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Closing Comments

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Closing Comments

Crude oil traded higher today on talk from Iran’s oil minister that the proposed “ceiling” of production levels from some members of OPEC is a step Iran may support. Iran did not go so far as agreeing to their own production freeze.

Wall Street traded higher for the third day on support from the oil market and encouraging US industrial output numbers.

EIA energy inventory report will be released Thursday morning.

Minutes from the FOMC said they saw increased uncertainty for economic growth in January and that they see inflation reaching their 2% target by the end of 2018.

Cargill announced they would stop selling crop inputs in the Black Sea region citing they have been “unable to realize many of the expected synergies.” Translation: it’s a really hard place to do business.

Corn

Corn closed on its highs for the second day in a row on continued short covering.

Corn bounced for its second day, coming out of its over-sold condition as speculators cover short positions. Positions getting rolled from March to May and July helped the spread reach its narrowest level in two weeks. Open interest fell slightly on this strength suggesting short covering action.

Funds were estimated to be buyers of 9,000 corn contracts in Chicago.

March corn getting through resistance at 3.70-3.73 area would project up to the 3.85 area which will require extension of the short-covering as well as participation in commercial buying and support from the wheat market.

The corn market has very little 2016 weather premium built in. Considering the potential el Niño analogue year of 1983, the market will need to begin pricing more production uncertainty in as March approaches. Current domestic and global supplies are ample and will weigh on rallies, but any threat to 2016 production changes the carry out significantly.

Soybeans

Soybeans trade higher into resistance on support from, bean oil, equities and crude oil.

Soybeans traded to a nine session high today as short covering continues along with technical buying and support from the outside markets. Open interest did not fall today which could mean there is more to the strength than simply short covering alone.

Grain and livestock federation in Brazil said they will take action against the Value Added Tax on grains to be collected by the state of Goias, saying that the VAT will set a bad precedence for other states. The Goias tax would total 17%. Goias is the 4th largest producer of soybeans in Brazil.

Standard and Poor’s lowered their long term ratings for Brazil to BB, with a negative outlook. The group says economic challenges remain considerable given the challenging political climate.

Soy oil found support off Argentina raising its biodiesel export tax to 3.9% from the 1.9% level in an effort to boost revenue amid shipments to the US being used to meet RFS mandates.

Friday is the last day for March options, a large volume around 8.80 could make that a draw for the market.

Soy meal continues to struggle on the large supply and slow crush while soy oil continues to find support from the Malaysian palm oil market.

Technically, for now the March soybean contract will encounter strong resistance in the 8.90-9.00 area.

Wheat

Wheat trades higher two days in a row now.

Fundamental news was hard to find to support the wheat market, but the market was able to carve out a one week high on short-covering and technical buying nonetheless. The near record short speculative position in Chicago and the record short in KC continues to have the market set up for short covering rallies.

The warm spell forecast for the US Plains this week will cause a portion of the region’s hard red winter wheat to break dormancy and lose some of its winter hardiness, but forecasts show no immediate threat to the crop.

Uncertainty continues regarding Indian wheat crop. Estimated production levels range from 75 to 95 mln mt. Before India moves to imports, look for the govt to stop tariffs on imports. It doesn’t look like the wheat market can count on demand from India for chipping away and the large global wheat supply just yet.

Egypt’s ag ministry send a letter to traders saying it will allow an ergot fungus tolerance level of 0.05 percent in wheat imports – hoping suppliers will make offers to the purchase tenders.

Livestock

Cattle and hogs higher on stronger equity markets and fund buying.

The market seems to be looking ahead in hopes of spring strength in cash prices. Cash bids in Texas stood at $131 per cwt against asking of $136. Last week cash cattle generally brought $134.

Cash prices will have to overcome the ho-hum wholesale beef demand and poor packer margins. This morning wholesale choice jumped $1.44 per cwt to $215.93 while select fell 79 cents.

Lean hogs grew strength from live cattle and higher cash and wholesale prices. This morning’s wholesale pork price climbed $1.26 per cwt from Tuesday. The average cash hog price in IA/MN was $1.15 higher than Tuesday at $63.87.

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.

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