The grain and soy markets seem set to open weakly Thursday

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After surging in reaction to news that Congress had passed legislation to avoid the so-called fiscal cliff of reduced government spending and higher taxes, most agricultural markets turned decidedly lower Wednesday. Corn was certainly no exception. There was not a great deal of news that could be blamed for the reversal, so traders generally blamed the poor export pace experienced through much of December. Overnight news that a Kuwaiti buyer had bought 30,000 tonnes of corn out of South America could add to the downward pressure, since it represents a continuation of the late-2012 theme. A fresh U.S. dollar surge may also be weighing upon the commodity markets. March corn had fallen 4 3/4 cents to $6.86/bushel in early morning trading, while December was down 6 3/4 cents to $5.85 1/2.

Despite the inclusion of renewed biodiesel tax incentives, the soybean market couldn’t sustain its early oil-driven gains Wednesday. Indeed, the soybean oil advance was impressive, but that was at least partially powered by widespread liquidation of previously established meal/oil spreads. Persistent forecasts for favorable weather over Brazilian and Argentine corn and soybean growing areas probably depressed the market as well. In fact, wire service reports cited the improved South American conditions for continued Wednesday night losses. March beans dropped 11 cents to $13.81 1/4 per bushel overnight, while March soyoil slipped 0.14 cents to 50.86 cents/pound and January meal fell $5.7 to $400.0/ton.

The wheat market actually seemed to lead the crop markets lower Wednesday, possibly in reaction to improved winter wheat production prospects in the wake of recent rain and snowfall over the Southern Plains. Wire service reports also blamed the persistent weakness of recent export sales for the drop. But while the golden grain market continued sliding in overnight trading, the losses seemed rather minimal when viewed within the current situation. We would particularly cite early-morning talk that Egypt will curtail its 2012-13 imports by about 1.0 million tonnes (to 3.8 million). Having the March CBOT contract bounce from the $7.50/bushel level may also prove psychologically important. It was quoted just 1 3/4 cents lower at $7.54/bushel in early morning electronic activity, whereas March KCBT wheat rose 1 3/4 cents to $8.12 3/4 and March MGE futures surged 6 1/4 cents to $8.47 3/4.

Wednesday’s combination of stock index gains and U.S. dollar weakness often boost the livestock markets, since traders view those developments as being supportive of red meat demand. However, cattle futures proved unable to sustain their bullish reaction to the fiscal cliff deal and closed moderately lower on the day. Persistent weakness in choice beef cutout values probably played a role in the slide, since it suggests greatly elevated cattle and beef costs are depressing consumer purchases. The results of this week’s cash trading could greatly influence futures from this point. February cattle were trading 0.17 cents higher at 132.55 cents/pound in early morning action, while April was up 0.20 cents to 136.37.

The hog market was one of the few to avoid a sizeable setback Wednesday, which probably reflected persistent industry optimism about short-term prospects for cash and wholesale values. That is, seasonally slowing hog and pork production will almost surely be met by improving demand for most cuts during the next six weeks, which largely explains the significant premiums already built into nearby futures. The bullish cause would likely improve if recent year-to-year reductions in hog slaughter were to persist. February hogs edged one tick higher to 86.20 cents/pound in electronic trading last night, while the June contract climbed 0.22 cents to 98.47.

Despite market fundamentals that seem decidedly bearish, cotton futures have recently performed remarkably well, especially in light of concurrent losses in the grain and soy complexes. Strong export sales did a great deal to support the white fiber market during December. Moreover, that news has been reinforced by talk that China will boost its domestic stockpiles above 10 million tonnes. Their buying could obviously provide a great deal of support for prices over the short run, but the resulting stockpiles could also greatly limit subsequent price targets, since the threat of inventory liquidation would hang over the market for the foreseeable future. March cotton futures rose 0.55 cents to 75.91 cents/pound in Thursday morning activity, but December slipped 0.30 cents to 79.36 cents/pound.

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