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Crop markets continued Wednesday afternoon slide overnight

Doane Advisory Services | Updated: 01/24/2013

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Weather concerns continued supporting the corn market Wednesday morning, but long-range weather forecasts released around noon suggested two weather systems could cross dry regions in Southern Brazil and Argentina next week, thereby potentially providing needed relief from current dryness. That very likely caused the late reversals suffered by the grain and soy complexes. Support associated with its 40 and 50-day moving averages (MAs) probably supported the March corn yesterday afternoon, but it apparently gave way in overnight trading. Technical factors seemed to undercut the market in early morning trading, since there little substantive news came to light. If bulls prove unable to halt the current slide quickly, March corn may test support around the psychologically important $7.00/bushel level in short order. March corn had slipped 4 cents to $7.16 3/4 per bushel in the early morning hours, while December fell 3 1/2 cent to $5.86 3/4.

The Wednesday afternoon shift in South American weather forecasts rather obviously undercut soybean futures as well. Indeed, given the widespread focus upon growing conditions in that region at this time, it would have been surprising if prices had not declined in response. The drop continued in Wednesday night trading, with Asian and European traders apparently having no wish to buck the short-term downtrend. However, while the overnight drop carried the nearby contract below its 40-day MA, it seemingly found support around the confluence of its 10 and 50-day MAs, which may bode well for the Chicago opening. March soybeans had fallen 12 1/4 cents to $14.24 3/4 in pre-dawn trading, while March soyoil dropped 0.33 cents to 51.70 cents/pound and March meal dipped $4.6 to $411.9/ton.

Although the Southern Plains region of the U.S. is expected to get little relief from the long-term dryness dominating weather conditions, wheat futures proved unable to fight the bearish tide that dragged corn and soybean prices downward Wednesday afternoon. That was also the case in electronic trading early Thursday morning, despite talk that severe Australian drought will undercut production prospects for its winter wheat crop to be planted in the second quarter. News that Japan had continued its recent wheat buying binge did not help much either. The March CBOT future may find support around its 20-day MA (at $7.67), but that seems a rather weak reed upon which to rely. March CBOT wheat had lost 3 1/4 cents to $7.71 1/2 as traders began arriving for the daily pit session, while March KCBT wheat slumped 4 cents at $8.26 1/4, as did March MGE futures at $8.56 1/2.

Bullish cattle traders are almost surely hoping for a quick CME futures rebound, especially when viewing the severity of the early-January breakdown. However, their plans were sabotaged again Wednesday, when the conflict over potential Russian restrictions upon U.S. red meat came to light once again. Russia has emerged as a large buyer of American beef, so any restrictions they might impose upon imports of U.S. product have the potential to undercut cattle prices somewhat. The situation was not helped by slipped wholesale prices again yesterday, or by news that a few fed cattle had changed hands at 122 cents/pound. That represents a steady-lower cash quote, which is hardly conducive to bullish futures ideas. Still, the fact that Chicago prices rose slightly Wednesday and again in overnight trading was rather impressive. February cattle seem set to begin the Thursday Chicago session 0.27 cents to 126.05 cents/pound, while April may open 0.12 cents higher at 130.57.

Talk that Russia may impose temporary restrictions on imports of U.S. meat due to the use of ractopamine depressed deferred CME lean hog futures Wednesday, which very likely reflects the fact that the growth promotant is widely used by the U.S. swine industry. Having the proposed ban delayed until early February seemed to leave the nearby February contract largely unaffected, with hopes for seasonal strength apparently supporting the nearby future. Sizeable cash gains, especially in the Western Corn Belt, as well as a modest afternoon rise in pork cutout appeared to boost futures again overnight. The fact that recent gains by the CME lean hog index have left the February future at a discount to the cash equivalent is almost surely providing support as well. February hogs advanced 0.52 cents to 86.50 cents/pound in overnight electronic trading, while June futures added 0.40 cents to 97.30.

Cotton futures posted another strong advance Thursday, which marked its seventh consecutive daily increase. Traders continue thinking the Chinese government inventories built up by their aggressive purchases of the past few months will not come back onto the market anytime soon, thereby rendering the short-term supply/demand situation quite tight. However, technical market aspects may come to the fore during the days ahead, due largely to the overbought nature of ICE futures at this point. That is, its 14-day RSI suggests March cotton is overbought. In addition, a candlestick chartist might easily construe its Wednesday price action as having formed a classic ‘hanging man’ reversal pattern. Thus, we would not be terribly surprised by a short-term setback. March cotton fell 0.42 cents to 80.06 cents/pound in overnight activity, while December slipped 0.08 cents to 79.69.