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Closing Comments



Closing Comments


Corn traded negatively today as increasing focus on South American weather and the conclusion of harvest in many areas could spell lower trade into the next infusion of fundamental news in January. Corn accelerated through the session before closing off its lows by a penny and a half. In many ways the corn market is currently pitted between two forces: a lack of farmer selling continues to firm basis and support price in the short term, while slow exports and the fact that the farmer still owns the majority of the crop should keep significant rallies in check. The market will increasingly be focused not only on the 2014 balance sheet but also projected acres for next year.

For now we have an almost perfect head and shoulders pattern forming on the March chart with the shoulders at 3.94 1/4, matching our August high to the tick, and the head at 4.01 ¼. If this pattern executes we could see trade extend down to the 3.50 area before looking to fundamentals for further direction. For now the bias of the market continues to be rallies are for selling, with a break below 3.76 indicating this bias is right, and a break above 4.01 indicating it is wrong.


Soybeans traded lower today after Friday’s strong day, continuing the recent pattern of large intraday ranges and mixed volatility. Over the past 14 trading days the average range of soybeans has been 26 ¼ cents, showing tangibly just how volatile the market has been. Over the past 5 trading days we have seen a long term supportive trend line broken last Wednesday, traded back up to the underside of the trend line, and have failed since. While the meal logistical situation could linger causing periodic short and violent rallies, for now it looks like beans should be good for lower, but a return to 10.60 is allowable as it would form a head and shoulders that could still favor the downside.

Soybeans will be more sensitive to South American weather going forward and for now forecasts remain ideal for adequate subsoil moisture and planting progress. Unless this forecast deteriorates expect soybeans to trade in a wide range with a general bias lower barring any more developments on the soybean meal front.


Wheat traded mixed today, initially surging higher before eventually succumbing to heavy trade in corn. While wheat may continue to have a story with unseasonably cold temps negatively impacting the crop in the ground, slow export pace and ample supply will continue to limit gains until losses become more substantial. News that Argentina has logistical delays around their export licensing buoyed the Kansas City verses Chicago wheat spread last week, and could mean more Brazilian export demand could be coming toward the US. However, it is still too early to tell exactly how that situation will work itself out.

As of Friday the Commitment of Traders report showed speculators still net short at just under 20,000 contracts, down from 32,000 contracts last week, evidence that last week’s positive trade was fueled by short-covering. In the weeks ahead negative weather could provide brief areas of price increase but the market should still be largely capped by long-term fundamentals on both the supply and demand side.


Both feeder and live cattle were down hard today after seeing a record high cash trade in Kansas of $173.00 on Friday. The cattle on feed report released after Friday’s close was bearish showing placements at 99.1% of last year, nearly 3% more than trade expectations. This report was more impactful to the April and June contracts which was evident in today’s session as they were down by between 60-90 cents more than the December contract. October marketings were below trade expectations at just 92.2% from last year, meaning that there were slightly more cattle available on November 1st which is negative cash and nearby futures. This is the first time feedlot supply has increased since the down trend began in July of 2012. Overall the long-term effects of this report could be a top in the cattle market, or just another pull-back to buy, but for now it seems that at least in the short-term the complex could be in for a pull-back.


Lean hogs traded mixed to positive for much of the day session after Friday’s friendly cold storage report. Additionally, growing concern over the spread of PEDv into colder winter temperatures could be building risk premium into the deferred contracts. USDA pork cutout values released after market close on Friday came in at $93.46, up 74 cents from Thursday but still lower than the previous week’s $95.47. The cold storage report showed frozen pork stocks at 524.77 million pounds as of October, down 7.1% from the previous year, and 3.7% from last month. This decrease is especially supportive considering that stocks normally increase by 1.8% during this time of year. Overall uncertainty over winter conditions and death loss could support the hogs until it becomes clear what impact they may have on long term pork production.

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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