Sharp Dollar Weakness

December 15, 2008 06:00 PM

Julianne Johnston Pro Farmer Senior Markets Editor

From Pro Farmer

Updated as of 7:00 a.m. CT

Dollar weakens ahead of Fed meeting... The Federal Open Market Committee (FOMC) policy-setting meeting will conclude this afternoon, and it is highly anticipated the Fed will lower its target rate another 25 to 50 basis points. This resulted in steep selling in the dollar index against most major foreign currencies yesterday. Depending on investors "gauge" of the Fed's statement, the dollar will either have found a near-term low or faces more near-term downside risk.

If the Fed cuts rates another 0.5%, it would take the Fed funds rate to 0.5%.  That leaves the Fed with very little room to take further actions on interest rates, so the focus will move quickly to what else the Fed could do.

Grain futures were supported by weakness in the dollar yesterday, but as crude oil weakened, grain futures fell off session highs. The dollar was weaker again overnight, but grains were mixed.

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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 light profit-taking. Futures closed mostly between 1 to 2 cents higher.  Futures still slightly improved the technical situation of the market due to yesterday's new higher-high on the charts. Consecutive closes above downtrending resistance drawn off October and November reaction highs is also positive. But to build on the improving technicals, March corn needs to close above the $4.00 level.

Soybeans: 7 to 8 cents higher. Futures were firmer overnight on spillover from strength in crude oil. Futures closed 3 to 8 cents lower after opening higher yesterday. Early support for soybeans came from outside markets, as the dollar was under sharp pressure throughout the day and challenged uptrending support. Crude oil opened higher, but buying interest diminished and futures ended lower. Late weakness in crude oil spilled over into the bean pit.

Wheat: Fractionally to 3 cents higher. Futures were firmer overnight on weakness in the dollar. Chicago wheat closed mostly around 6 cents higher yesterday. Early support came on spillover from neighboring pits, as corn and soybeans gapped higher on the open. The dollar was under sharp pressure through the day, with added to firmness in the wheat pit. But as crude oil weakened, grain futures moved off session highs. Weakness in the stock market also limited buying interest.

Cash cattle expectations: Watching beef market, futures. Boxed beef prices firmed $1.34 (Select) to $2.43 (Choice) Monday. While the stronger beef prices are encouraging for bulls, movement must improve from the 204 loads packers sold Monday to build ideas of firmer cash cattle prices in the Plains this week. With showlist numbers larger this week and holiday shortened slaughter schedules the two weeks after this, packers will be reluctant to raise cash cattle bids unless there's strong incentive from the product market.

Futures call: Firmer. Futures are called to open firmer based on spillover from yesterday's late-session surge. Cattle futures strengthened into the close to finish 82 cents to $1.20 higher. Much of yesterday's support came from outside sources, as the dollar was under sharp pressure, triggering widespread commodity buying. Futures trimmed gains and crude oil weakened, as well as weakness in the stock market. But in the end, it was a combination of a strong start to the beef market, as well as dollar weakness, which kept the bulk of the commodity markets higher.

Cash hog expectations: Mostly steady to weaker. The average pork cutout value was down 76 cents Monday. With demand for cash hogs already light as packers are well bought ahead on slaughter needs for the week, the drop in pork values is likely to keep cash hog bids steady to lower across the Midwest today.

Futures call: Firmer. Futures are expected to see light spillover support this morning's following yesterday's gains. Much of yesterday's support came from outside markets, as the dollar was sharply lower to start the week. Crude oil started firmer, but ended weaker. But lean hog futures extended early gains amid short-covering, as well as weather concerns.

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