News that Congress had passed legislation to avoid the so-called fiscal cliff of reduced government spending and higher taxes sent most financial and commodity markets higher Wednesday morning. Having the equity indexes jump on the news, while the U.S. dollar declined is particularly supportive of commodity values, since the stock gains usually imply increased confidence about the domestic economic outlook, whereas greenback weakness lowers the cost of U.S. goods to export customers. Given our strong position as a corn exporter, it was certainly no surprise that the yellow grain market responded well to the news. However, futures backed off quickly from early highs and moved lower by late morning. Thus, traders now have to be concerned about a short-term move to fresh six-month lows. March corn was trading 5 1/4 cents lower at $6.93/bushel and December had fallen 5 cents to $5.94 3/4.
Soybean futures led the way higher on the Wednesday morning CBOT opening as traders reacted to the Congressional news from New Years Day. The news seemed particularly supportive of the soy outlook, since it included a renewal of biodiesel tax incentives. That fact, along with the unwinding of long meal/short oil spreads, probably explains the persistent strength exhibited by the oil market and concurrent losses in the meal pit. However, bulls proved unable to sustain the soybean advance, possibly due to forecasts for continued favorable weather over South American fields. Having the nearby contracts fail to challenge their respective 40-day moving averages on the opening may also have sparked the subsequent decline. March beans had fallen 16 1/4 cents to $13.93 1/4 per bushel by late morning, whereas March soyoil had jumped 1.10 cents to 50.80 cents/pound and January meal had fallen $12.4 to $408.2/ton.
The wheat market also moved rallied in response to the fiscal cliff news, but quickly reversed to the downside. Indeed, soon after dipping back below their respective 10-day moving averages, the nearby wheat contracts moved decidedly lower on the day. This may presage more of the same during the days ahead, especially after corn futures also turned downward. The fact that the Southern Plains have recently been blessed with significant precipitation very likely accounts for the exaggerated bearish move. March CBOT wheat had fallen 20 3/4 cents to $7.57 1/4 by late morning; March KCBT wheat dove 18 3/4 cents to $8.12 1/4 and March MGE futures plunged 19 1/4 cents to $8.46 1/4 per bushel.
Wednesday’s financial market developments also boosted cattle futures in early trading, since the combination of stock index gains and U.S. dollar weakness as boosting domestic and export demand, respectively, for red meat. Choice beef cutout values declined around midday, which probably played a significant role in undercutting the early gains. Indeed, the nearby contracts traded in negative territory into the noon hour. Having the nearby February contract rebound substantially from its midsession low seems supportive of short-term prospects, but one has to wonder if cattle futures will test underlying support during the days just ahead. February cattle dipped to 132.12cents/pound, down 0.17 cents, in late-morning trading, while its April counterpart slumped 0.40 cents to 135.95 cents/pound at midsession.
Talk that the cash hog and wholesale pork markets were firming almost surely accounted for the persistent strength CME lean hog futures exhibited Wednesday morning, thereby enabling the swine contracts to outperform their neighbors in the cattle pit. That is, despite the bearish short-to-intermediate price implications of last Friday’s quarterly Hogs & Pigs report, hog futures proved relatively stable in the face of concurrent agricultural market losses. Ultimately, anticipation of seasonal gains from January 1 through mid-February probably limited mid-session losses. February hogs were down 0.05 cents to 86.55 cents/pound around noon, Thursday, while the June contract had risen 0.15 cents to 98.00.