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Time for a 'Santa Claus rally?'

With retailers reporting strong sales early in the holiday shopping season and global economic concerns subsiding for the time being, the equity and commodity markets have rallied to start December. The Dow has increased 788.09 points so far this week to finish trade Thursday at 12,020.03. Oil has followed gaining $2.92 a barrel to settle at $100.24 today. Gold and the dollar index, which is off sharply, continued their inverse relationship with the metal gaining $57.60 an ounce to end Thursday at $1,743.10. The commodity markets have enjoyed what could be the start of a “Santa Claus” rally.

Corn has added 11 ½ cents to the March contract settling at $6.01 ½. After the large sell off in November it was to be expected that prices would rebound. Profit-taking and position evening ahead of the December contract’s first notice day and before the end of the year aided the rally. Lending support technically was the $6.00 level and the 100% Fibonacci retracement line. Export sales missed expectations at 280,600 MT, which is down 11% from last week.

Soybeans have rallied off of 13-month lows this week gaining 21 ½ cents on the January contract that sits at $11.28.  Any rally will be short-lived, however, due to a great start for the South American crop and questions surrounding Chinese demand. The technical landscape for soybeans remains very weak and the market is now sitting on long-term support in the $11.25 area.  A move with conviction through this area could lead to another sharp sell off.  Export sales were in the middle of expectations at 489,600 MT, which is down 47% from last week.

Wheat has been the leader to the upside this week rallying 25 ¼ cents to end trade today at $6.14 ¼ on the March CBOT contract.  The biggest supporting factor has been the sharply weaker dollar index.  The grain has taken back its premium over corn as well. 

This will give support going forward as livestock producers will begin to feed more of the now cheaper corn crop.  Export sales were reported at 503,000 MT, which is down 18% from last week.

Solid economic data domestically and subsiding Euro-zone debt fears have propelled the equity and commodity markets higher this week.  The foundation is laid for a “Santa Claus” rally as we head towards the New Year. Export sales and the dollar index will be a driving force as we are now in a demand driven market. Next week brings us the USDA Supply/Demand reports and the Crop Production update.

Spot soybeans continued their run this week with basis posting another two cent gain on average across the country. Soybean crushing facilities and river terminals were the big movers in the market this week, posting a three and five cent gain respectively. For the month of November, spot soybeans gained an average of 16 cents. The support in the cash market has primarily come from export demand with the Gulf recording a 15 cent gain since the first of the month. Fanning up from the Gulf, basis along the Rivers also increased with help from unseasonably low barge rates.

With bearish sentiment in the soybean futures market, the cash market has had to compensate by increasing basis. Basis strengthened an average of 16 cents last month to give farmers an incentive to sell their grain among falling futures and cash prices.

Turning our attention to Minneapolis Wheat, spot basis for the growing region increased an average of three cents over the week. Since the beginning of November spot basis hasgained an incredible 30 cents on average. With tighter stocks from the 2011 harvest, demand for spring wheat is putting upward pressure on basis to encourage producers to sell their crop.

Minnesota led the push strengthening basis by 40 cents, North Dakota by 33 cents and South Dakota by 32 cents.

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