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Closing Comments

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Closing Comments

 

Corn trended positive in spite of the bearish USDA report yesterday, +2 (Dec). Managed funds are at a record net short position, well in excess of 200K contracts, and there do not seem to be many more willing sellers presently. At the same time, there is not much to drive corn much higher with large ending stockpiles, as any rallies will be met by farmer selling. Look for corn to trade in a range through the end of the year, with next possible storylines a new EPA biofuel mandate announcement later this month, South American weather and the January 12th USDA report. If corn is to break below the new low established yesterday, there is not much in the way of support all the way to 3.15. The hope is that corn holds here or does not breach the 3.30-3.35 area.

 

Soybeans made a modest corrective move today, finishing +2 (Jan). The market was expecting a slight decrease in bean yield yesterday, but instead got “unchanged.” This is not necessarily a bearish development, but managed funds have a net long position of approximately 50K contracts, and it will likely take a news bulletin to spur significant more buying. What could be a big deal is the deficit of exports to USDA expectations so far this marketing year. While news is positive from Trump’s trip to China and their commitment to buying more U.S. beans, we have some catch-up to do in the next 2-3 months. If exports do not come into line with USDA projections, this will result in future balance sheet adjustments which will bleed over into increased carryout. Look for how soybeans trade next week to determine if today was just a post-report “dead cat bounce.”

 

Wheat did not get any surprises out of the report, and really do not have a story to hang their hat on. Both U.S. carryout and world ending stocks were down moderately as expected. There is some talk of less U.S. acres being planted, but with wheat being such a globally traded crop, the market needs some good news other than hearing every day how huge the Russian crop is and Russian exports will be. The first stab at planting intentions will be next month. Both U.S. winter varieties gained today, following corn and beans. Chicago SRW +2 ½, Kansas City HRW +4 ¼, Minneapolis HRS -2.

 

Live Cattle saw more long liquidation and profit taking, as traders are concerned about the growing short-term supply and beef production numbers. Normally, there is a seasonal shift to lower production numbers between the 3rd and 4th quarters, but this year is expected to show a 234 million lb. increase. The 4th quarter is up 5.1% over last year same time and beef prices are up 15% over last year. December cattle -1.900

 

Hogs succumbed to more downward pressure in the front-month, -.700 (Dec). The market continues to deal with an oversold condition, weak exports and large slaughter numbers ahead. However, the pork-cut out is strong and packer margins have remained profitable, serving as a check to the downside. Strong demand indicators are necessary for hog futures to reverse course.

 

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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