El Niño rains continue to hamper Brazilian efforts to export corn, as stoppages of up to 14 days this month have added to shipping costs and delayed shipments of already purchased corn. These stoppages could provide an uptick in sales out of the Ukraine as well as the US as we head into the transition from heavy beans exports to heavy corn exports.

Soybeans

Soybeans continued their break-away action today after a brief pull-back on the open due to short covering and slower than expected cash bean movement out of Argentina.

After a brief set-back on the open beans returned to test and exceed overnight highs, before testing out the next line of resistance at 8.91. The market has exceeded stiff lines of resistance at 8.76 and 8.84 that extend back to this summer’s rally and mid-October respectively. If the market is able to close through this resistance area than we should be in line for a re-test of at least the October high at 9.26; similarly a failure here would leave the market range-bound and waiting for new fundamentals to attract buyers uncomfortable with current large supplies and $9 plus beans.

Yesterday’s RFS Mandate may also be fueling positivity today, as a raise to 1.9 billion gallons in 2016, and 2.0 billion in 2017 and after could lead to increase soybean oil usage. The increased usage could be as much as 400-600 million pounds. This development has been reflected in today’s oil trade as it was initially pressured, before surging into new highs that have not been traded since the USDA August 12th crop report. Meal is also finally participating in the positivity of the bean complex, though it has weakened late in the session as oil has gained value.

Wheat

Wheat stayed under pressure today with Chicago continuing to forge new lows, and Kansas City giving back the majority of yesterday’s gains.

Yesterday’s crop conditions report showed the US winter wheat at 55% g/e, up from expectations of 54%, but below the 10 year average of 61%. Outside the US, the Russian crop is in better condition than last year, with Ukraine at just 28% g/e verses last year’s 40.6%. Poor crop conditions stim from abnormally droughty conditions that began late this summer and have led to poor emergence as well as late planning. Crop conditions and yesterday’s large amount of deliveries dogged wheat for much of the session, but the market may be nearing a short-term low as it is becoming severely oversold.

In other international news, Australian officials have pegged their 2015/16 wheat production at 23.98 mmt, down from their September estimate of 25.28 mmt. Meanwhile, expectations for Stats Canada’s release on Friday are nearly 600k mt over previous expectations.

Livestock

Fats and feeders stayed under pressure early before rocketing higher in the noon hour, while hogs forged aggressively higher potentially indicating growing demand overwhelming large up front supply.

Harsh weather conditions were not enough to halt the cattle complex from probing lower early in the session under the weight of heavier cattle being held back at this price point. The complex appears to be in a game of chicken where feedlots have to minimize losses that have soared in some cases to nearly $500 a head, and yet the act of keeping them off the market and adding weight is perceived as bearish. This cycle did not stop cattle from reversing sharply late in the session to create nearly a $6 range in feeders, and $4 in the fats.

Hogs resumed their recent trend higher, despite large up front supplies. The market’s current climb could finally indicate an increasing demand for pork, it seems at the expense of much more expensive beef. Cash trade could limit gains moving forward, as it is still lagging to futures, but cut-out values indicate that these levels should be sustainable moving forward.

Closing Market Snapshot

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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