Dry weather concerns sent the ag markets soaring overnight
After generally stalling on Tuesday, the grain and soy complexes surged in the early hours of Wednesday morning. Soybeans led the way upward, but the corn gains posted were also impressive, with the nearby contracts rising 7-8 cents/bushel. No obvious news was powering the advance, but we strongly suspect the latest update of the weather models pointed to renewed heat and dryness over Southern Brazil and Argentina next week. Given the amount of acreage dedicated to corn and beans in that region, as well as the possibility that a significant portion of the affected corn plants will be pollinating, it is not terribly surprising to see futures take off to the upside once again. March corn jumped 6 3/4 cents to $7.36 1/4, in early morning activity, while December had climbed 4 1/2 cents to $5.91 1/2 per bushel.
Soybean futures led an early morning rally in the grain and soybean complexes, with the nearby bean contracts jumping over 20 cents in pre-dawn trading. The prospect of returning hot, dry weather across Southern Brazil and Argentina next week apparently powered the rise. The weather news might not be so critical in more normal times, but the tightness of global supplies in the wake of the 2012 U.S. drought makes the South American harvest key to the global supply outlook. The fact that nearby futures seemed to decisively push above pivotal moving average (MA) support/resistance levels may exaggerate the strength seen today. March beans spiked 17 1/4 cents to $14.69 early Wednesday morning, while March soyoil surged 0.37 cents to 52.08 cents/pound and March meal advanced $6.4 to $430.1/ton.
The wheat market is being only indirectly affected by South American weather, but is contending with persistent dryness over the U.S. Southern Plains. Actually, a significant portion of that region is expected to be covered with light snow today, but that will do little to alleviate the long-term drought. Indeed, meteorologists expect little precipitation over the Winter Wheat Belt during the coming weeks. That likely explains the manner in which wheat futures followed the corn and bean markets higher this morning. March CBOT wheat futures had risen 3 1/2 cents to $7.80 1/2 overnight, while March KCBT wheat climbed 3 1/4 cents to $8.34 and March MGE futures gained 5 1/2 cents to $8.66 1/2 per bushel.
After spiking upward on Monday CME live cattle futures gave back a significant portion of the gain on Tuesday. The underlying supply of feedlot animals remains very tight and seems likely to diminish even farther since the annual low in cattle slaughter traditionally arrives in March. However, the market apparently faces demand issues in the current environment, as exemplified by the fact that choice beef cutout fell to a five-month low yesterday. And despite the announced closure of a Cargill packing plant earlier this month, beef packing margins remain in the red. Thus, cattle futures currently appear unlikely to retest the early January highs. Futures were mixed in overnight trading, but both the February and April cattle contracts rose 0.10 cents to 128.37 and 133.07 cents/pound, respectively.
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