Grain prices to open higher after overnight trading

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Despite ongoing concerns about the strength of demand for U.S. corn at current elevated prices, prices rebounded last Friday. Spillover soybean strength and the slump by the U.S. dollar probably boosted the yellow grain, since greenback losses make American products cheaper for international clients. News that a South Korean firm had contracted for a sizeable corn shipment in the near future may also have boosted the market. We saw little substantive corn news over the weekend, which largely explains the lack of Sunday night-Monday morning movement in CBOT futures. March corn inched 1/4 cent higher to $7.31/bushel in overnight trading, while the December 2013 contract rose 4 cents to $6.22.

Soybean futures reacted well to the monthly NOPA crush report released Friday morning; the November crush met expectations, but the result was the largest monthly figure since early 2010. Industry insiders suggested the recent processing rate can’t be sustained, which in turn implies prices will have to rise in order to ration demand through the first three quarters of 2013. The news spilled over into the international markets in Monday morning trading, with news sources also citing ideas that China will remain a strong buyer in early 2013. This week’s early price shifts could be driven by technical considerations, since the nearby contracts are currently priced around the pivotal $15.00/bushel level. January beans topped it by jumping 10 1/2 cents to $15.06 in overnight trading; January oil 0.14 cents to 50.13 cents/pound and January meal rose $3.7 to $461.4/ton.

The Chicago wheat market also reached a pivotal point late last week, when the March CBOT future tested $8.00/bushel level. The Friday rebound suggested fresh buying had entered the market, while fundamental traders were probably reacting to forecasts for relatively limited moisture over U.S. winter wheat pastures over the weekend. Strength spilling over from the soybean complex probably boosted wheat futures in overnight trading, but bulls could also point to a report from a Russian consultancy, which stated that late 2012 exports by the Asian giant might force it to import wheat by mid-2013. March CBOT wheat advanced 3 1/2 cents to $8.17 1/2 per bushel, while March KCBT wheat rose 2 1/2 cents to $8.66 1/2 and March MGE futures climbed 4 to $9.07.

News that feedyard managers had managed to force beef packers to pay slightly higher prices (around 124.00-124.50 cents/pound) for fed cattle late last week sent CME live cattle futures sharply higher. It wasn’t the size of the gain that mattered; it was the fact that they could do so despite flat to lower wholesale prices and packer processing margins that were already in the red. Given the apparent bullishness of the fundamental situation and their history of rising seasonally through the first quarter, cattle prices seem to be headed significantly higher. The question for many in the industry is whether the premiums already built into nearby futures are large enough. Cattle futures seem likely to open strongly again this morning. February cattle surged 1.12 cents to 132.60 last Friday, while April jumped 1.40 cents to 136.70 cents/pound.

Despite the big cattle rally Friday and indications of considerable cash strength in early-morning trading, CME lean hog futures finished last week on a down note. The prospect of a substantial slowdown in pork buying during the run-up to the year-end holidays, as well as depressed packer buying during that same period probably upon swine values. That weakness could resume today, since the late afternoon pork report indicated a 1.6-cent dive in wholesale values. However, bulls hang their hats upon Friday afternoon reports of cash strength, since they believe the country markets will move upward once the current ham-led pork breakdown runs its course over the next two weeks or so. February hogs fell 0.50 cents to 85.45 last Friday, while June slipped 0.17 cents to 99.90 cents/pound to end the week.

The result of the weekly cotton sales report were rather disappointing, thereby setting a negative tone for Thursday trading. The concurrent losses suffered by corn and wheat probably added to the downward pressure upon the white fiber market. The gains posted earlier in the weak may have opened the door for a setback as well. Conversely, overnight advances in the grain and soy complexes very likely encouraged buying in the cotton pit. Little apparent news emerged late Thursday or early Friday. March cotton seems set to open the New York trading day 0.34 cents higher at 74.90 cents/pound, while December inched 0.07 higher to 77.70.

Active U.S. exports and spillover strength from the soybean market have apparently offered solid support for cotton futures recently. Indeed, the gains posted last week may have opened the door for a sizeable technical advance in the near future. As with corn, there was a dearth of cotton news over the weekend, so we can probably credit early-morning gains to its upward momentum and to the bullish influence being exerted by soybean futures. March cotton is beginning the week having advanced 0.34 cents higher at 75.43 cents/pound, while its December counterpart slipped one tick to 78.23.

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