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Dollar Signals Multi-Year Low In Place

00:00AM Aug 18, 2008

Julianne Johnston Pro Farmer Senior Markets Editor

From Pro Farmer

Updated as of 7:00 a.m. CT

Outside markets will remain key... Broad-based selling in the commodity world was seen Friday as the dollar rose through another layer of resistance and even broke downtrending resistance drawn off multi-year reaction highs. But the dollar index still has work to do before it gets back to "par" -- 100.00 -- but Friday's strong gains are another piece in the puzzle that signal a major, multi-year low is in place.

Commodity traders have been closely watching the direction of the dollar for quite some time. The dollar has been one of the, if not the, most influential "outside" markets on agriculture in recent years. The biggest impact a firming dollar would have on commodities -- including agriculture -- would be on the export side.

We've been watching the dollar closely, as all the warning signals are there more air could easily come out of the commodity markets as the dollar has very likely posted a multi-year low. Grain futures were higher in overnight trade thanks to corrective weakness in the dollar.

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Opening calls. These calls originate more than three hours before the open -- use caution, things change::

Corn: 11 to 13 cents higher. Futures saw corrective gains in overnight trade. Futures ended sharply lower to finish last week, but for the week, were around 25 to 30 cents higher compared to the previous week's close. Traders will continue to watch outside markets next week, but Crop Tour data will also be critical. Traders are anxious to see what the field samples uncover after USDA came with a trendline yield on its first estimate.

Soybeans: 27 to 35 cents higher. Futures were firmer in overnight trade on weakness in the dollar. Futures trimmed weekly gains Friday as continued strength in the dollar strongly suggests a multi-year low is in place. Broad-based commodity selling resulted in sharp losses in the bean pit, but November beans still finished the week 36 cents above the previous week's close. Early support in the week came from USDA's tighter-than-expected new-crop carryover estimate. But the market couldn't gain enough upside momentum to breakout of the downtrend channel.

Wheat: 11 to 13 cents higher. Futures were firmer in overnight trade thanks to spillover from neighboring pits. Futures posted heavy losses on strong spillover pressure from outside markets to close last week. But for the week, wheat futures still posted very solid gains. Wheat will be watching neighboring pits and outside markets for direction this week. If corn and crude oil face more selling pressure and the dollar is higher, wheat will have little defense against the spillover pressure.

Cash cattle expectations: Watching beef market. Cash cattle trade was largely completed around $100 in the Southern Plains on Friday afternoon. All eyes will now be on the beef market for keys to this week's trade. Retailers are expected to continue buying ahead of Labor Day, which should keep the cash market supported this week.

Futures call: Mixed. Futures are called mixed amid spreading and the possibility of short-covering following Friday's sharp losses. Futures were sharply pressured to finish last week by broad-based commodity selling, brought on by the strong push higher in the dollar index. While fundamentals remain positive near-term for the beef market, outside markets were too much for market bulls to ward off. October live cattle closed "just" 60 cents below the previous week's finish, but broke uptrending support to do some near-term technical chart damage.

Cash hog expectations: Mixed. Cash sources say they expect a mixed cash tone to start the week, as there are some locations still seeking early week supplies, while others want to improve profit margins. Key this week will be how the pork cutout market performs. After the rally to new highs, pork prices are at risk of softening, especially as retailers complete Labor Day buys.

Hog futures: Mixed. Futures are called mixed amid spreading and the possibility of short-covering following Friday's sharp losses. The meat markets have been somewhat "immune" to outside markets recently, but Friday's sharp pressure in high-profile markets like crude oil, metals and grains, was too much for hog market bulls to withstand. October lean hog futures closed $1.42 below the previous week's finish, which was a contract-high close. No technical chart damage was done to the October contract, which is now the lead-month contract and is trading at a sharp discount to the cash index.