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Closing Comments

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Closing Comments

 

Corn tried to follow beans, but was barely able to stay in positive territory, + ¼ (Mar). The USDA reported 162K MT of sorghum was bought by China for 2017/18, as Chinese feed buyers are capitalizing on soon to expire import licenses to bring in U.S. grain at a profit. Chinese corn is currently considerably higher than the U.S. market. In ethanol, producer margins are staying right around breakeven, with some producers losing 10-15 cents/gallon. If beans can sustain new highs, corn is likely to follow to some extent. WASDE will release a report on Dec 12th, highlighting demand, while the January report will give final numbers.

 

Soybeans got a boost from continued South American weather concerns, taking out the October highs on the chart after failing yesterday, +10 (Jan). The extended European weather model forecast this morning showed persisting dryness in Argentina and Brazil all the way into March. Undoubtedly, this was on the mind of fund managers as they seek to take off risk to the upside. It is still early to draw too many conclusions though, as the Australian Bureau of Meteorology confirmed La Nina exists, but is signaling that it will be a weaker version. And, the timeframe is still early in the growing season, comparable to June in the U.S. Nonetheless, the correlation between La Nina and yields in South America is well established and worth respecting.

 

Wheat was not able to jump on the bean wagon today, pressured by a rising Dollar and weak metal markets. Chicago SRW -2 ½, Kansas City HRW –2 ½ and Minneapolis HRS -3 ¾. The large Russian crop and their expansion of export capability is also putting a damper on the wheat complex, as the Russians are able to win most competitive price bids. Keep an eye on declining Australian yield prospects, due to drought in the beginning and now extreme moisture threatening the quality of unharvested wheat.

 

Live Cattle made yet another large move to the downside, approaching support at the 100-day moving average, -.650 (Feb). Cash is weak and the supply of all meats is large, particularly poultry cold storage. Boxed beef cut-outs were up $2.20 to $208.19 yesterday, but down from last week.

 

Hogs experienced a correction today, as the market has been in a short-term uptrend, -1.175 (Feb). The CME Lean Hog Index is up to 63.26, but down from last week and at a significant discount to Feb futures, 70.550. Managed money continues to hold a large net long position, which leaves the market vulnerable if technical support levels are violated. Will large supplies turn cash weaker?

 

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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