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Closing Comments

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Closing Comments

Corn

Corn futures opened lower last night, and stayed that way up until the opening of the pit session. At that point, the strength in the soy complex was enough to drag corn futures higher, taking out yesterday’s high and running some stops in the process. Once the market got moving, the December option expiration began to take stage as traders used the futures market to lay off their risk on whatever open December options they had. We heard that many traders were looking for opportunities to exit their short positions (i.e. short calls/long puts) in the December corn options, which helped prop the market up throughout the session; however, it was the longs that got pressed into the close as corn futures fell 6 cents in the last 60 seconds of trade, gravitating to the $3.70 strike price.

This morning, the USDA’s daily reporting system announced a sale of 132,000 MT (about 5 million bushels) of corn to “unknown” destinations. With another announced sale this morning, and an export figure yesterday that was more than expected, it was enough to spur some additional buying as the export market has been the weakest on the demand front, compared to livestock demand and ethanol, which has been strong – particularly for ethanol as profitability is strong, leading to stronger spot bids for cash corn.

There was a little bearish influence coming from the EPA’s decision to “punt” on any announcement regarding the bio-fuel mandate moving forward. Some are/were looking for the mandate to be increased from the current level of 13.6 billion gallons. While the announcement simply states that they are abandoning the 2014 bio-fuel (RFS) mandate rule-making, it also states that they’ll release standards for 2014, 2015, and 2016 at some point next year. This spurred weakness in ethanol RINs (Renewable Identification Numbers), trading down 10% right after the news broke. This situation is vague, so let me provide at least a little clarity…

Currently, the government mandates that blenders blend 13.6 billion gallons of ethanol yearly, regardless of their profitability doing so. In order to protect themselves, blenders can accumulate the aforementioned ethanol RINs – these RINs are credits that blenders can buy and sell on an open market, no different than corn or soybeans. If a blender has accumulated these and it becomes unprofitable for them to blend ethanol, then they can use the credits in lieu of actually blending the ethanol and losing money. It essentially bails them out in the event that it isn’t profitable to blend ethanol, but the government mandates them to. The price of the RINs plummeted on that news because some fear/speculate that the government will NOT increase the mandate, or could remove some of the requirements of the blenders, in which case, they would not need the RINs to protect themselves.

This situation could turn out to be bearish longer-term because if blenders can’t make money blending alcohol, they will stop buying it, which will build ethanol stocks, driving prices lower, and reducing or eliminating margins for ethanol producers. This will then reduce the demand for corn for ethanol as well. As for now, it seems to be a non-event, and we’ll have to let the suspense build on this issue into 2015.

For the day, December corn settled down a ½ cent on the day at $3.72 ¾.

Soybeans

There weren’t many fundamental cues for the market to take today in the soy complex. The only side note was a, 85,000 MT sale of U.S. soy meal to the Philippines, but the shipment is for March/April, so it shouldn’t contribute to the nearby tightness in the soy meal market.

Resistance on the chart is between $10.40 and $10.50 versus January, and the market didn’t take much time to test it, strengthening from the open of the pit session, into mid-day, right towards the $10.40 price. Soymeal futures began to weaken about that time, went lower on the day and weighed on the complex, taking soybeans back lower on the day for a short time.

Traders didn’t let that last long as buyers showed up again from mid-day, all the way into the close, driving soybean futures near the highs again into the close. For the day, January soybeans finished up 18 ½ cents at $10.39.

Wheat

Wheat prices were along for the ride again today as corn and soybeans strengthened, but without any fundamental strength, the market floundered with the rest of the grains. The only concern today stemmed from yesterday’s rumors that Argentina may not be able to meet near-term demand obligations, which could shift that demand to the U.S.

The Kansas City contract led the way yesterday, but the spread relationship between the difference wheat contracts was rather steady today. Wheat trended lower into the close along with corn, finishing the day mixed across the board.

For the day, December Chicago wheat settled unchanged at $5.47 ¼, while Kansas City December finished up 1 ¾ cents at $6.04, and Minneapolis December finished down 1 ½ cents at $5.83 ¼.

Beef

Yet again, live cattle traded lower to start, and began to slowly grind higher throughout the day after that. Cash trade developed ahead of the Cattle-on-Feed report at $172 live, which is steady to firmer from last week’s trade (170-172). This helped firm futures further into the close.

Wholesale beef prices were supportive again as choice and select boxed beef were both higher at mid-day. Choice was seen at 255.65, up .26 on the day, while select was up .34 at 243.33 with 47 loads traded.

Feeder cattle followed suit with the lower open and higher action towards the close. The back and forth action in corn didn’t sway prices too much as the Cattle-on-Feed is what’s in focus for cash trade and futures into Monday.

Pork

Lean hogs also opened lower today and remained that way throughout the session for the front months. The weakness in wholesale pork prices continues to act as a lead weight on futures, and without any positivity in the cash market, futures are left sideways for direction. The lead December contract remains at a premium to the cash index, so traders aren’t encouraged to bid the market up until they see some sort of strength in cash.

The trade seemed sluggish on lower volume with the focus on the back month spreading until cash can signal a bigger directional move. Cold storage will be out this afternoon.

December hogs closed at 90.675 today with the most recent cash index at 88.75.

Closing Market Snapshot

*Prices may not represent final settlements

 

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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Samuel Hudson | Market Strategist
WATER STREET ADVISORY® | www.waterstreet.org
(309) 680-1200 | shudson@waterstreet.org

Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK involved in trading futures and or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL. This information is provided freely and is NOT in the capacity of a trading advisor. NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. Information provided is not to be construed as an offer to sell or solicitation to buy any commodity or security named herein.

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