U.S. dollar strength weighed heavily on commodities overnight

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U.S. dollar strength and pessimism depressed corn futures and the commodity sector Wednesday night. Fed Chairman Bernanke made a firm commitment to slow its policy of aggressive asset buying later this year and in 2014, which sent the dollar sharply higher. Disappointing economic reports out of China have also raised doubts about the strength of future commodity demand. On the other hand, forecasts for hot, dry weather across the Corn Belt later this month could support the crop markets. July corn dropped 6.0 cents to $6.7625/bushel early Thursday morning, while December tumbled 8.0 cents to $5.625.

The soybean complex also proved vulnerable to the general commodity drop suffered last night. U.S. dollar strength raises the cost of exported products to international customers, thereby implying diminished demand. Slowing economic growth in China holds similar implications, especially if the dollar-linked yuan rises against other currencies. The tight domestic situation seemingly limited soymeal losses. July soybean futures declined 10.0 cents to $15.13/bushel as the sun rose over Chicago Thursday morning, with July soyoil sliding 0.49 cents to 48.86 cents/pound at the same time; July soymeal dipped just $1.9 to $451.7/ton.

Wheat futures also suffered amidst the wide commodity sector drop posted overnight. Again, U.S. dollar strength and pessimism about Chinese demand strength were the features of the decline. Winter wheat futures led the way downward, with those losses possibly being exaggerated by forecast conditions more conducive to an accelerated harvest. On the other hand, heat over the Northern Plains might hurt the freshly planted spring wheat crop. July CBOT wheat dove 10.0 cents to $6.97/bushel in early Thursday trading, and July KCBT wheat fell 8.0 cents to $7.3175, while July MGE futures slipped 3.25 to $8.1025.

Cattle futures also suffered in the general commodity rout suffered Wednesday night. Given the time of year and the historical tendency for cattle and beef price weakness in late spring and early summer, as well as the sizeable gains posted Wednesday, the overnight decline was not terribly surprising. August cattle actually inched up 0.05 cents to 120.47 cents/pound early Thursday morning, while December skidded 0.20 cents to 126.07. August feeder cattle futures slipped 0.12 cents to 144.52 cents/pound and November edged 0.02 lower to 150.32.

Hog futures proved less vulnerable to the broad decline experienced overnight. That is, extreme seasonal strength in both the cash and wholesale sectors, as well as considerable upward momentum in Chicago prices, boosted the CME swine contracts early Thursday morning. Whether the upward trend can be sustained for much longer is very much open to question, particularly since a large portion of domestic pork production is exported. July hog futures rose 0.10 cents to 100.20 in Thursday morning electronic trading, while December gained 0.05 cents to 82.45.

The tight old crop situation limited losses in nearby July cotton futures overnight. Still, the prospect of persistent U.S. dollar strength and diminished Chinese demand is not a happy one for the white fiber market. Traders also view improved rainfall over west Texas growing areas as likely to boost production. Thus, it was not at all surprising to see the deferred cotton contracts lose significant ground in Thursday morning electronic trading. July cotton slid 0.05 cents to 85.35 cents/pound in early morning activity, while December sank 1.20 to 85.40.

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