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As the post-Thanksgiving trade kicked off this week, prospects were looking a bit dim in the grain/soy trade. The main focus remained fixated on ample supplies and bears appeared intent on driving prices lower yet again. While they did have some initial success, it seemed that the panic liquidation or possibly the desperation selling they were hoping for never materialized and that being the case, what was left to hang around for? If we were to close right now, for the week March corn would be up a little over a penny, January beans down a nickel but still hovering around the 9.90 level that has been the mid-point of the range for the past 15-months and wheat, the market that extended into new contract lows early in the week, sitting back at the unchanged mark. I would suggest that 1., we have markets that are telling us this is a level of value and attempts to press prices lower will only have temporary successes and 2., if speculative shorts, who for all we know would appear to be holding the best cards in their hands cannot be successful at extending the price lower chances are they are going to grow impatient and begin looking for greener pastures. The idea of bulls potentially getting to eat the turkey for Christmas is yet in play.
The 9th largest wheat producer in the world appears to be set for additional problems over the weekend. Australia has already been struggling with drought conditions during the growing year (one of the 10 driest on record) and is expected to produce the lowest output in 8-years with a crop of 21.7 MMT. Ironically they are now expecting to witness additional losses due to excessive rain. There is a massive storm headed for production regions in the south, where harvest remain in full swing, that could dump upwards of 11 inches of rain. While what the overall damages may be is yet unknown, it is estimated the storms will impact around 4 MMT of production. Granted, we all know the world is awash (no pun intended) in wheat right now, but situations such as this could begin turning the tide.
After yesterday, it may seem surprising that anyone is interested in commodities as all the focus is on the equity trade. Domestic stocks markets accelerated into new record highs once again, seemingly on the news that John McCain was going to vote in favor of the Republican tax reform bill and that something may be voted on and passed yet this week. While there are still a few bumps that need to be smoothed out before a vote, it would appear this is about to become a reality. Needless to say, as investment/speculative money continues to pour into equities (and Bitcoin) we in the commodity world are starved for dollars and volatility but I would suggest that value investors are quietly rebalancing their portfolios to be positioned for the day, I believe in the not too distant future, when we reverse that trend.
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