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Closing Comments

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Closing Comments

Corn

Corn traded in a tight and positive range today as large ethanol grind numbers supported the market despite soybeans negative trade. Ethanol production for the week ending in November 14 averaged 970 thousand barrels per day, up 2.54% versus last week and 7.3% versus last year’s numbers. Stocks at 17.355 million bushels were down 2.09% from previous week but 14.93% above last year’s numbers. Usage was impressive at 103.11 million bushels, up over two million bushels from the week prior and nearly 4 million bushels over the weekly need to reach the USDA estimate of 5.15 billion bushels of usage. Despite the friendliness of this release, the market did not really add to early session gains on the news. There seems to be enough positive news for now to keep fund liquidation at bay, and even attract light buying, but I remain concerned that a failure in the soybean complex could drag corn down, just as it has been propelled upward in this recent meal squeeze.

Soybeans

Soybeans enjoyed yet another day of volatile trade with a 21 cent range spending most of the day session down 7-9 cents before firming into the close. Trade came 6 cents shy of forming the right shoulder of the head and shoulders pattern on the chart today, maintaining 10.59 as an area where resistance should stop the market for a return to the lower trend, and a violation of this area as a signal that new highs could be coming. With a weaker tone for demand from China, ample short-term supply, and tightness in meal easing, bias remains that the market will resist here.

South American weather continues to be a bearish market force, with Brazilian planting progress of 74% inching closer to the five year average of 81% for the week. In the larger demand picture, Chinese crush margins have softened substantially, going negative in many areas which could ease their current aggressive input pace.

Wheat

Wheat continued to trade positively today, though less supported by the strengthening of the KC/Chicago spread than it has been over the last week. Both a drop in KC wheat conditions and the possibility that Brazil could need more quality hard red wheat imports than Argentina has to offer are both helping to strengthen the market to its highest level since Sept. 10. Good to excellent ratings were expected to remain unchanged this week, but fell 2% to 58% after recent cold weather. With the dollar softening slightly, and tensions with Russia remaining a nagging issue, short term wheat fundamentals look very positive with the only exception being ample long term supply. For now wheat will have plenty of headlines to trade and its strength will continue to help maintain short-term support for the corn market.

Beef

Cattle continued lower today, but not as decisively as expected after Monday’s sweeping key reversal. Strong cash trade up to $173.00 in the Panhandle and $172.00 in Nebraska continue to support the market from large losses, and lack of selling has begun to create new buyers impressed by the resilience of the complex. Further, the five year average basis for the December contract is for futures to trade at a $2 premium to cash, not a $3 discount, further evidence that this pull-back could be a bull-trap rather than a legitimate pull-back. One thing is clear, a violation of Monday’s lows could signal a larger scale pull-back that needs to be protected aggressively, and longer term could forge a long-term high on the chart. However, after the last 18 months of strength we will need to break substantially before negativity on the chart can clearly be called a change in trend.

The USDA estimated cattle slaughter came in below trade expectations at 113,000 head yesterday, bringing the total for the week to 228,000 head, up from last week but down 21,000 head from last year this time. USDA choice cutout is up $.59 at noon, with the select cutout up $.16.

Pork

The hog market was up modestly today after yesterday’s trade took it below the 50-day moving average for the first time in over 2 weeks of trade. Firm cash trade and momentum from yesterday’s close continue to support the market from large scale sell-offs, but the market remains vulnerable to increased selling if we take out recent levels of support.

Yesterday’s USDA pork cutout values came in at $91.82, down $1.34 from Monday and $1.94 from the previous week. This is the lowest pork cutout value since February 11th and does not bode well for the long-term supply picture, while PEDv impact could be friendly, but has yet to impact the market. The USDA estimated hog slaughter came in above trade expectation at 434,000 head yesterday, bringing the total for the week so far to 869,000, above both last week and last year’s pace for the day.

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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