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Closing Comments


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Closing Comments


Corn was able to stabilize after yesterday’s disappointing report, finishing even (Dec). A couple of items causing debate from the report is a net reduction in demand of 50 MMT from August and a reduction of corn-for-ethanol demand of by 25 MMT. This is a bit hard to explain considering weekly ethanol production was reaching new highs in August. EIA Ethanol weekly reporting showed ethanol production for the week ending September 8th was down from 1.060 mbpd to 1.047 mbpd, but 4% above last year. Ethanol stocks were virtually unchanged but well above last year’s 849 million gallons at 888 million gallons. Ethanol margins are at a profitable level of a net 15-20 cents/gallon. China’s National Energy Administration announced a plan to enact a 10% ethanol blending mandate by 2020, which could have a large effect supply/demand. This is an ambitious plan and it will be interesting to see if it comes to fruition. South American planting weather will be getting more and more attention as we get to October, with Argentina currently soaking wet and Brazil very dry.


Soybeans took the USDA’s bearish report in stride, +10 (Nov). It is likely that much of the supply has already been priced in to the market, and the market is more focused on demand needs. Export demand continues to carry the load, as China has continued to step up and buy breaks. The USDA announced a private sale of 167,370 MT of soybeans sold to Mexico for 2017/18. While debate continues about how the USDA arrived at their yield number, the combines will reveal the truth. If the USDA is wrong by overstating yield by 2-3 bushels or more, prices will react in a volatile manner at a later date. Short term rallies will be dampened by large global supplies until a new story, i.e. South American weather, emerges.


Wheat was able to squeak out a small positive gain today after the reversal action yesterday. The competing issues are a declining Australian crop along with a few other issues around the world vs. Russia’s massive crop and a rebounding French crop. Will wheat be able to find a reason to rally if corn is not on board? The USDA lowered its world ending stocks for both 2016/17 and 2017/18, but other than that there were no surprises that shocked the market from the report. The Texas ports, which process about 25% of U.S. loadings, are repaired and back up and operational. Today’s results: Chicago +1 ¼, KC +2 ½ and MN +2.


Live Cattle were able to turn around from losses the two previous sessions, finishing +1.275 (Oct). October futures have been holding a premium to the cash market due to a record increase in expected production by 395 million lbs in the 4th quarter. Normally, that time frame would see a production decline. Look for February to remain stronger than Oct and Dec.


Hogs are having a hard time lifting themselves out of the seasonal doldrums, +.125 (Oct). Bellies, which for much of the year powered demand and rallies, have continued to stay weak. Other short term forces bringing weakness to the market include a jump in weights and a sharp drop in pork values. The CME Lean Hog Index continues to drop substantially, from 72.39 the previous week to 67.92 as of September 8th.



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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