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Closing Comments

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Closing Comments

Huge short fund positions in yesterday’s COT report provided early support to grains but strength was limited by lack of fundamental news to spark short covering or buying.

Weak crude oil and stronger dollar continue to feed the bearish sentiment of the marketplace. In a different time, the dynamics in the Middle East would have sent crude on a journey higher – but today the trade looks around and refuses to buy oil.

Corn

Large short fund position provides corn support but it was unable to build on early strength into the afternoon.

Word out of China is that they have already bought more corn than expected for the 15/16 stockpiling scheme, adding to the bulging reserves.

Argentina’s sub-secretary for Ag said they anticipate producing 26 mln tonnes of corn for 15/16, down from the 33.8 mln produced in 14/15.

Brazil’s ANEC group pegged December corn exports at 5.85 mln mt which would total corn exports to 30.75 mln mt, up from the previous year’s 20.96 mln mt.

The large short fund position is providing support to the market, but extended rallies are unlikely as the market now looks to square into the Jan 12th WASD report.

Soybeans

Meal provided early support, but global economy concerns, ample US carryout and anticipation of large SA crop keeps a lid on strength.

Soybeans found early support from short covering off the large fund short position and strength in meal, but the gains were hard to hold on to as the market prepares for next Tuesday’s WASDE report and prepares for the large Brazilian crop and Argentine farmer sales. Argentina’s ag sub-secretary did state their disappointment that farmers have not been more aggressive in sales since the lowering of export taxes and currency devaluation.

A Brazil grower group suggested a small area in Mato Grosso has kicked off harvest and that while it’s too early to estimate losses, lack of precipitation in December has caused yield loss and will delay corn harvest.

Yesterday’s Commitment of Traders report showed Managed Money added to their net short position in futures and options. Below shows their net position since 2006.

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Wheat

Wheat higher today, lacking fresh sellers to extend yesterday’s losses.

Currently most winter wheat in the Northern Hemisphere is in good condition, with the exception of Ukraine, where one-third of the winter crops were reported in poor conditions last month. However only a moderate level of ‘hardiness’ still creates a situation susceptible to winter kill if unexpected cold blasts develop. Weather headlines will be required to trigger short covering as the globe currently has plenty of wheat to temper production fears.

Condition ratings for winter wheat in Illinois declined during December after heavy rains caused flooding but more than half the crop was seen as good to excellent in condition.

Seasonally wheat struggles to find strength the first two weeks of the year, often waiting for February to find stronger prices.

Livestock

Cattle continue to consolidate while nearby hogs led today on strong packer demand.

Cattle weights continue to drop with steer dressed weights down 2 pounds and dressed weights down 4 pounds from the previous week. Those weights are still 8 and 16 pounds respectively above a year ago – but muddy lots and winter storms should combine with the seasonal decrease to drop weights as we move into the new year.

US Midwest hogs traded slightly higher in the western half and steady in the eastern region as pork packers continued to bid aggressively to meet this week’s slaughter needs. Lack of inventory has packers bidding up. Estimated packer margins are around $40.

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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