Seasonal Lows Near?

October 21, 2008 07:00 PM
 

Julianne Johnston Pro Farmer Senior Markets Editor


From Pro Farmer

Updated as of 7:00 a.m. CT

Seasonal low near?... ... Is the worst behind for the economy? Nothing like answering a question with a question. But we are in an uncertain atmosphere.

I had a good conversation with a farmer from Indiana yesterday about "what to do with this extra 10% of corn I didn't expect?" I hope many of you are in that situation this year -- early yield results above expectations. He had forward sold about 60% of this year's crop, which is in line with our advice, and had room to store the last 40% or so, but didn't know if he should pay for storage at the elevator for that unexpected "10%" or if he should just sell it.

I told him the market should be posting a seasonal low -- and may have last week -- but we won't be convinced of that unless the market can continue higher. It very well could just sit here for a while in a choppy, sideways pattern. But my biggest concern of course is outside markets. The dollar moved to a new-for-the-move high yesterday and crude oil was sharply lower. Until the market feels like the worst is behind the economy, outside markets will continue to limit upside potential for the grain markets.

In other words, sell the 10% -- which is 100% profit (since production costs were covered on the initial 60% sale) and we'll wait to see if the market recovers between now and next September for the remaining 40%. A key in his scenario -- basis is just 15 cents under. That's tighter than most areas, making this decision a little easier.

Also, after three days of corrective gains, corn and soybeans were lower yesterday, signaling the move off the lows was just a corrective bounce.

Keep your comments coming. Always good to have conversation with you and input on what you'd like to talk about. E-mail your comments/question to me by clicking here. Please include your location.


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

Corn: 15 to 17 cents lower. Futures were lower overnight on outside market influences. Futures closed weaker yesterday, pressured by outside markets, as crude oil extended early losses to trade sharply lower and the dollar extended early gains to post a new-for-the-move high. Given the high level of concern about the global economy, upside potential is limited to short-covering until traders believe the worst is behind the market.

Soybeans: 17 to 21 cents lower. Futures were lower overnight on continued weakness in crude oil this morning. Futures closed lower yesterday due to outside market influences. Outside markets will continue to play a key role in determining price action. January soybeans are trading about in the middle of the broad short-term boundaries from the Oct. 16 low of $8.83 to the Oct. 9 high at $10.03.

Wheat: 10 to 12 cents lower. Futures were lower overnight on spillover pressure. Futures finished in the lower end of yesterday's range, with Chicago around 12 to 14 cents lower. Unless outside markets are supportive, wheat will struggle to find buyer interest as attitudes are bearish. Initial support for December Chicago wheat is at last week's low of $5.43. Below that level is the July 2007 low at $5.40.


Cash cattle expectations: Watching beef market. Feedlots say they will hold out for firmer cash bids this week, but no active bidding has been reported yet. This week's showlist is tighter and commercials were behind yesterday's rally in the live cattle pit. That could be a signal of a near-term cash low being in place. Choice beef values were down 52 cents and Select rose 16 cents on stronger movement of 267 loads.

Futures call: Steady to firmer. Futures posted a high-range close yesterday, which is expected to result in spillover gains today. Commercial buying was strong yesterday. If that is noted again today, it would lift traders' expectations for this week's cash trade and help to support futures.

Cash hog expectations: Steady to weaker. Market-ready supplies remain plentiful and packers say this week's needs have largely been booked. On top of that, rains in the Midwest have some producers looking to catch up on hog marketings. While pork movement and prices were higher yesterday, packers will use it to improve profit margins.

Futures call: Steady to firmer. Futures are called steady to firmer based on spillover from yesterday's gains. However, key will be if traders feel the need to continue in this short-covering bounce given continued cash weakness. February lean hog futures have now posted three days of corrective gains. A higher close Wednesday would signal an extended bounce. Tough downtrending resistance intersects at $66.38 Wednesday.


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