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The 'R' Word

00:00AM Oct 16, 2008

Julianne Johnston Pro Farmer Senior Markets Editor

From Pro Farmer

Updated as of 7:00 a.m. CT

Traders don't like the 'R' word... Just the mention of the possibility we're in or entering a recession put a lot of fear in the commodity markets yesterday. Financial markets again yesterday posted significant declines as traders became more convinced that a recession is a significant risk in the U.S. and potentially the world. And they are unconvinced the rescue efforts taken thus far to prop up banks around the globe are addressing the recessionary signs that are flashing.

Commodity traders fear a recession would significantly lower demand. We've seen sharp price declines in the livestock markets as traders are concerned retailers' buying patterns are changing (lower-priced cuts). Grain traders fear a global recession would sharply trim export demand. It will take more confidence in the economy to help commodity markets find support levels.

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

Corn: 1 to 4 cents lower. Futures saw light spillover pressure overnight from yesterday's losses. Futures closed 20-plus cents lower yesterday, posting a low-range close. Talk of economic recession has traders on the defensive as they liquidate positions and convert investments to cash. December corn futures dropped below the psychological $4.00 level and spiked support at the October 2007 low of $3.86 3/4, but closed above that level.

Soybeans: 9 to 17 cents lower. Futures saw spillover pressure overnight, with deferreds leading losses. Crude oil was lower again overnight. Futures closed 38 to 41 cents lower, doing more technical chart damage yesterday. January beans gapped below the $9.00 level on yesterday's open to set off a round of sell stops. Futures extended losses, but closed about 10 cents off the session low. Next support lies at the August 2007 low of $8.33 and extends to the contract low of $8.15.

Wheat: 4 to 7 cents lower. Futures saw spillover pressure overnight from yesterday's losses. The dollar was stronger again overnight. Futures saw sharp spillover pressure from neighboring corn and soybean pits and outside markets to close 17 to 18 cents lower in the Chicago market. Early pressure came from outside markets. The dollar was higher and crude oil moved to a new-for-the-move low.

Cash cattle expectations: $2 lower. Wednesday's sharp drop in cattle futures resulted in some light cash cattle trade in the Plains at $90, which is down $2 from the bulk of last week's cash trade. Followthrough cash sales are possible at similar levels today.

Futures call: Steady to weaker. Futures are called to open weaker based on yesterday's low-range close, but are due for short-covering. Building financial concerns hammered cattle yesterday, as the stock market was under sharp pressure. December live cattle futures dropped through support at last week's lows to mark a new contract low.

Cash hog expectations: Lower. Look for the cash market to continue lower through the week unless pork sees a surprising recovery. Supplies are plentiful and packers are working on improving profit margins. Pork cutout values dropped $2.96 yesterday, which could result in some locations dropping bids by $3 today!

Futures call: Steady to weaker. Like cattle, futures are called to open weaker based on yesterday's low-range close, but are due for short-covering. Talk of a recession is raising concerns about meat demand. December lean hog futures posted a new contract low after hitting a round of sell stops on the move lower.