One Percent!

October 29, 2008 07:00 PM
 

Julianne Johnston Pro Farmer Senior Markets Editor


From Pro Farmer

Updated as of 7:00 a.m. CT

Fed lowers rates 50 basis points... One percent. That is where the federal funds rate now stands after the Federal Open Market Committee (FOMC) trimmed rates another 50 basis points at the conclusion of yesterday's meeting. This is the lowest the Fed has ever gone on rates, matching the cut to 1% in June 2003 through June 2004. The dollar remained under stiff pressure throughout the day
due in anticipation of a rate cut.

In their statement, the Fed expressed worries about the damage being done to the economy by the ongoing credit crisis in the financial and credit markets. "The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures," states the Fed. "Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is dampening the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit."

'Dampening the prospects for U.S. exports'... This isn't a price-positive statement for commodity markets, which relied heavily on a strong export pace during the "commodity boom" rally that topped this summer. Additionally, the Fed says, "In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability."

The Fed says they believe recent policy actions, including this week's rate reduction, coordinated interest rate cuts by central banks, "extraordinary" liquidity measures, and official steps to strengthen financial systems, credit conditions should improve over time and "promote a return to moderate economic growth."

"Nevertheless, downside risks to growth remain," they warn. "The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability." Hence, another rate cut is possible.

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

Corn: Narrowly mixed. Futures were mostly marginally higher in mixed trade overnight. Futures closed sharply to limit higher yesterday, supported by pressure in the dollar and strength in crude oil. How outside markets perform this morning will largely direct corn prices this morning. Spillover gains today would increase thoughts a near-term low has been posted. December corn penetrated resistance at last week's high to return to the top of the month-long choppy consolidation range.

Soybeans: 2 to 5 cents higher. Futures saw slight gains overnight. A strong surge in crude oil futures combined with heavy pressure on the U.S. dollar fueled a strong wave of buying in the soybean pit yesterday. January soybean futures pushed above Tuesday's post-report reaction high, but were unable to close above this level. So far, the contract has done nothing more than move to the top of the short-term consolidation range. A close above the Oct. 14 high at $9.56 and a push above the last reaction high at $10.03 is needed to signal an extended bounce is likely.

Wheat: 1 cent lower to 13 cents higher. Futures were widely mixed overnight in directionless trade. Chicago wheat finished around 47 cents higher yesterday, spurred by outside markets and spillover from neighboring pits. December Chicago wheat filled the Oct. 22 gap at $5.46. The daily trading limit stopped the contract right at the last minor reaction high at $5.74. A push through that level would leave the top of the Oct. 10 gap at $6.01 as resistance.


Cash cattle expectations: $1 higher. Scattered, light cash cattle trade was reported earlier in the day at $91, but trade turned active late Wednesday afternoon as packers raised bids to $92 -- $1 higher than top- end bids last week. The $92 price came after a sharp rise in cattle futures and leaves nearby contracts at a slight discount to cash.

Futures call: Higher. Futures are called higher on spillover from yesterday's gains, but how outside markets perform will depend on the lasting power of a higher open. Nearby cattle are trading in line with the start of this week's cash trade, which should limit pressure if profit-taking is seen today.

Cash hog expectations: Steady to weaker. The pork cutout value plunged $2.51 Wednesday on widespread, sharp product losses. The sharp downturn in pork prices will put pressure on the cash hog market, especially since packers have the bulk of this week's slaughter needs already secured. Hog traders continue to fear a slump in the pork market amid hefty market-ready supplies.

Futures call: Mixed. Futures are called to open mixed after yesterday's choppy price performance. February lean hog futures remain in the delicate uptrend from the mid- October low. But the contract is having a tough time pushing above the mid-August high. The contract closed right on this trendline yesterday. Consecutive closes above this trendline are needed to signal the short- term uptrend will be extended.


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