Trend is Choppy Until Proven Otherwise

August 27, 2008 07:00 PM
 

Julianne Johnston Pro Farmer Senior Markets Editor


From Pro Farmer

Updated as of 7:00 a.m. CT

Choppy trend in grain markets... It's been pretty easy to talk out of both sides of your mouth when discussing what the likely near-term trend of the corn and soybean markets could be. So today when I was asked, "Well, you've given a bullish and bearish argument, which one do you believe in 'more' for the near-term?" I answered, "Actually, both. This market is stuck in a choppy sideways trend until proven otherwise."

Grain traders are keeping a close eye on the outside markets. Crude oil has strengthened this week, which is limiting downside risk in the grain markets, but if Gulf oil rigs are able to avoid significant damage from "Gustav," crude oil will be lower next week. But at the same time, if the storm's path remains on target to do some damage, it could support the current risk premium.

Traders are also watching weather, which was bearish yesterday. Rains in the western Corn Belt were beneficial -- where they fell -- but the storm fizzled out before it reached eastern Iowa. Rains are still needed in many areas.

But until the grain market becomes more confident about crop size, the trend will be choppy. Pushing through resistance at last week's highs would be a bullish technical signal.

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: 1 to 2 cents lower. Futures were slightly lower overnight. Futures saw a choppy day of trade yesterday, but closed slightly higher on support from outside markets. Traders are also keeping an eye on the weather, with rains in the western Corn Belt yesterday limiting upside potential.

Soybeans: Mixed. Futures were mixed overnight, although favoring a weaker tone. Futures were mixed yesterday, with nearbys ending firming on spillover from outside markets. Key near-term resistance for November soybeans is at last week's high of $13.70. A push above that level would likely trigger buy stops and could push the contract above the 40-day Moving Average, which is currently around $13.89 to uncover more speculative buyer interest.

Wheat: Mixed. Futures were mixed overnight, although favoring a firmer tone. Futures closed sharply lower yesterday, pressured by favorable weather in areas like Argentina and Australia, as well as a lack of fresh demand news. December Chicago wheat posted a bearish reversal after poking above Tuesday's high, but failing to fill yesterday's gap on the daily chart.


Cash cattle expectations: Watching beef trade. After solid strength early this week, boxed beef prices were 98 cents to $1.06 lower Wednesday. If beef prices weaken further, cash cattle expectations will soften, especially given pressure on cattle futures this week. Most likely, cash cattle prices will come in steady to lower in the Plains.

Futures call: Mixed. Futures are called mixed on the possibility of short-covering following yesterday's decline, but could see additional pressure since there was technical damage done to the charts. Traders are also concerned about post-Labor Day beef demand, especially with pork cutout values under pressure.

Cash hog expectations: $1 to $2 lower. The pork cutout value was down another $2.05 Wednesday. That will keep cash hog bids under pressure across the Midwest today. Hog traders are concerned the sharp drop in product values signals export demand is waning.

Futures call: Weaker. Futures closed limit lower yesterday in all but the extreme far-deferred contracts, which were near limit lower. Futures gapped sharply lower on the open and extended losses throughout the session until the daily trading limit was hit. A combination of technical and fundamental factors contributed to the sharp price pressure. With the limit-down close, the market is susceptible to followthrough selling pressure this morning, but could also see short-covering on ideas losses were overdone.


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