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December 6th - Closing Market Commentary

12/06/2019
December 6th - Closing Market Commentary

Grain markets closed mostly higher on Friday:

Corn Unchanged (Mar @ 3.76 ¾ )

Soybeans + 5 ¼ cents/bu (Jan @ 8.89 ½ )

Chi Wheat + ¾ cent/bu (Mar @ 5.24 ½ )

Cdn $ -0.00515 (75.395 cents)

WTI Crude Oil +0.77/barrel (59.20)

Cereal futures managed to roar back to finish close to unchanged in the last 45 minutes of trading today, as speculators seemed to realize that the benefits of selling the market today could be very short lived should the USA and China come to some sort of trade war resolution over the weekend.  The market is definitely tired of the 18 month long rhetoric that has characterized the trade war between the Americans and the Chinese, but the clock is rapidly ticking down towards the December 15th deadline in which President Trump has said that he will impose new punitive import tariffs on Chinese goods, in the event that a trade deal is not in place.  White House officials sounded optimistic today regarding the progress that is being made in the trade talks.  Of course, the soybean complex is perceived to have the biggest benefits from any deal with Chinese, and the past three day rally in beans is a reflection of growing optimism regarding some sort of agreement.  Of course, the recent three day soybean rally is also a function of the fact that bean futures were due for a bounce higher after suffering through a 5 week decline that had seen futures lose close to 80 cents/bushel.

Early gains in grain futures and soybeans today had been attributed to a story that suggested that China was removing import tariffs on new purchases of American soybeans and pork.  That allowed soybeans to rally as much as 10 cents/bushel on what was perceived as a good faith move by the Chinese, as part of the trade negotiations.  Unfortunately, it was revealed during the session that China was actually just streamlining the tariff process on exempted purchases that had already been made, so that fact allowed beans to give up some of their gains mid session, while allowing cereal values to trade in negative territory.  South American weather forecasts continue to look good for Brazil, as a rotating pattern that delivers rains in the Brazilian growing area is entrenched for the next 10 days.  Brazil’s soybean crop is said to be 90% planted.  Argentina weather is supportive to bean prices, as they continue to dry out, with no rain forecast for the next week. Argentinian soybean planting is reported to be 49% complete.

Corn values continue to struggle based on the perception of adequate USA 2019/20 ending stocks, and continued  poor export sales.  Growers are not selling a lot of their 2019 corn production, as they are still convinced that USDA production data is flawed, and the crop is not as big as projected.  There could still be some surprises in upcoming USDA Crop Reports, although the December Report (due out next Tuesday) is generally a snooze fest, with the January Report typically the one that provides some fireworks.  Anecdotally, there are more and more reports of very light test weight corn being harvested in the northern Plains/upper Midwest, which should end up ultimately lowering the total number of tonnes produced in 2019.  The corn market will need to see increased domestic usage numbers (ethanol) and increased exports in order to sustain any rallies.  Corn futures ended the week down 4 ½ cents/bu.

Chicago wheat futures struggled this week, after a meteoric rise last week.  Values were down 17 cents/bu on the week, primarily due to poor export sales last week, and the inability of the USA to participate in a few large international wheat tenders this week.  Wheat production in many corners of the globe continues to provide some level of concern however, and should some export demand get uncovered, we could well see further support to the wheat complex.  Funds have demonstrated that they are not afraid to rapidly increase their ownership in wheat futures.

One of the biggest news market stories today was the USA November jobs report.  The US economy in November created 266,000 jobs, beating the average expectation of 180,000 new jobs.  In addition, job creation totals for the previous two months were increased upward by another 41,000 jobs.  The USA unemployment rate slipped to a 50 year low of 3.5%.  Unemployment actually sits at 3.2% for adult men and women, while it sits at 12% for teenagers.  At any rate, the job creation numbers reflect an economy that is firing on all cylinders, and had the effect of immediately rallying the American dollar, as well as equity markets (Dow futures closed up 336 points @ 28,014).

After the close of trading today, the CFTC released it’s weekly report on fund positions.  Today’s numbers showed that trade analysts were WAY off in terms of the size of positions that funds held at the close of business on Tuesday, December 3rd.  Funds were less short corn futures than expected by 19,000 contracts, while funds were far shorter soybean futures than expected, some 49,000 contracts shorter to be exact.  Funds were 17,000 contracts longer Chicago wheat than expected as well.  In today’s trade, funds were thought to have sold 4,000 corn contracts (now short 102,000), bought 6,000 soybean contracts (now short 84,000), and bought 1,000 Chicago wheat contracts (now long 18,000).

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