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Closing Comments

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Closing Comments

The 800 pound gorilla in the market today was the breakdown in the US dollar index. The ECB announced smaller than expected stimulus which sent the euro higher and the dollar tumbling after posting the highest level since 2003 in the overnight trade. The weaker currency provided hope that US grains could better compete globally and triggered short covering across the grain/oilseed sector.[cid:image002.jpg@01D12DE2.B6BD8EB0]

The current El Nino is now considered the strongest ever recorded on any given month, according to NOAA, besting the January 1983 and December 1997 levels. The market will continue to watch for signs of collapse into La Nina which would bring concern for a hot/dry Midwest summer.

Corn

Short covering triggered by the fall in the dollar moved March through resistance and gave the best close in 18 sessions.

Corn responded shortly after wheat to the drop in the dollar index. The large fund short position has been created at relatively low price levels which creates anxiety in funds that a weaker dollar could bring ownership interest back to commodities.

USDA weekly export sales had 15/16 corn at 19.7 mln bushels. This is 50 percent off the 4 week average with Mexico and Japan leading the purchasing.

Some processors have weakened bids on a pickup in farmer selling.

Technically corn was able to break through resistance but will need follow through tomorrow to provide more fear for the shorts. Next resistance for the March contract is 3.83-3.86.

Soybeans

Soybeans were the last of the grains to find support off the dollar, but finally began to participate at the end of the day.

Soybeans started the day lower but was able to find strength first from the soy oil continuing its recent bull run and then with meal recovering losses to close higher as well.

USDA weekly soybean sales today were within expectations at just above 32 mln bushels. This was down 25 percent from the previous week and 29 percent below the 4 week average. Soybean meal exports were a marketing year low at 5,300 mt, off 67 percent from the 4 week average. Soybean oil came it at 5,300 mt, also a marketing year low and 82 percent off the 4 week average.

Farmer selling is reportedly picking up in locations with futures now at the psychological $9.00 area. Basis at the gulf is a couple better while Decatur IL is steady.

Technically this has been great follow through from last Friday’s weekly key reversal. Weekly charts, which move much more slowly than the dailies look to be eying the 9.20 and 9.40 areas. Daily Jan will likely encounter resistance just above today’s close as it nears the 100 day moving average around 9.02.

Wheat

Wheat leads the grain rally on the meltdown of the US dollar.

Chicago found near perfect support off trendline support from May and September lows on the continuation chart. Wheat is the most sensitive of the major US grains to exchange rates and today’s radical change in the dollar what just the spark, coupled with export sales “less bad” than usual, to create fear in the large short positions in Chicago and Kansas City.

USDA weekly export sales came in at 14.4 mln bu for 15/16 which is up 29 percent from the previous week and 17 percent above the 4 week average.

The globe has plenty of wheat, but wheat pricing is more tied to headlines than balance sheets than any of the other major commodities.

The wheats weren’t able to hold on to midday gains, but managed to close clearly in the top half of today’s trading range. Today’s high will provide resistance to all wheat markets for tomorrow’s trade.

Livestock

Cattle fall again on unprofitable packer margins and weaker cash cattle.

Live cattle extended losses with nearby contracts posting new lows in response to weaker cash prices. So far this week, cash cattle in the US Plains moved at $124-$126 per cwt compared to $126 last week. Unprofitable packer margins and more animals for sales weighed on cash prices.

Hog futures have had an erratic trade with USDA data showing Thursday morning’s average cash hog price in Iowa and Minnesota had fallen 69 cents from the previous day to $52.50. Packer inventories are almost full for this week. Deferred contracts eased from the weakness on the concern that there may be fewer hogs and lighter weights if corn prices rise. .

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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