The financial markets were closed for the Martin Luther King holiday Monday, with trading only resuming in its electronic form at 12:00 AM this morning. The grain and soy complexes surged in early trading, but had fluctuated little in the pre-dawn hours. The advance was probably based somewhat upon the tight global supply situation, but the main driver seemed to be the potential for more of the same during the weeks and months ahead. For example, one wire service story cited a potential 2.3% reduction in 2012-13 Brazilian corn production due to a relatively late soybean harvest (thereby leaving a smaller window for their winter corn crop). March CBOT corn rose 5 3/4 cents to $7.33 1/4 in early morning trading, while December gained 2 3/4 cents to $5.93 1/4.

U.S. soybean also commenced at midnight, but, unlike corn, moved moderately higher in overnight trading. The weather was again the apparent driver of the early strength, with wire service sources citing growing dryness over much of Argentina and southern Brazil for the strength. That same region was reportedly blessed with excessive rainfall in late 2012, which may have left their soybean crop shallow-rooted, thereby potentially leaving it unusually vulnerable to summer dryness. March beans surged 18 1/4 cents to $14.47 1/2 per bushel in early morning activity, while March meal climbed $4.3 to $418.7/ton and March soyoil jumped 0.75 cents to 52.43 cents/pound.

Industry concerns about the wheat outlook arise much closer to home, since traders have become increasingly worried about the U.S. winter wheat crop. That is, the dryness that dominated the Southern Plains through much of 2012 has persisted into 2013, thereby increasing the possibility that the spring-summer harvest will be substantially curtailed by the drought. A report that 2012 Chinese wheat imports reached an eight year high may also have lent early support. It will be interesting to see if wheat futures can sustain their gains through the floor sessions due to commence later this morning. March CBOT wheat climbed 5 1/2 cents to $7.96 1/2 per bushel in the early morning hours, while March KCBT wheat surged 5 cents higher to $8.48 3/4 and March MGE futures gained 4 1/4 cents to $8.78 1/2.

Cattle futures ended last week badly in reaction to cash weakness and to the closing of a Texas packing plant. Weak beef demand apparently kept packers from giving any ground in bargaining with feedyard managers last week, thereby persuading the latter to take 1-2 cents less for their cattle. The resulting Chicago losses were greatly exaggerated by news that Cargill plans to close a Texas beef processing plant in the near future. The implied reduction in packer competition for fed cattle seemingly bodes ill for the short-term outlook. However, weekend news that Japan may soon ease its restrictions on beef from U.S. cattle up to 30 months of age may boost futures this morning. February cattle dove 1.42 cents to 124.952 cents/pound to end CME trading last week, while April fell 0.97 cents to 129.90.

Hog traders seem confused as to how they should react to the ongoing breakdown in cattle and beef prices, since it is not entirely clear how strongly events in the cattle/beef complex actually affect the hog and pork situation. We believe that effect is quite large, so usually look for limited hog/pork strength, at best when cattle and beef prices are falling. The slippage suffered by pork cutout values last week would seem to exemplify that point, since the wholesale market traditionally proves relatively strong at this time of year. On the other hand, hog prices could advance significantly if/when the cattle market bounces. February hogs settled 0.62 cents lower, at 85.35 cents/pound last Friday, whereas June futures inched 0.05 cents higher to 96.850.

Cotton futures sustained their recent surge last week, due largely to ideas that strong Chinese buying for its strategic reserve is removing that product from the international market for the foreseeable future. Still, ideas that U.S. cotton plantings will fall again in 2013 seem to be supporting prices as well. Finally, technicians have apparently jumped upon the bullish bandwagon as well, with the recent penetration of overhead resistance associated with the 200-day moving average for March futures seemingly opening the door to a larger advance. March cotton rose 0.30 cents to 78.83 cents/pound in early morning activity, while December added 0.18 cents to 79.36.