Sharp Dollar Weakness Spurs Commodity Buying

October 10, 2011 01:35 AM


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Overnight highlights. Following are highlights of overnight trade and opening calls:

Corn: 5 to 11 cents higher. Futures were higher overnight amid sharp dollar weakness, improving traders' attitude toward adding risk after leaders in Germany and France made an agreement to recapitalize banks. The U.S. dollar index is back testing uptrending support -- falling sharply from last week's high. To signal a near-term low has been posted, December corn needs to post a 25% retracement of the decline from the September high, which lies near $6.24.

Soybeans: 24 to 26 cents higher. Futures were the leader to the upside, being supported by sharp dollar weakness and spreading with corn. News France and Germany are working on a plan to solve debt woes in the euro-zone improved traders' risk-taking attitude overnight. The timing is right for corn and soybean futures to be putting in seasonal lows, as strong harvest progress made over the last week means hedge-related pressure should be easing. However, traders will also be cautious ahead of Wednesday's Crop Production and Supply & Demand Reports.

Wheat: 10 to 14 cents higher. Futures benefited from spillover from neighboring pits, as well as sharp weakness in the U.S. Dollar index. Wheat is clearly in a follower's role and will benefit from spreading with corn. December Chicago wheat is trading at around an 11 cent premium to December corn, which is still historically tight. Widespread rains across the Plains this weekend should boost planting in the region, but focus this morning is on dollar weakness.

Live cattle: Higher. Futures are expected to benefit from dollar weakness and expected improvement in the U.S. stock markets. This morning it's a risk-on attitude for investors who are somewhat relieved by the commitment in the euro-zone to recapitilize banks and avoid debt defaults. Traders will be keeping a very close eye on the boxed beef market for cash clues this week, as prices are at levels that have slowed demand in the past.

Lean Hogs: Higher. Futures are expected to benefit from widespread spillover from strength in the commodity markets this morning amid dollar weakness. The cash hog market is expected to be steady to firmer to start the week as packers compete with harvest progress and work to fill kill needs. But one caution this week is packers tighter profit margins. If pork cutout values soften, demand for cash hogs would also soften.


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