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Closing Comments

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Closing Comments

Corn is still hovering around an area of congestion near 3.50, – ¼.  The EIA released its numbers this morning and they revealed ethanol production for the week ending Nov. 18th little changed,  down 3,000 bbl to 1.01 mln bbl/day.  Ethanol stocks rebounded, +.34 to 18.95 mln bbl, but remain below levels of a year ago.  This could mark the beginning of a seasonal increase that is expected over the next months.  Ethanol margins are maintaining a solid 25 c/gal.  South Korea’s KOCOPIA purchased 55K mt of corn for March delivery according to cash grain sources.  Will Dec options expiring on Friday’s shortened session lead to fireworks at the close?

 

Soybeans were able to end positive (+ 4 ¼) after rebounding from a poor start, by finishing above key resistance at 10.30, led by an inspiring break-out by soybean oil.  This resulted from an early EPA announcement today of 2017 Biofuel mandates, which caused a big rally in soyoil and sharp losses in soymeal.  How will this play out with the new Trump EPA chief though?  What he/she will do about the mandates, blender’s credit, and long term focus to the program will be more important long term.  Beans have also had continued support from strong Chinese crush margins (up 24% last month over last year) and optimism that a weaker Chinese currency could continue to spark an aggressive buying pace.  However, there were no new sales announcements today, and once China is comfortable Brazil has a crop – look out (Brazil planting is 77% complete vs 76% LY).  Another looming factor is the threat of trade retaliation if the U.S. imposes tariffs on Chinese goods. 

 

Wheat extended its downward momentum led by Chicago – 5 ¾, KC – 1, and MN – ¾.  With the U.S. Dollar rallying into new contract highs, more pressure is being added to the mix.  It is projected that Winter Wheat plantings in the U.S. will be some of the lowest in 50 years.  Also, it is likely there will be a reduction in Canadian and European acres this year.  The Indonesia Ag Ministry is aiming for no corn imports in 2017, as a means to achieve self-sufficiency.  This policy is positively impacting wheat imports, as the initial reduction in 2016 to just 1 mln mt prompted a sharp increase.  Compounding the equation is overall human consumption of wheat, which is elevating Indonesia to the #2 slot behind Egypt for the world’s largest wheat importer.  It will be critical for the U.S. to continue to become more competitive in bidding against its major competitors in this space.

 

Live Cattle futures continued their impressive ascent after breaking through resistance at 106 last week, +.325.  Cash trade will be watched closely by traders as the technical indicators are getting very over-bought, in spite of reaching highs not seen since August 23rd.  January futures are looking to hold on to the $10 rally over the past month, with the report last Friday lending some support, with cattle on feed at 10.6 mln head down 1% compared to a year ago and cattle placements down 5%.  Demand will be likely to increase after the passing of the Thanksgiving holiday. 

 

Hogs  Hog futures were up modestly again today after yesterday’s reversal from Monday’s new high, +.450.  Futures have rallied this week partly because of short covering and optimism surrounding pork demand, going into the 1st quarter of next year.  Even though cold storage showed a significant reduction for the month, stocks are down just 1% from last year at this time (last year was a record high).  The market is waiting to see what will happen with the cutout after Thanksgiving and into Christmas, with the value of hams being the key barometer.

 

In Other news, as the TPP has lost steam from PEOTUS Trump’s announced position, China is increasing its efforts to put together a pan-Asia trade pact.  Other countries that had been part of the TPP negotiations that are pivoting this potential new direction include Singapore, Vietnam, and Malaysia.  It will be interesting to see how things develop with the new U.S. administration, related to the balance of power with key trading relationships that could have a significant effect on the commodity trade. The Dollar continues to show strength, while Dow closed above 19,000 yesterday for the first time in history.

 

Happy Thanksgiving to All and Safe Travels

 

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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