Energy Markets Watching 'Gustav'

August 26, 2008 07:00 PM


Julianne Johnston Pro Farmer Senior Markets Editor

From Pro Farmer

Updated as of 7:00 a.m. CT

Crude oil traders watching path of hurricane... Crude oil futures saw a volatile day of price action yesterday, but ended higher as Hurricane Gustav is looking more and more like a threat to oil supply disruptions in the Gulf of Mexico. Forecasters say the storm could become a "major hurricane" -- reaching Category 3 status over the next few days.

According to the National Hurricane Center, the storm could strike the Gulf of Mexico as early as Sunday and is now projected to make an entrance into the Gulf that puts offshore oil and natural gas platforms more at risk. But forecasters also say a lot could happen from now to Labor Day.

This storm bears watching as it is resulting in increased price volatility in the energy markets and grain traders are taking note.

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

Corn: 5 to 7 cents higher. Futures were higher overnight in corrective trade. Futures ended 5 to 6 cents lower yesterday, which was near the middle of the day's trading range. Corn faced pressure throughout the session, although seller interest wasn't as strong as anticipated. The bulk of yesterday's pressure came from weather, as the GFS weather model suggests 1- to 3-inch rains over a fairly broad section of the Corn Belt in the coming days.

Soybeans: 11 to 19 cents higher. Futures were sharply higher overnight, with nearybs mostly around 17 cents higher. Futures posted a gap-lower open yesterday, but filled the gap and trimmed losses. Futures closed mostly around 2 cents lower, with the July 2009 contract a penny higher. The gap-lower open was spurred by improved near-term moisture prospects for the Midwest, as overnight weather models included more widespread rains for the Corn Belt. Traders will also be watching crude oil closely today, as strength in crude yesterday helped to trim early losses in the bean pit.

Wheat: Marginally to 8 cents higher. Futures were higher on spillover from neighboring pits. Futures gapped lower on the open and finished near opening levels. Double-digit losses came from improved crop prospects due to recent rains in Argentina and Australia. Traders had been watching these areas, that were in need of a rain, and now expect production estimates from both regions to rise.

Cash cattle expectations: Watching beef trade. Boxed beef prices were 42 to 89 cents higher Tuesday on movement of 340 total loads. If the beef strength continues, it could firm up cash cattle expectations. But most cash sources and traders continue to feel steady prices in the $98 to $99 range are a best-case scenario for cash cattle bids in the Plains this week.

Futures call: Mixed. Futures are called mixed amid spreading, with traders waiting on cash trade. October live cattle futures continue to chop within the established trading range from the July low of $103.80 to the August high of $109.10. Given the broad scope of these boundaries, futures could hold within this range for an extended period.

Cash hog expectations: Mostly lower. A boost in pork movement is needed to stabilize the cash hog market. The pork cutout value plunged another $3.93 Tuesday on sharp declines in all cuts. With the pork market reeling, cash hog bids will remain under pressure -- heavy pressure in some locations -- as packers work to keep margins from plunging.

Futures call: Weaker. Futures are called weaker based on spillover from yesterday's losses, although could see spreading and nearbys remain at a large discount to the cash index. December lean hog futures posted an inside day of trade on the charts, but the low-range close opens the door to spillover pressure this morning.

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