Grains Follow Crude Lower

July 15, 2008 07:00 PM

Julianne Johnston Pro Farmer Senior Markets Editor

From Pro Farmer

Updated as of 7:00 a.m. CT

Outside market still key force in grain markets... Crude oil futures tumbled $6.44 per barrel yesterday on comments from Fed Chairman Ben Bernanke, who indicated inflation and high fuel costs will cut U.S. demand for oil. The Fed Chairman's bleak economic outlook, was the focus on the financial markets yesterday, with crude also moving lower on the testimony to post the sharpest one-day drop since January 1991. Traders also said oil supplies were stabilizing, which also pressured energy prices yesterday.

After a stronger open, corn and soybeans quickly fell yesterday as crude oil futures tumbled. No major technical chart damage was done to the crude oil market yesterday. If crude oil continues to tumble, grain futures will follow as the flow of money has been tied between outside markets closely. But if crude oil recovers, focus in the grain markets will return to weather and crop prospects.

Overnight, crude oil futures traded more than $2 lower, but remained above Tuesday's lows.

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

Corn: 1 to 3 cents lower. Futures were lower overnight on spillover pressure. Futures closed mostly around 15 cents lower on spillover from soybeans and crude oil. December corn has completed a 62% retracement of the rally from the May low to the contract high. A 75% retracement at $6.44 corresponds with the early June gap. Futures could correct to uptrending support drawn off October and march lows without doing any serious technical chart damage. That support currently intersects around $6.15.

Soybeans: 6 to 10 cents lower. Futures were weaker overnight on spillover from yesterday's decline. Futures closed 40-plus cents lower after a firmer on, with meal and oil seeing sharp spillover pressure. To do any technical chart damage, beans need to move below the Late June lows, which would threaten uptrending support. For August beans, that support lies at $14.95. The contract has yet to complete a 25% retracement of the rally from the April low to the contract high. That support lies at $15.20.

Wheat: 6 to 7 cents lower. Futures saw spillover pressure in overnight trade from neighboring pits. Futures opened firmer yesterday on shrugged off spillover from neighboring pits in early trade, but eventually turned weaker. Wheat closed mostly 5 to 7 cents lower. Downside risk was limited by Monday's surprising crop condition ratings, which showed spring wheat conditions down sharply. Renewed concerns about dry conditions in areas of the Northern Plains.

Cash cattle expectations: $1 to $2 lower. Texas feedlots began moving cattle at $98, while some light sales were reported in Kansas around $97 Tuesday. Feedlots pulled back the reins on cash sales later in the day, however, after cattle futures firmed modestly into the close on short-covering.

Futures call: Mixed. Another choppy day of trade is expected, although futures closed mostly firmer yesterday on short-covering and could see some spillover support this morning. Key will be if futures can see additional short-covering support this morning to stabilize the market following the recent stiff retracement. However, unless futures can fill in Monday's gap area, momentum remains with bears.

Cash hog expectations: Mostly steady. Cash sources expect steady cash hog bids at most Midwest locations today and softer prices to finish out the week as most packers are quickly filling up late-week slaughter runs However, strength in the pork product market Tuesday and strong cutting margins could keep bids firmer in some locations.

Hog futures: Mixed. Futures are called mixed on more spreading, as traders reevaluate positions. July hogs expired at noon, CT, yesterday, at $74.62. With the expiration of July hogs, August now assumes the role as the lead-month contract and will be following the cash index more closely. The index is projected up 44 cents to stand at $73.85 and August futures are trading at around a $1.25 premium to the index -- which is considered in line with cash for now. If traders expect additional near-term cash improvement, August futures will continue to recover from the July lows.

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