Has February Break Begun?

February 2, 2009 06:00 PM

Julianne Johnston Pro Farmer Senior Markets Editor

From Pro Farmer

Updated as of 7:00 a.m. CT

Grain markets start month under pressure... Grain futures started the new week and new month under pressure, as a combination of technical and fundamental factors weighed on futures. Outside markets were negative for the grain markets for most of the day, with the weakening technical situation adding to the bearish tone.

For all technical purposes, you could say the February break began in late January. For example, March soybeans have declined about 40 cents from the late January high and face additional near-term risk if crude oil posts consecutive closes below the $40.00-per-barrel level and more rains are seen in South America.

Meanwhile, the cattle market posted a strong recovery yesterday in reaction to USDA's Cattle Inventory Report, which showed the smallest cattle inventory since Jan. 1, 1959! Given economic troubles, traders remain concerned about domestic demand, which limits upside potential on signals of a seasonal low being posted. But longer-term, contraction in the cattle industry is price positive.

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

Corn: 4 to 5 cents lower. Futures were lower overnight on spillover pressure. Futures closed 8 to 9 cents lower to start the week, which was near the middle of the daily trading range. Futures posted a downside day of trade on the charts, trading below support at last week's low much of the day. Support for March corn lies at the January low of $3.58 3/4, with resistance beginning around the $4.00 level. Violation of the January low would reopen downside risk to the contract low of $3.05 1/2.

Soybeans: 10 to 13 cents lower. Futures were mostly around 11 cents lower overnight. Futures closed mostly 19 to 24 cents lower yesterday, which was in the middle of the daily. Futures opened weaker than expected and sharply extended losses amid pressure from South American weather, outside markets and technical-based selling. March soybean futures spiked support at the January low, but closed back above that level. Today's low at $9.43 1/4 is key near-term support, followed by the 40-day Moving Average, which is near $9.37.

Wheat: 3 to 5 cents lower. Futures were weaker overnight on spillover pressure. Futures Wheat futures closed in the middle to upper end of today's range, but were unable to hold afternoon gains into the close and finished slightly lower at all three exchanges. March Chicago wheat futures closed below the 40-day Moving Average and are nearing key support at the January low at $5.48 1/4. A drop through that level would leave next support in the $5.18 to $5.15 1/4 range. 

Cash cattle expectations: Watching beef market. Boxed beef prices weren't able to hold onto early gains and finished 30 to 73 cents lower Monday, but movement was strong at 374 loads. If the beef market shows strength in price and/or movement and cattle futures build on Monday's strong price gains, expectations for higher cash cattle prices in the Plains will increase.

Futures call: Steady to higher. Futures are expected to see spillover support from yesterday's sharp gains. Cattle futures were supported by Friday's friendly Cattle Inventory Report, which showed contraction in the industry. Additional support came from ideas a near-term cash low has been posted. April live cattle gapped slightly higher on the open and sharply extended gains to close above resistance at last week's high of $86.75. Next resistance lies at the mid-January high of $88.30, while support lies at last week's low of $83.60.

Cash hog expectations: Steady. The cash hog market is expected to be mostly steady today, but with some mixed undertones due to variable demand. Pork cutout values were slightly lower yesterday. Packers' profit margins remain well in the red, but with market-ready supplies tightening, they are deciding to trim kill hours.

Futures call: Steady to weaker. Futures were pressured by a combination of fundamental concerns and technical-based selling to start the week. With the sharp losses and low-range close Monday, bears carry momentum into this morning. Technically, April lean hog futures posted an inside day of trade on the daily chart, but the sharp losses and low-range close points to a potential challenge of the contract low if support at $61.55 is violated.

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