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Closing Comments

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Closing Comments

The weaker dollar couldn’t support today’s grain trade as energy continues lower and selling returns to the grain complex on concern of stiffer export competition to finish the week.

Crude oil extended the freefall, flirting with 11 year lows following the International Energy Agency warning that the oversupply of crude could worsen next year.

USDA’s baseline projections came out today but didn’t really provide much impact on the market. They project corn planted acres for 16/17 to be up 2.1 mln acres and soybeans to be off 1.2 mln from 15/16. Little attention is usually paid to the baseline numbers that are used for budgetary purposes. A recent seed industry survey concurred with the increase in corn planted acres.

Argentina’s Finance Minister suggested that the government will begin lowering export taxes on ag products next week.

Commitment of Traders report showed that managed money trimmed their short positions as of December 8th.

Corn

Corn can’t find follow through to finish the week on pressure from energy, technical selling and lack of supportive news.

Choppy trade in corn as buyers and sellers wrestle over this recent sideways to higher trend. Multi day trends have been difficult to sustain in either direction as selling dries up after two down days and buying runs out on approaches near 3.80.

Processor basis continue to weaken to finish the week as needs for December are getting fulfilled. Ethanol plants – depending on basis costs – are mostly running around break-even.

December contract last trade day is Monday.

Commitment of Traders report showed that Managed Money unloaded 13,393 contracts of their short position as of December 8th. Managed Money with options still sits on a net position of -64,746 in corn.

Encouraging export information wasn’t enough support for this week’s trade. March corn lost 6 ¼ cents for the week.

Soybeans

Soybeans struggle to find supportive news without a stronger South American weather scare.

Export in beans peaked in November and will continue to seasonally work down. Brazil dry northern production areas are being watched by the market but incoming showers over the next 10 days if realized will contain the current moisture stress.

AgRural pegged the 15/16 Brazil soybean planting at 93 percent complete compared to last week’s 88 percent and the long term average of 98 percent.

The biofuel tax debate that was to be settled today in Congress looks to be on hold until next week. The odds of a shift of the blender credit to producer is likely waning.

Commitment of Traders showed that Managed Money with options significantly reduced their short position as of December 8th. Their position is now short -11,115 after reducing their position by more than 23,000 contracts. The reduction in the position explains much of the rally at the end of last week. This reduces the likelihood of an extended “short covering” rally – fortunately the change in position was not just a selling of shorts, but included the new buying of long positions.

Gulf soybean values were a bit firmer today.

The weekly January chart shows an abrupt stop to the two week rally – posting a reversal bar. The market is at risk of a follow through for lower following the reversal bar if soybean meal is not able to find strength to help the soybean crush. January crush margin closed the week at 76.35.

Wheat

Wheat incoming Plains moisture and fear of export competition set back the recent short covering rally.

Wheat continues to struggle to compete on the global market as France is continues to be the low cost provider. France grows 27 percent of the EU wheat and is the fifth largest wheat producing country in the world. While French farmers have been reluctant to sell following their record, they will be faced with unloading their wheat before next summer’s harvest which is shaping up to be another good one. Current moisture levels there are at near ideal levels.

The large global and domestic supplies will continue make the market struggle to find sustainable rallies without a large, sustained production concern.

March Chicago wheat stopped and reversed near the 5.00 mark we discussed last week – finishing with a reversal against yesterday on the daily chart.

Livestock

Cattle fail to extend to new lows today but aren’t able to trade higher while February hogs were the bright spot in the meat complex – closing above five week highs.

Heavy cattle continue to weigh on the market (pun not intended) as steer and heifer slaughter is expected to be 444,000 head for the week ending Dec 12 – 0.9 percent lower than a year ago. Over the last four weeks, fed cattle slaughter is estimated 1.9 percent lower than a year ago. So, we have more cattle that are heavier but slaughter pace is lower.

In hogs, talk that China has purchased a large amount of US hams for Q1 of 2016. Reports suggest 100-150 million pounds, which would be roughly 5-7 days of production. The question for the hog market now is if this is the begging of larger purchases.

Technically the hog market exploded up and out of the trade range, but ended closing well off the day’s highs. Today’s high of 61.750 should provide nearby resistance to the market.

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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