A dynamic finish to the week with soybeans finishing strong for the second day in a row, cattle and feeders limit up – but corn and wheat struggle with gains as fear of Argentine supplies linger and the energy market struggles to find life.
The market is now entering its thin volume, holiday trade season. This can lead to quiet market but also to erratic trade if news comes to the market. In addition there will be fund position squaring ahead of year end. With uncertainty on the horizon in Brazilian weather and El Nino, its unlikely funds add to their short position until confidence is greater in a large South American production year.
Corn gives up early strength on pressure from wheat as well as farmer and fund selling ahead to finish the week.
Cash markets for corn have remained steady to firmer this week as farmers are generally reluctant sellers into the end of the year – rewarding only momentary rallies or basis pushes as commercial users continue their hand-to-mouth buying.
Argentine corn industry official said their group estimates there are 6 to 10 mln mt (240 to 400 mln bu) of corn in grain producing regions that are ready to be sold now that the export tax has been lifted and the peso is devaluing. This continues to weigh on export expectations as Argentina is already the low cost source and the 30 percent peso devaluation makes current prices highly profitable for the Argentine farmer.
China has formally accepted a petition from Chinese producers of distillers dried grains seeking anti-dumping duties on imports of the feed ingredient from the US.
Commitment of Traders showed that as of Tuesday December 15, Managed Money with options reduced their short position by 25,640 contracts – leaving them net short -39,106 contracts.
March corn was unable to sustain follow through strength today – resisting at the 50 day moving average. The March low from Thursday should be a good one for the winter but can’t be confirmed until we can’t take out 3.87. 3.80-3.85 should continue to offer selling resistance.
Dryer outlook for Northern Brazil helped soybeans extend their Thursday gains – holding up the best among the grains.
Bearish tilt going into yesterday encountered tepid selling from Argentine farmers – so far – and a dryer than hoped for forecast in the northern part of Brazil. Continued failures of rains could provide fodder for continued short covering by the funds as we near the critical time of January.
Oilseed groups in Argentina estimate that there are about 13 mln mt (475 mln by) of soybeans stockpiled that would be available for export the next few months. Rosario Grain Exchange state Argentine farmer reactions have been cautious, but they expect currency rate stability to bring a pickup in farmer sales. The exchange is forecasting some 8 to 10 mln mt of soybeans to be exported over the next quarter.
Poor rains in Brazil’s Goias state has the local farm group backing their soybean production estimate down -600,000 mt from their previous estimate to 9.8 mln mt.
Commitment of Traders report showed Managed Money turned sellers of soybeans for the week ending Dec 15, increasing their short positions by -18,404 contracts for a net position of -29,519 while increasing their short position in meal and building their long position in bean oil. Today, funds were reportedly buyers of 12,000 contracts.
Technically, todays follow through strength in soymeal and soybeans are an encouraging sign following the previous week’s breakdown. This week was able to erase half of the previous week losses and showed an inability to follow through lower on the hook reversal last week on the weekly chart. Weekly stochastics are neutral to higher. January is likely to encounter resistance in the 9.00 area, if it can clear the previous swing high of 909 ¾ – the market should be good for 9.20 and 9.40 targets. All things considered we are still in sideways trade now for four months.
Board crush margin continues to struggle, which means soy meal must start participating with more strength for gains to be extended in soybean futures.
Wheat can’t hold early gains, Chicago and Kansas City close marginally higher and Minneapolis lower on the close. Wheat has essentially closed at the same price three Friday’s in a row.
Current supplies are plentiful and farmer ownership will likely be a weight on rallies – however, condition concern in the Black Sea region, un-hardy conditions in the EU and poor conditions in north Africa and India would keep the futures market supported. India, which accounts for more than 10 percent of the global wheat output, is set to see a second consecutive annual drop in production next year.
Sustainable rallies for now though will likely be hard to come buy until global carry-outs can be reduced. The short fund position likely offers the best short term opportunity for rallies to price in the next couple of months.
Today’s Commitment of Traders report showed Managed Money with options reduced their net short position by 22,803 contracts in Chicago – leaving them short -48,177 the CBOT wheat, -14,847 in Kansas City and only -922 in Minneapolis.
Cattle on Feed report surprises the trade with the lowest placements in November since the report started in 1996.
Placements in feedlots during November totaled 1.60 million head, 11 percent below 2014. Placements are the lowest for November since the report began in 1996. Net placements were 1.53 million head. During November, placements of cattle and calves weighing less than 600 pounds were 470,000 head, 600-699 pounds were 391,000, 700-799 pounds were 310,000 head and greater than 800 pounds were 430,000.
The market had an inkling of concern that the expectations for the report maybe weren’t friendly enough coming out of the gate this morning with both live cattle and feeders locking limit up. Monday’s trade will have expanded limits.
Closing Market Snapshot
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.