Improved weather forecasts for major South American grain and soybean growing regions undercut the U.S. grain and soybean complexes Wednesday and Thursday. Traders also seemed to underestimate the likely result of the latest weekly report from the Energy Information Administration (EIA), since nearby corn futures reacted rather well in the wake of the release (which showed domestic ethanol production virtually unchanged from the week prior). Bull spreading reportedly boosted futures late in the day. The CBOT market proved decidedly mixed overnight, with fresh news generally lacking and the weekly Export Sales reports due later this morning. March corn slipped 1/4 cent to $7.24/bushel in early-morning action, whereas December rose 1 cent to $5.86 1/2.

Prospects for improved weather over the major crop growing areas of Southern Brazil and Argentina weighed heavily upon CBOT soybean futures late Wednesday and early Thursday, but the market posted a strong comeback before the afternoon close. News that U.S. exporters had sold over 500,000 tonnes of beans to be delivered to China in the 2013-14 crop year seemed to offer belated support. Despite renewed talk of demand strength from China and the looming release of the weekly Export Sales reports, CBOT soybean futures dipped again in overnight trading. Some might blame losses in the palm oil markets, but the Thursday night soy oil weakness was matched by slippage in the meal and bean pits. March soybeans had declined 3 1/4 cents to $14.32/bushel in the early-morning hours, while March soybean oil slid 0.21 cents to 51.90 cents/pound and March meal slipped $1.0 to $413.7/ton.

Wheat traders seemed to lack for substantive news Thursday, which might have opened the door to an advance based upon the persistent dryness dominating the U.S. Southern Plains. However, U.S. wheat futures performed poorly yesterday and continued sliding early this morning. Bears could cite an official Russian report indicating that frost damage done to its fields during December was not as extensive as previously thought and that January conditions were better, but it is always difficult to gauge the impact of such news on domestic markets. Whatever the cause, wheat futures have not acted well this week. March CBOT wheat dipped an additional 2 1/4 cents to $7.66 1/4 overnight, while March KCBT wheat dropped 2 cents to $8.19 1/2 and March MGE futures fell 1 3/4 cents to $8.53 3/4.

The cattle situation appeared quite weak Thursday morning, especially in the wake of Wednesday afternoon news that a few Great Plains feedlots had taken one cent less (122.00 cents/pound) for their cattle than they had last week. However, persistent Chicago firmness and the potential for stronger mid-winter retail demand seemingly persuaded beef packers to boost their country bids slightly. News that cattle were changing hands around 123.00 apparently powered the late surge. The rise continued in overnight electronic action, despite afternoon news of another decline in beef cutout values. It will be difficult for cattle market bulls to sustain upward momentum if that continues, especially since futures are already trading at sizeable premiums to spot values. February cattle had advanced 0.62 cents to 126.50 cents/pound in the pre-dawn hours, while April climbed 0.45 cents to 130.80.

Seasonal cash market strength seemed to support CME lean hog futures again Thursday, with bullish traders rather obviously hoping for much more of the same during the days and weeks just ahead. Hog supplies are in the process of dwindling from annual highs in late fall to lows routinely experienced in early summer each year. Conversely, while ham demand has plunged from pre-holiday levels, interest in the other cuts usually grows substantially as the spring grilling season approaches. Those account for the fact that most CME swine futures are trading at sizeable premiums over current spot values. That fact that the nearby February future is trading at a modest discount seems likely to offer considerable support over the short term. Nevertheless, futures slipped Thursday night, possibly due to modest increases in Western Corn Belt prices Thursday and/or the slippage seen at the wholesale level. February hogs slipped 0.17 cents to 86.87 cents/pound early Friday morning, while June futures lost 0.10 cents to 97.50.

March cotton futures jumped to its highest level since last May Thursday and touched the 84.00-cent level before suffering a sizeable setback in the afternoon. Bulls seemingly continue relying strong buying and limited resales by Chinese government officials over the short-to-intermediate term, but we would also warn that a substantial portion of the Thursday spike was probably driven by short-covering. The market was extremely overbought at the daily high and remains well into overbought territory at this juncture. Thus, the overnight decline was not particularly surprising. We suspect March cotton will suffer a short-term setback that consolidates its recent surge and would not rule out a test of support around the pivotal 80-cent level during the days ahead. March cotton fell 0.54 cents to 82.35 cents/pound in overnight trading, while December edged 0.03 cents higher, to 79.76.