Volatile Reaction to USDA's Lower Corn Peg

August 10, 2012 03:59 AM


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Overnight highlights. Following are highlights as of 9:00 a.m. CT and opening livestock calls:

Corn: Choppy. Futures initially reacted with sharp gains to USDA's smaller-than-expected crop estimate of 10.779 billion bu., with an average yield of 123.4 bu. per acre. But a quick reversal was seen on the charts. December corn spiked to within a penny of the psychological $8.50 level before seeing quick drop to around $8.25. Today's closing could be very telling of near-term strength in the market. Remember, highs are posted when traders believe the worst news is behind them.

Soybeans: 15 to 20-plus cents higher. The combination of a smaller-than-expected crop of 2.692 billion bu. and a drop in both 2011-12 and 2012-13 carryover is providing sharp buying interest to soybean futures this morning. While many areas of the Midwest are benefited from cooler temps and scattered rains, traders also recognize prices have not slowed demand. This morning, USDA announced a 290,000-metric-ton soybean sale to China for 2012-13.

Wheat: 10 to 14 cents lower. Wheat is seeing spillover pressure from the corn pit, as well as reacting to this morning's neutral to bearish USDA data. USDA raised the size of the wheat crop more than expected to 2.268 billion bu. and raised 2012-13 carryover more than expected to 698 million bushels. September Chicago wheat posted a daily high of $9.31 3/4 following the report, but quickly faded.

Live cattle: Mixed. Futures are expected to see a choppy start as traders wait on cash trade to begin. Pressure should be limited by ongoing strength in the beef market this week, which as traders expecting $1 to $2 higher cash trade with last week's $118 trade. Also this morning, USDA raised its 2012 beef production forecast slightly and lowered the average projected cash prices. It also lowered the export forecast from last month.

Lean Hogs: Steady to firmer. Futures are expected to see followthrough from yesterday's gains, as well as from strength in the pork cutout market yesterday. Meanwhile, USDA lowered its 2012 pork production forecast slightly and raised its projected average cash price. But it also lowered its export forecast slightly this morning. The cash hog market is expected to be mostly steady this morning, with a few weaker bids possible as packers have this week's needs secured.


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