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Closing Comments

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Closing Comments

 

Corn pushed beyond yesterday’s low before rebounding for a slight gain, + ¾ (Dec). There is not a new story other than corn is getting a bit oversold, and it followed soybeans’ lead today. EIA Ethanol weekly reporting showed a slight decrease in production from last week, while ethanol stocks were up over last week and 16% over last year. The weekly decline in unleaded gasoline and crude stocks is supportive to the market. The Renewable Fuels Association is seeing growth in all forms of ethanol and ethanol exports. The U.S. domestic ethanol industry is capable of producing 16 billion gallons at full capacity. Big growth opportunities for ethanol exports include Japan, Korea, China, India and Mexico. It is said that American ethanol is the cheapest form of octane in the world.

 

Soybeans rallied sharply on strong gains in soyoil, +8 ½ (Jan). News out of China was also supportive, as it indicated that the China National Grain and Oils information center is predicting soybean crush will double or triple next year. Additionally, China’s COFCO grain trader announced the PRC will import 3 MMT of soybeans than last year, which is an all-time record. The NOPA crush report showed the crush in line with expectations, while soybean oil stocks were way down. This may be a reflection of lower soy oil yields than last year. South America continues to experience favorable conditions, as Brazil has seen soil moisture levels replenished in the north. Soybean planting rose to 68%, coming closer into alignment with the five-year average of 73%.

 

Wheat fell back into the lower end of the range they have been trading, with KC leading the way, -10 ¼ (Dec). Chicago was not far behind, -8, while spring wheat had less of a correction, -3 ¼. Managed funds are holding a large short position in Chicago wheat, which is supportive to the market not falling below the $4.10 area. The world’s largest wheat importer, Egypt, is causing confusion with their changing import standards on ergot allowance. The Ministry of Supply is working on a statement that will provide clarification to importers. Keep an eye on U.S. hard red winter growing areas, as they have been extremely dry the last several weeks and likely will continue to be through the end of the month. This could be important as the crop moves into the dormancy stage.

 

Live Cattle was able to recoup some of yesterday’s losses, +700 (Dec). However, the concern is over a record increase of beef supply projected for the 4th quarter and a large net long position held by funds in the cattle market. The market appears pointed downward in the short-term, but look to the Cattle on Feed report on Friday as well as Livestock Slaughter and Cold Storage reports next Wednesday to provide a clearer path forward.

 

Hogs saw some correction of yesterday’s free-fall with buyers stepping in, +1.150 (Dec). Global news providing a measure of support included China’s hog herd being down 6.6% from October of last year. This is notable as China produces half of the world’s pork production, and the reduction is in response to the government’s attempt to reduce pollution. The market appears to be probing for a short-term low with hog weights up again this week and concerns by traders that hog supply may be backing up in the country.

 

Closing Market Snapshot  

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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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