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Economic Concerns a 'Wet Blanket'

00:00AM Oct 08, 2008

Julianne Johnston Pro Farmer Senior Markets Editor

From Pro Farmer

Updated as of 7:00 a.m. CT

Economic concerns linger... Global recession fears continue to hang over the market like a wet blanket. Until the global concerns stabilize, it's unlikely the commodity markets will see sustained buyer interest as traders fear there will be a slackening of demand.

Comments yesterday by Federal Reserve Chairman Ben Bernanke that the global financial market crisis is likely to strain the economy well into next year has traders concerned about export demand, which added to pressure. Price direction today will depend on how outside markets perform. Crude oil futures were sharply lower overnight. The U.S. dollar index was firmer early, but faded to trade lower early this morning after the Fed cut interest rates.

The Federal Reserve led a coordinated round of global interest rate cuts this morning in an attempt to shore up economic conditions. The Fed cut the Fed Funds rate 50 basis points to 1.5% and the discount rate 50 basis points to 1.75%. The European Central Bank, the Bank of England and central banks in Canada, Switzerland and Sweden also cut interest rates by 50 basis points. The People's Bank of China was not part of the coordinated effort, but it also trimmed interest rates this morning.

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

Corn: 3 to 7 cents lower. Futures saw light spillover pressure from yesterday's weaker tone. Traders continue to keep an eye on outside markets. Futures favored a weaker tone yesterday, closing 7 to 15 cents lower. December corn violated support at the Nov. 2007 low of $4.14. Next support lies at the $4.00 level, which closely coincides with the August 2007 high.

Soybeans: Mixed. Futures were mixed overnight, with nearbys up 2 to 3 cents and deferreds 1 cent lower to 4 cents higher. Futures traded higher for nearly the entire session and finished 2 to 4 cents higher yesterday. But that was a low-range close. November soybeans briefly entered Monday's big downside chart gap, but had to rally late in the session to avoid a bearish reversal. The technical picture remains decidedly bearish.

Wheat: 5 to 12 cents lower. Futures were weaker overnight to erase yesterday's gains. Futures closed firmer yesterday, but well off session highs. December Chicago futures posted an inside day of trade. Monday's gap from $6.17 to $6.36 stands as tough near-term resistance. Monday's low of $5.88 is initial support, followed by the Sept. 2007 low at $5.83.

Cash cattle expectations: $1 to $2 lower. Boxed beef prices were 45 cents to $1.10 lower Tuesday on movement of 273 loads Tuesday. The beef weakness combined with ongoing financial problems and the concern that will have on beef demand is expected to weigh on the cash cattle market this week. Traders are generally expecting cash trade to be $1 to $2 lower than last week.

Futures call: Mixed. Calling this market is difficult this morning, but I'm going with a mixed call on the possibility of short-covering, although the low-range close opens the door to spillover selling this morning. December live cattle briefly entered Monday's gap area yesterday, but also briefly penetrated support at Monday's low to post a fresh contract low of $94.75.

Cash hog expectations: Steady to weaker. A modest 57-cent decline in the pork cutout value Tuesday, when combined with heavy market-ready supplies, will be enough to keep cash hog bids under pressure across the Midwest today. Packers reportedly have the bulk of this week's needs already covered and will look to further strengthen cutting margins.

Futures call: Mixed. How do you call this market this morning? Yesterday brought some short-covering, but futures posted anywhere from a high- to a low-range close. December lean hog futures gapped higher on yesterday's open and extended gains to correct the oversold condition of the contract. Tuesday's contract low at $58.70 is near-term support. Resistance starts at a 25% retracement of the price plunge from the August high to the contract low, which is at $63.27.