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Closing Comments

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Closing Comments

Money movement dominated the trade today as funds continue to be aggressive buyers in soybeans and corn. Open interest is growing across corn, beans and wheat – expected in soybeans on the long buying, but surprising in corn and wheat as true short covering should drop open interest.

Crude inventories saw 6.6 mln bbl build on the week, however gasoline saw a better-than-expected draw of -4.2 mln bbl while the distillates were fractionally higher. This leads to basically a 3 mln bbl build in the complex.

Ethanol saw an expected seasonal cut in production of 3.8%, however there was not a draw down in stocks. Ethanol futures jumped to their highest level since last November.

Corn

Corn has biggest daily gain of 2016 on short covering.
Short covering and continued dryness in Safrinha corn took May corn up through chart resistance thanks to the large short fund position as price has now well surpassed the price we were trading the day of and the day before the recent bearish prospective plantings report.
Reports from the Delta, South and various parts of the Midwest of beans getting planted acres back from corn thanks to the strong recovery in the bean/corn ratio added to the strength in corn. The strength in corn has forced corn to defend its price to protect planted acres.
The planting outlook for much of the Midwest looks good, but some areas are growing their concern for moisture and the market is perhaps looking to price in some summer weather premium here as the El Nino breakdown may add to summer stress.
Consultant AgrBrasil reduced its forecast for Brazil’s 15/16 corn crop by 3.87 mln tons to 81.2 mln due to April weather stress. Continued May stress would lead to further cuts according to the agency.
Front month corn has gained eight out of nine trading sessions.
Funds reportedly bought 30,000 contracts of corn today in Chicago.

Soybeans

Soybeans accelerate the pace with the biggest rally of the year and the biggest of the last four strong days on fund buying and meal short covering.
Fund buying, now especially in the meal market where funds have been heavily short, continues to confound the fundamentalists in the market looking at global carry-outs. The technical action looks to be an acceleration to a top of this move – the question is at what point. May soybeans filled the gap on the weekly continuation chart with only minor hesitation before closing on its highs today. The next upside target on the continuation chart for the May contract would next be the 9.65 off the daily contract.
Rain delays and damage in Argentina continue to add to the bullish sentiment with concerns that 2 million acres won’t be harvested.
China added support to the market stating they imported 6.1 mln tonnes of soy in March, up 35.3 percent from February and up 36 percent from a year earlier. These numbers reduced the concerns that the slower economic growth in China would cut into the country’s soybean purchases.
Open interest has grown to one of the highest levels in recent history in soybeans on the continued fund buying.

Wheat

Wheat rallies with corn and beans, reluctantly.
While the funds are short wheat, the generally good conditions in the US and Europe coupled with ample carry-outs are making it harder for the wheat market to keep up to corn and soybeans. The Chicago contract is leading the price action, not encouraging for a sustained rally.
Buenos Aires Grain Exchange estimated that farmers are likely to plant 4.5 mln hectares of wheat for 16/17, up 25 percent from last year’s 3.6 mln due to the lifting of export barriers.

Livestock

Cattle lower for the third session on continued fund liquidation.
The spike in corn prices weighed on the feeder cattle and live cattle futures on concern for higher feed costs. Strength in the wholesale beef prices should provide support this week to the cash cattle trade. Feedlot sources said packers in TX and KS bit $131 to $132 vs the ask of $136 to $138.
This morning’s wholesale choice beef price climbed $2.88 per cwt while Select jumped $3.03. Poor packer margins and more cattle for sale this week will likely be headwinds for cash prices.
Fund selling and lower cattle weighed on the hog market. April expires tomorrow. Data showed the morning average cash hog price in IA/MN up 27 cents. Wholesale jumped $1.13 per cwt.

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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