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Closing Comments

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Closing Comments

Crude oil was the weakest commodity today in spite of a drop in oil stocks of 5 mln barrels. Evidence of the global mindset and reality that there is simply too much supply and threats to production don’t scare the market. Fortunately the weakness in energy did not press on grains. Crude oil carved out new lows, now eyeing the 32.50 area from 2008.

Monsanto said a souring farm economy and currency woes will push its 2016 earnings to the lower end of expectations and a cost-cutting plan will lead to additional job cuts. The company is planning on reducing workforce by 3,600 over the next two years.

Index funds will begin their roll and rebalance the end of this week with the expectation of being moderate sellers of corn, wheat and soyoil.

Corn

Corn holds above the 3.50 level as the large short fund position continues to provide support ahead of next week’s WASDE report.

Weekly EIA ethanol data showed small builds in production but larger builds in stocks – an increase of 38.9 mln gallons to 885.9 mln, close to the highest levels since 2011. Seasonally, December and June are the highest stocks for ethanol.

Greenpeace is complaining that farmers in China are illegally growing genetically modified corn in the northeast. The report cites 93 percent of samples taken last year from corn fields in five counties in Liaoning province tested positive for GMO. Greenpeace blamed an “extremely lax and disorganized” seed market management system for the production and sale of the illegal varieties.

Technically the 3.50 March area is offering support ahead of the Tuesday report with the possibility of some additional short covering as positions are squared. Trade expectation for almost no production changes from the previous USDA report.

Soybeans

Oversold condition, bargain hunting and short covering provided support in the meal and kept soybeans above 8.50 today.

The anticipation for Argentine farmer selling ahead of Brazil’s harvest followed by a record Brazilian harvest is keeping a lid on sustained rallies, but for today short covering and technical buying from an oversold condition had soy meal and soybeans higher. Drier than expected 11-15 day outlook for Brazil contributed to some of the support – but the weather is generally cooperative for crop development with recent rains.

Some concerns are developing in early harvest areas affected by adverse weather in northern Brazil where some farmers are now anxious that their aggressive forward sold position is creating doubt of their ability to fulfill contracts. Despite the concerns in early harvest reports – the anticipation is still for a record harvest from Brazil.

Informa Economics today kept their Brazil soybean crop estimates stable at 101.4 mln mt and the Argentine crop at 58.3 mln mt.

Wheat

Wheat stable in an oversold condition as winterkill risks continue presence but slow global business hangs on rallies.

Soft wheat has yet to really price in the damage from the exceptionally wet fall/winter in the Midwest and southern Midwest – but the ample supplies and questionable ability to compete on global business limit strength for now.

Short fund position still has wheat in a potential short covering rally position if a winterkill scare in the northern hemisphere develops as many areas are not as winter ‘hardy’ as usual.

A Bloomberg trade survey is anticipating a slight reduction in all winter wheat seedings from 15/16.

Livestock

Cattle and hogs continue consolidation.

Cash cattle in TX/KS are asking more than $140 per cwt with no bids from packers. A week ago cash cattle fetched $133-136. The four-day wholesale beef price rally has supported cash values but concern is present from the lower stock market and questions over how demand will hold up against cheaper pork and poultry.

Cash hog prices in the US Midwest were little changed today, underpinned by processors that need supplies for the rest of the week. The expectation is for the seasonal drop in animal weights to reduce flow to packers as they work to replenish after producers moved pigs to market ahead of the holidays. Iowa/MN hog weights averaged 286.3 lbs for the week ended Jan 2, up 3.2 lbs from the prior week and down 1.4 from a year ago.

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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