Doane Advisory Services  |   December 21, 2012 resize text

Slow exports and weakness spilling over from the soybean market depressed corn futures Thursday, thereby continuing the recent downward trend. The market bounced overnight in response to news that South Korea’s largest animal feed maker had opened a previously issued grain tender to U.S. product after having excluded our corn when it was first announced. This suggests the recent price drop has at least partially reignited export demand. The market was probably due for a bounce anyway, since many in the industry are almost surely going to stay home much of next week, so they are likely taking profits on short positions today. Ideas that the market was also due for a technical bounce may have sparked buying as well. March corn rose 4 1/2 cents to $7.01/bushel and December advanced 3 1/4 cents in overnight trading.

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 positive aspects of the weekly Export Sales report and sent prices sharply lower for a third straight session. The fact that January beans rebounded from support just above the pivotal $14.00 level was impressive and could inspire bottom picking from technical traders from this point. Whatever the post-holiday impact of these developments, short-covering seems likely to dominate trading on this last day of the week, especially in light of the supportive corn news. January beans rebounded 13 cents to $14.21 3/4 in early-morning activity, while January soybean oil jumped 0.68 to 48.59 cents/pound and January meal inched $2.7 higher to $430.4/ton.

Despite a supportive result on the weekly USDA Export Sales report, wheat futures dropped rather sharply in concert with corn and soybean futures Thursday. We pointed out yesterday that wheat seemed unlikely to sustain a significant advance until corn and soybeans find their footing, so it is not at all surprising to see wheat prices higher this morning. Indeed, given the corn and bean gains, it is rather surprising that wheat isn’t higher. That is especially true in light of a statement from a major German grain trading firm indicating that U.S. wheat is most competitively priced on the international markets at this time. Ultimately, having the March CBOT contract drop below the psychologically important $8.00 level yesterday may prove a major hindrance to short-term rally attempts. March CBOT wheat rose 3 cents to $7.93 1/2 overnight, while March KCBT wheat gained 2 3/4 cents to $8.46 1/2 and March MGE futures advanced 2 1/2 cents to $8.86 ¼ per bushel.

After seeming to break out to the upside Wednesday, live cattle futures suffered a rather stark reversal yesterday. Reports of wholesale weakness, particularly in choice cutout probably played a role in the drop, as did reports of light country trading at 126 cents/pound (down about one cent from last week), but the main driver of the decline may simply have been broad profit taking by bulls in the wake of recent gains. Futures and hedge funds were reportedly exiting large numbers of positions ahead of the year-end holiday season. The short-covering that apparently boosted the crop markets overnight may also boost livestock futures today, but prices were actually lower in early-morning trading. February live cattle futures slipped 0.20 cents to 133.30 cents/pound, while the April contract had dipped 0.27 cents to 137.12.

Hog futures held up better than many of its commodity counterparts Thursday, which probably reflects the bullish impact of the winter storm that swept across the Central Plains, as well as firmness on the midday pork report. However, cash market slippage and a large ham-led breakdown in wholesale prices Thursday afternoon set the stage for fresh Chicago weakness today. Still, the swine market might also sustain a rebound today if the markets are dominated by short covering. February hogs ticked 0.12 cents lower to 86.32 cents/pound in early morning trading, as did its June counterpart at 100.22.

The Thursday Export Sales report once again held bullish connotations for the cotton market, since exports continue running significantly ahead of the five-year average. 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. Conversely, short-covering seems likely to prove rather pervasive today, thereby potentially lending cotton futures considerable support. The fact that the nearby March contract has remained above its 10-day moving average during the recent slide suggests prices could surge in more supportive conditions. March cotton was unchanged at 75.83 in overnight trading, while December inched 2 ticks higher to 78.25 cents/pound.

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