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Closing Comments

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Closing Comments

Short covering continued in the grains today to finish the week in spite of some recovery in the dollar and weakness in energy.

Supportive workforce numbers showing employers hired 211,000 people in November, further strengthens the Fed’s likelihood for a December interest rate hike.

Information from OPEC’s meeting was for the cartel to increase its output ceiling to 31.5 mln bbl per day, up +1.5 mln from the previous level (analysts have estimated they have been over this level for some time). Saudi Arabia is working hard to break the fracking industry and capture market share. Domestically, the Baker Hughes weekly data pegged the latest US crude oil rig count at 545, down from last week’s 555 and last year this week at 1,575.

Stats Canada’s production report showed bigger increase than expected in wheat and canola production – but this didn’t really bother the wheat market and only momentarily held back bean oil and canola futures. They estimated canola production at 17.2 mln tonnes, sharply higher than the previous estimate of 14.3 mln.

Corn

Corn finds follow through on technical buying and short covering to finish the week and in positioning ahead of next Wednesday’s USDA WASDE report.

Corn for the week has gained 3.9 percent, its biggest weekly advance in nearly three months. The strength has brought some cash sales by farmers.

The trade expectations right now are for slight increases in domestic inventories in corn, soy and wheat. Interesting to note, corn is now trading above the price level being traded going into the November crop report in which nearly 200 million bushels were added to the balance sheet.

The large short speculative position has provided fertile ground for short covering strength as the short positions soon begin to loose profitability. Today’s Commitment of Traders report showed that managed money paired back their short corn position in futures & options by 21,669 contracts, leaving a net short position of -78,140.

Soybeans

Soybeans top $9.00, finding support and short covering from continued strength in soy oil.

Soybeans have their best close since October 22 and best performing week since July. Supply/demand concerns in vegetable oils are doing a majority of the work as soy meal continues sideways trade. Soy oil’s share of the crush margin is at its highest level since this past June.

Malaysian palm oil futures closed higher after climbing to a 4 week high on expectations that dry weather due to El Nino weather pattern will reduce production across Southeast Asia. A plan by Indonesia to ramp up biodiesel and use provided additional support.

Ongoing rumblings that the US biodiesel credit may be shifted from blenders to producers would remove the incentive to import foreign vegetable oils and increase domestic demand. Interestingly enough, the weak meal market continues to have the soy oil buyers concerned that a slowdown in crush will squeeze soy oil supply availability.

Cash meal markets have been quite with Decatur and Cedar Rapids off a couple on bean basis.

Resistance for January will be today’s high and 9.15-9.20. The weekly chart seems to still be looking at the gap area of 9.50.

Wheat

Wheat finds follow on buying, but struggles at yesterday’s high as the dollar rebounds.

The biggest story this afternoon was the Commitment of Traders report showing that Managed Money only added to their net short position as of Dec 1 in Chicago wheat. Increasing their short futures & options positon by a startling -29,972 contracts, placing them net short -77,324 contracts (or basically the entire production of US soft red winter wheat).

Australia’s largest wheat exporter cut its production forecast from the country’s west coast by nearly 4 percent as a result of wind, frost and fire damage.

High temperatures in Northern India have added to the prolonged dry weather which is delaying sowing if two of the largest producing provinces. Data for October and November show 60-80 percent less than normal moisture.

Chicago wheat had a perfect bounce off support on the continuation chart. If follow through can be found, the top of the trading range is around $5.25. That area would find a “triple top” and could present a break out opportunity – but there is a lot of heavy lifting to get there and better headlines and a weaker dollar are still needed.

Livestock

Negative for the third day, Dec cattle close on new lows as cash continues to disappoint the trade.

Traders were disappointed this week with continued reports for cash sales at $124 to $125 per cwt on a live basis. Even some reports around of $122. This was off last week’s action in the $124 to $127 area.

Cattle weights continue to be a problem and will likely continue into the winter. Average dressed steer weights were unchanged from the previous week but up 24 pounds from last year.

Weak deferred cattle and stronger corn prices continue to weigh on the deferred feeder futures.

Boxed beef values were lower across the board with choice down -1.12 and select down -.40.

CME Group plans to changes to its rule for live cattle futures, requiring that all cattle delivered against the contract must be born and raised solely in the United States. The new requirement will be effective Dec 18.

First Notice Day for December Live Cattle is this coming Monday.

Morning pork cutout values are lower today, with the carcass down -.32. .

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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