Much-Needed Short-Covering Seen in Grain Markets Overnight

May 15, 2012 01:35 AM

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Overnight highlights. Following are highlights of overnight trade:

Corn: 3 to 5 cents higher. Futures were lifted by a more positive risk-taking atmosphere overnight, helped by slight weakness in the U.S. dollar index. While investors remain skittish about political unrest in Greece, which raises concerns about the euro-zone falling deeper into recession, positive GDP data out of Germany helped spur short-covering overnight. Still, the 2012 crop is off to a very strong start, with planting likely to wrap up in most locations this week due to favorable weather.

Soybeans: 15 to 19 cents higher. Futures were supported by short-covering overnight following yesterday's sharp losses. News that Germany's first-quarter GDP rose by 0.5% was viewed as supportive, as investors expected the figure to represent contraction in its economy. November beans posted a 38% retracement of the rally from the December low yesterday and bounced overnight -- returning above $13.00. Key will be if the market continues to recover, signaling the recent decline was simply a correction in a bull market.

Wheat: 5 to 7 cents higher. Futures were supported overnight by short-covering and help from neighboring pits. Yesterday's crop condition report from USDA was also deemed supportive for the market, as it showed slight deterioration in the crop at a time when it needs water to fill heads. USDA will release its first winter wheat harvest report next week -- earlier than usual due to the advanced maturity of the crop.

Live cattle: Higher. Futures are expected to see a boost from the strong start to the beef market for the week. Choice values rose $1.93 and Select was up $2.65 on solid movement to start the week at 182 loads. With nearbys trading at around a $4 discount to last week's $120 cash cattle trade, there is significant room for the market to rally on short-covering. The U.S. stock market is also supportive for the market, as Germany's economic growth came in at 0.5% in the first quarter -- far better than the 0.2% decline analysts expected.

Lean Hogs: Higher. Similar to cattle, lean hog futures are also expected to be supported by the product market. Pork cutout values rose $1.44 yesterday to further improve packers' profit margins. Traders expect packers' demand for hogs to be improved as they have seen margins come out of the red. The cash market is expected to be steady to firmer today, but packers will be cautious about raising bids too far too fast to keep margins profitable. Upside potential for futures, however, is limited as June hogs are already trading at more than a $5 premium to the cash index.


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