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Closing Comments

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Closing Comments

Mixed trade today with soybean complex the weakest and wheat offering the best support.

More ammunition for the Fed to raise rates tomorrow from the Labor Dept saying its core Consumer Price Index, which excludes food and energy, increased 0.2 last month. It was the third straight month the core CPI increased by 0.2 percent.

In energy, while nothing has really changed on the fundamental side, the market ran out of sellers yesterday and found some follow through buying on chatter that the market is simply getting oversold despite the plentiful supplies as production drops and global demand grows. Managed money holds a significant large short position in Heating Oil.

Argentine president Macri stated he would like to see the official exchange rate converge with the off-market rate. A top central bank official expects the peso to weaken some this week but cautioned that the bank would defend a full devaluation from the official 9.78 rate to the black market rate of 14.7 pesos to dollar.

Corn

Corn closes lower, but strong sellers seem hard to come by for now despite generally bearish news out of South America and China.

On the export front, Argentina are offering March supplies at a 15 cent discount to the US with even better offers beyond.

Domestic commercial buying beyond hand-to-mouth is hard to find as ethanol margins are generally either side of breakeven and merchandisers are confident that eventually the plentiful supplies will come to them. Dec corn basis has been flat to weaker for interior offers.

March corn is resisting the 50 day moving average and continues its choppy trade. Short fund positions could offer futures support going into the first of the year as they square positions. 8.82-3.87 are nearby resistance.

Soybeans

Soybeans continue to trend lower off new lows in soy meal and anxiety over potential for Argentine currency devaluation.

Ongoing concerns about weakening export demand in soy meal combined with continued prospects for large South American production continues to cast a bearish tone on soybeans.

Today’s National Oilseed Processors Association (NOPA) report showed an unexpected slowdown in crushing pace added to today’s weight on the market. November crush was reported at 156.13 mln bushels while the market expected 161.7 mln bu coming off the October number of 158.89 mln. Soyoil stocks came in at 1.477 bln lbs, just above the expectations of 1.450.

If no weather concern develops in South America into a real market concern, the stronger Chinese currency and weaker South American currencies will likely keep US supplies in a bearish posture for the next few months.

For now in South America – southern Brazil and Paraguay continue to fight their wettest Nov/Dec since 1977 while the northern Brazil areas are hoping for dry relief in the next two week forecast.

For the January contract, if support isn’t found in the 8.65 area – look for the market to eye the 8.54 target.

Wheat

Wheat was generally supported on continued short covering with Kansas City leading the complex.

The short fund position in Kansas City helped the March contract to put in its highest daily close in over a month as it comes out of its weekly oversold condition. Chicago, also very short in spec position, struggled to hold its strength – improving the KC-Chi spread by 3 ½ cents.

While French farmers have plentiful supplies, they are resistant to selling at the current low prices.

Slow news in general as winter progresses in wheat. Key stories being watched include: 20 percent of Ukraine/South Russia winter wheat in questionable condition, much of the EU winter wheat not yet hardy enough to handle an unexpected cold snap and 10-20 percent of US Midwest and Delta wheat facing too wet of conditions.

Daily Kansas City moving into overbought condition, closing today at 492 ¼ but able to close today above the 50 day moving average. March resistance in the 5.10 to 5.20 area.

Livestock

Slightly higher cattle higher on short covering while hogs trade lower.

Southern Plains bids in the cash cattle market today have been between $117 and $118/cwt.

On the global beef picture, as ample supply and the strong US dollar has pressed on cattle – the US is poised to regain some of the lost global market share that has been lost to Australia in recent years. The Australian cattle herd has shrunk due to drought, and their beef supply will be reduced in the next year as they move into a herd expansion phase.

Pork commercial production is expected to be up 7 percent compared to 2014, due to less death loss from PEDv. The decrease in pork exports has been related primarily to the strong US dollar and the slowing world economies.

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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