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Closing Comments

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Closing Comments

Headline numbers in the weekly EIA inventory report showed crude inventories increase 1.2 mln bbl, gasoline stocks flat and distillate stocks jump 3 mln higher. Compared to a year ago this week, crude inventories are 11 percent higher, gasoline 4 percent bigger and distillate stocks 24 percent larger. Weekly ethanol data this week was mixed, showing larger than expected drop in production and bigger than expected build in inventory. Production was down 5 percent this week.

Crude oil was determined to get to $40 and made it to 39.84 in Jan before stabilizing this afternoon. This weakness in macro commodity markets continues to drive flow of outside money and affect the tone of traders.

Fed Chair Yellen stated that incoming data since October has been consistent with gains made in the US jobs market. She indicated an expectation that drags from currency and low oil prices will abate over the next two years. Her comments provided support to the dollar and pressured treasuries on the anticipation of a December interest rate increase.

Corn

Corn lacks bullish news to move it through chart resistance.

Corn has experienced a small amount of farmer selling on this recent rally but significant movement is still low. The EPA ruling offered some supportive news, but additional bullish news has been lacking beyond that this week.

Reports that Argentina will be offering corn for export after the drop of the export tax on December 10th has Asian buyers sitting on the sidelines for now. In addition, Argentine farmers are switching more acres to corn during December planting – possibly up to 10 percent – which has the market anticipating additional longer term supply.

The short fund position in corn continues to provide an opportunity of a short covering rally if headlines can provide a spark. For now though the market seems to be locked in a tight range of trading between buyers and sellers.

Blenders continue to complain of the negative margins of ethanol/unleaded as ethanol futures trade at a premium to gasoline for the third month.

March resistance is at 3.74 with support at 3.67 and 3.58.

Soybeans

Soy oil leads the complex as the market continues to determine the RFS impact on soy oil demand.

Soybean oil had one of the strongest days in recent trade as the market digests Monday’s RFS ruling from the EPA. With the soy oil balance sheet being more sensitive than corn currently, and anticipated uptick in demand both domestically and abroad coupled with the fear that a slowdown in crushing would reduce supplies continues to support soybean oil.

Soymeal basis holds mostly flat as demand is slightly weaker. There was some pickup to activity as end users replenished after Thanksgiving, but activity has now slowed again. CIF and FOB offers are also steady.

USDA reported a private sale of 124,000 mt of soybeans to unknown destinations for 15/16 marketing year.

Soybean rallied let by soy oil are harder to sustain and will need meal’s participation as a bushel of soybeans yields 11 pounds of oil vs 44 pounds of meal. Jan 9.00-9.05 futures area will likely attract some farmer selling with 9.20 a nearby target above the market.

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Wheat

Wheat continues its downtrend with Chicago into 5 year lows on lack of headlines and strong dollar.

Wheat suffers under improved crop conditions in the US going into dormancy, the strong US dollar and lack of sustainable headlines to scare the large fund short position.

A bright spot in the complex is the correction of the KC-Chicago wheat spread from the March contract lows from early November of -26 to today of close to even.

Minneapolis has done the best job in holding up as the market looks for higher quality milling wheat. The March Minneapolis contract has gained 23 cent vs Kansas City and 44 cents vs Chicago since the beginning of November. The higher quality wheats need to lead strength in the complex.

Livestock

Cattle, true to form, continue their volatile trade as the market works through the large upfront supply. Dec live cattle limit down, Jan feeder cattle limit down on fear of late week cash prices.

Live cattle closed the pit session down the daily limit on fear of lower cash prices to come later this week. Despite the morning uptick in wholesale beef values, packers may pull back cash spending with their negative margins and more head for sale.

Last week’s average hog weights in Iowa/S. MN direct market was 283.9 pounds, down from 284.3 pounds two weeks ago and 285.4 pounds the same period last year.

Two wild cards for the hog market will be any signs of a return of PEDv cases and Q1 exports. So far exports are in line with what we saw in 2013 but lower than 2012. Stronger exports will be needed to offset the large volume of pork.

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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