Doane Advisory Services  |   December 20, 2012 resize text

Slow exports and weakness spilling over from the soybean market depressed corn futures again Thursday. The USDA announced that China had cancelled previous purchases of 540,000 tonnes of soybeans from private sources early in the day, thereby exacerbating the negative impact of the weekly Export Sales report, which stated last week’s corn sales at very low levels once again. The agricultural markets also seemed to suffer from broad fund liquidation of long positions ahead of the holiday season. The March contract dove to the $6.87 1/2 level at one point, thereby partially filling the gap created as it shot higher in over the Independence Day holiday. The subsequent recovery may have created a technical reversal signal, but traders might need to see some favorable fundamental news before they will be willing to buy corn once again. March corn ended the day having fallen 6 1/4 cents to $6.96 3/4 and December dropped 9 1/2 cents lower at $6.04/bushel.

Thursday morning the USDA reported that China had followed Tuesday’s cancellation of 300,000 tonnes of soybean exports by cancelling another 540,000 tonnes from private sources. That news overrode the mixed effects of very strong soybean meal sales and weak oil movement on the weekly export report. January beans plunged to $14.02 3/4 per bushel in early trading, then spent the balance of the session at moderately higher levels. The ability to hold above the $14.00 level could inspire bottom picking from technical traders, but its ability to sustain a rebound from the latest lows remains to be seen. Still, technical and book-squaring considerations may play a big role in trading through the end of the year. January beans settled 28 cents lower at $14.09/bushel; January soybean oil fell 0.40 to 48.01 cents/pound and January meal tumbled $8.1 to $427.7/ton.

In a repeat of the early-week pattern, wheat struggled to stabilize in the face of large corn and soybean losses Thursday. That is, despite a supportive result on the weekly Export Sales report from the USDA, wheat futures dropped rather sharply in concert with its crop counterparts this morning. Neither supportive export news nor the potential for weather damage from the systems hitting the Southern and Central Plains this week and next seem likely to boost prices until corn and soybeans find their footing. Having the March CBOT contract drop below the $8.00 level won’t help the technical situation either, especially since one technical trading approach suggests it could test $7.75 in short order. March CBOT wheat closed 15 1/4 cents lower at $7.90 1/2 per bushel, while March KCBT wheat was down 13 3/4 cents to $8.44 1/4 and March MGE futures sank 11 1/2 cents to $8.84.

Cattle futures seemingly posted a bullish breakout Wednesday, but turned sharply lower in concert with most other commodities Thursday. Bears could reasonably argue that the morning breakdown in choice beef cutout played a big role in the drop, especially since the choice-select spread has narrowed substantially this week. That suggests the supply of well-finished cattle has actually undergone a relative improvement. News that a few Southern Plains cattle had changed hands at 126 cents/pound, about one cent below the comparable week-ago figure, may also have weighed upon Chicago prices. Ultimately, we suspect the livestock markets are also suffering from a broad wave of position liquidation by futures and hedge funds. This phenomenon may prove rather common through the end of the year, thereby making life difficult for traders on both sides of the market. February live cattle futures dove 0.85 cents to 133.50 cents/pound; its April counterpart fell 0.55 cents to 137.40.

The winter storm dominating the Central Plains is probably creating problems for the hog industry at this point, as indicated by the daily slaughter total about 50,000 head of recent norms. The late-morning pork report also seemed somewhat supportive of the short term outlook. That may partially explain the fact that CME lean hog futures held up much better than many of their agricultural counterparts Thursday. And yet, today’s price action suggests the hog market could also prove vulnerable to a broad exit of the commodity sector by fund traders, particularly if short-term cash and wholesale weakness proves greater than is generally anticipated. February hogs lost 0.30 cents to 86.27 cents/pound by late morning, while its June counterpart fell 0.52 cents to 100.07.

The USDA indicated this morning that the cotton sales figure for last week, at 3,900 bales, had pushed the 2012-13 total up to 76% of its forecast for the whole crop year, thereby easily topping the five-year norm at 71%. Unfortunately for bullish interests, the concurrent breakdown in the grain and soy complex dragged the white fiber market downward as well. Furthermore, big losses in the metal and livestock complexes suggested futures funds were actively exiting positions before the holiday season, which ultimately created a general rout across the commodity markets. Given the circumstances, cotton seemed to hold up remarkably well. March cotton ended Thursday’s trading having slipped 0.20 cents to 75.63, while December dipped 0.16 to 78.07 cents/pound.

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