Talk of direct taxes on individual savings sending markets lower

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A proposed Cyprus bailout deal that would include a tax on private savings sparked broad selling across the global financial markets Sunday night and Monday morning. As one might expect, those are weighing upon the commodity markets as well, since this news has undermined investor confidence in numerous markets and countries. We suspect the markets will stabilize later in the day, but commodity prices could drop substantially in the interim. May corn fell 5.0 cents to $712.0/bushel early Monday morning, while December dropped 3.5 cents to $5.5825.

Soybean futures certainly were not immune to the negative market reaction to the proposed Cyprus bailout deal, which would include a direct tax on Cypriot citizen savings. U.S. stock markets seem set to open sharply lower, with gold being the only commodity market rising in overnight trading. May soybeans lost 13.75 cents to $14.1225/bushel in early Monday-morning trading, while May soyoil dipped 0.37 cents to 49.54 cents/pound, and May meal sank $5.7 to $413.1/ton.

Wheat futures joined the general market decline in reaction to the proposed Cyprus bailout deal that would include a direct levy upon the personal savings of citizens in that country. This strikes at the very heart of the investment culture, so it is not at all surprising to see the markets drop in response. We suspect the idea will be repudiated later in the day and/or calmer heads will prevail later in the day, but expect further weakness until that time. May CBOT wheat futures declined 7.0 cents to $7.16/bushel as trading got started Monday morning, while May KCBT wheat slid 6.25 cents to $7.4525, and May MGE futures skidded 5.0 cents to $7.9125.

Cattle futures ended last week badly, as exemplified by the fact that the nearby April contract posted life-of-contract lows. It certainly seems unlikely to open strongly this morning, especially in the uncertain investing atmosphere created by the Cyprus bailout plan including a direct levy upon individual savings accounts. We suspect the market reaction will prove to be temporary, but a reversal seems unlikely this morning. April cattle plummeted 2.42 cents to 125.77 cents/pound at its Friday afternoon settlement, while August dropped 1.85 cents to 122.52. Meanwhile, April feeder cattle dove 2.45 cents to 139.10 cents/pound, and August crashed 2.45 cents to 148.02.

Hog futures also seem set to open significantly lower Monday morning. The idea that governments will be willing and able to directly remove money from individual savings/investment accounts has undermined confidence in the markets. April hogs fell 1.20 cents to end last week at 79.67 cents/pound, while June dropped 1.20 cents to 89.32.

Cotton futures might easily be seen as being technically overbought in the wake of the big gains posted late last week, which in turn could render the white fiber market to a sharp negative reaction to the Sunday Cyprus news. Indeed, the nearby May contract had fallen dramatically in early-Monday electronic trading. May cotton plunged 2.12 cents to 90.38 cents/pound early Monday morning, while December dove 1.30 cents to 87.21.


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