News that Congress had passed legislation to avoid the so-called fiscal cliff of reduced government spending and higher taxes sent most financial and commodity markets higher Wednesday morning. Having the equity indexes jump on the news, while the U.S. dollar declined was particularly supportive of commodity values, since the stock gains usually imply increased confidence about the domestic economic outlook, whereas greenback weakness lowers the cost of U.S. goods to export customers. However, the agricultural markets, including corn, backed off quickly from early highs and moved sharply lower later in the day. Given corn futures recent weakness, traders now have to be concerned about a short-term move to fresh six-month lows. March corn settled 9 1/4 cents lower at $6.89/bushel and December fell 8 1/4 cents to $5.91 1/2.
Soybean futures led the way higher on the Wednesday morning CBOT opening as traders reacted to the Congressional action on New Years Day. The news seemed particularly supportive of the soy outlook, since it included a renewal of biodiesel tax incentives. That fact, along with the unwinding of long meal/short oil spreads, probably explains the persistent strength exhibited by the oil market and concurrent losses in the meal pit. However, bulls proved unable to sustain the soybean advance, possibly due to forecasts for continued favorable weather over South American fields. The intra-day reversal probably sparked aggressive selling based upon technical considerations as well. March beans dove 17 1/4 cents to $13.91 3/4 per bushel by the Wednesday close, whereas March soyoil jumped 1.35 cents to 51.05 cents/pound and January meal plunged $132 to $406.2/ton.
The wheat market also rallied in response to the fiscal cliff news, but quickly reversed to the downside. Indeed, soon after dipping back below their respective 10-day moving averages, the nearby wheat contracts moved decidedly lower on the day. This may presage more of the same during the days ahead, especially after corn futures also turned downward. The fact that the Southern Plains have recently been blessed with significant precipitation very likely accounts for the exaggerated bearish move, since improved moisture might boost the winter wheat crop substantially. March CBOT wheat dropped 23 cents to $7.55/bushel, while March KCBT wheat plummeted 19 3/4 cents to $8.11 1/4 and March MGE futures plunged 23 1/2 cents to $8.42.
Wednesday’s financial market developments also boosted cattle futures in early trading, since the combination of stock index gains and U.S. dollar weakness are usually seen as boosting domestic and export demand, respectively, for red meat. Conversely, choice beef cutout values declined around midday, which probably undercut the early gains. Indeed, the nearby contracts traded in negative territory into the noon hour. Having the nearby February contract rebound substantially from its midsession low seems supportive of short-term prospects, but one has to wonder if cattle futures will test underlying support during the days just ahead. February cattle settled 0.07 cents higher at 132.45 cents/pound, whereas its April counterpart slumped 0.20 cents to 136.15.
Talk that the cash hog and wholesale pork markets were firming almost surely accounted for the persistent strength CME lean hog futures exhibited Wednesday morning, thereby enabling the swine contracts to outperform their neighbors in the cattle pit. That is, despite the bearish short-to-intermediate price implications of last Friday’s quarterly Hogs & Pigs report, hog futures proved relatively stable in the face of concurrent agricultural market losses. Ultimately, anticipation of seasonal gains from January 1 through mid-February probably limited mid-session losses and opened the door to late gains. February hogs rose 0.45 cents to 86.15 cents/pound on the day, while the June contract climbed 0.40 cents to 98.25.