Dow Nears Support

November 19, 2008 06:00 PM

Julianne Johnston Pro Farmer Senior Markets Editor

From Pro Farmer

Updated as of 7:00 a.m. CT

Dow pressured by auto industry's future... On the final bell yesterday afternoon, the Dow Jones Industrial posted its lowest close since February 2003. The Dow is now just hovering above the Oct. 6, 2008 intra-day low. The major index slipped as investors remain nervous about the future of America's auto industry, as well as poor economic data posted earlier in the morning.

Weak readings on the nation's housing market and a sharp decline in consumer prices drove down shares of financial services firms yesterday. The U.S Department of Labor yesterday reported consumer prices declined by a record amount in October, another sign the economy is contracting. The Consumer Price Index, a key inflation reading, fell 1% last month. Investors expected a 0.8% decline. This is the largest drop in prices since the Labor Department began gathering data in Feb. 1947.

In July 2008, consumer prices reached 17-year highs, driven largely by record energy prices. But the fall from those record levels now has economists worried about deflation. This of course, has weighed heavily on all commodity markets. The economic downturn has already caused a windfall of lost jobs and economists worry that rising unemployment would cut demand even further, maintaining pressure (or at least limiting upside potential) for most commodity markets.

Overall, the grain markets have reacted surprisingly well to poor economic data, as they remain in a month-long consolidation phase. But if the Dow continues to sink and the dollar strengthens on fears other global economies are doing even worse than ours, it could result in the next wave down in the commodity markets.

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

Corn: 7 to 8 cents lower. Futures were weaker overnight on spillover from crude oil weakness. Futures posted another choppy, two-sided day of price action yesterday, but remained in a fairly tight daily range. Futures closed 1 1/4 to 2 cents lower, which was near session lows. Outside markets provided mixed signals again, as the dollar opened weaker, firmed, but then weakened again.

Soybeans: 18 to 20 cents lower. Futures were weaker overnight on spillover from crude oil weakness. Futures closed slightly lower yesterday after seeing two-sided trade. January soybean futures continue to hold well within the established trading range, which has contained prices since early October. Support at the bottom of the range is at $8.38, while resistance at the top of the range is at $10.03. The longer futures hold within this range, the more likely a strong trending move comes on an eventual breakout.

Wheat: 6 to 8 cents lower. Futures were weaker overnight on dollar strength. Futures closed weaker after seeing mixed trade throughout the day yesterday. Without very limited fundamental support, wheat needs help to generate sustained buyer interest, which means the upside will remain limited to corrective buying near-term.

Cash cattle expectations: $1 to $2 lower. Cash cattle trade was active at $3 to $4 lower prices in Nebraska. The combination of sharply lower cash trade in Nebraska and heavy pressure on live cattle futures this week is expected to weigh on cash cattle prices in Kansas and Texas. Most cash sources are now expecting cash trade in the Southern Plains to be at least $2 lower than last week at no better than $91.

Futures call: Weaker. The path of least resistance is lower, so cattle futures are called to open weaker again, but at any point could see a short-covering bounce given oversold conditions. Early support for cattle futures came on short-covering, as well as a firmer start to the day for the Dow Jones Industrial Average. But attitudes changed as the stock market turned lower, which led to a round of sell stops being triggered.

Cash hog expectations: Mostly steady. Cash sources expect mostly steady cash hog bids across the Midwest today as many packers are still in need of late-week supplies before turning their attention to buying hogs for early next week. Saturday's kill estimate is still heavy, but down slightly from expectations earlier this week.

Futures call: Firmer. Futures are called to open firmer based on spillover from yesterday's gains, as traders believe the worst of the supply situation is behind them. February lean hog futures must clear the last reaction high at $63.75 to break the pattern of lower highs and open the door to an extended bounce. If this resistance is not cleared, the pattern points to a fresh near-term low for the contract.

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