Watching Outside Markets

February 22, 2009 06:00 PM

Julianne Johnston Pro Farmer Senior Markets Editor

From Pro Farmer

Updated as of 7:00 a.m. CT

It still comes down to one key thing... ... There is still no confidence in the U.S. economy. The U.S. stock market slipped below the November 2008 low last week -- resulting in steep losses in the commodity world. The dollar index tested the November 2008 high, but then softened. If the dollar violates resistance, it would signal more pressure is likely ahead for the grain markets. In commodities, traders simply don't believe demand will be able to grow in current economic conditions. That was the primary source of pressure last week.

Economic and financial uncertainties across the globe have keep the U.S. dollar in a strong uptrend. Investors are again seeking out the safety of the U.S. dollar and U.S. government Treasuries. As more dour economic news worldwide is reported, look for the U.S. dollar to continue to find favor among investors worldwide. This is not a positive factor longer-term for U.S. grain exports... or commodity markets. But if the dollar isn't able to move above the November high near-term, it would be supportive of a correction in the commodity sectors.

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

Corn: 8 to 9 cents higher. Futures saw short-covering support overnight. A lack of fresh positive news deepened the February break in the corn pit last week, with March corn down around 12 cents from the previous week's close. Friday's export sales report -- revealing the fifth consecutive week of sales above 1 MMT -- were basically ignored by the market, as all eyes remain on outside markets.

Soybeans: 15 to 18 cents higher. Futures were supported by short-covering overnight, with crude oil also higher. Futures posted hefty losses to finish last week sharply lower than the previous week's close. The extremely poor price performance last week left the market oversold. But the upside is limited to mild corrective buying unless fresh positive news surfaces.

Wheat: 7 to 8 cents higher. Futures saw short-covering support overnight. Last week, wheat futures posted relatively light price declines compared to corn and soybean futures.  If corn and soybeans continue to decline and price action in outside markets remains negative, wheat will feel additional pressure this week. The path of least resistance for wheat is down.

Cash cattle expectations: Keeping eye on beef market. Last Friday's Cattle on Feed Report data came in mostly neutral. That will leave cattle traders looking to the stock market and daily fundamentals for price direction. Given demand concerns tied to the poor economic picture, the boxed beef market must be strong to encourage thoughts of higher cash cattle trade, especially since some of last week's showlist was carried forward.

Futures call: Weaker. Futures posted sharp losses this week to finish about $3.50 below the previous week's close. Sharp pressure on futures was largely due to outside markets, as the U.S. stock market
dipped below the November 2008 low to finish the week. The cash market traded between $80 and $81, which was down $2 to $3 from last week. Friday's Cattle on Feed Report came in about as expected, which should have little impact on the market this morning. But it did serve as a reminder of tightening feedlot supplies.

Cash hog expectations: Steady to weaker. Most packers are bought ahead on slaughter supplies coming into the week. Given negative cutting margins, packers will start the week with steady to lower cash hog bids. If margins fail to recover, late-week slaughter plans will likely be scaled back.

Futures call: Weaker. Futures posted sharp losses Friday and finished the week sharply lower than the previous Friday's close. Bears have momentum on their side. Aside from the market being oversold and in need of a correction, the upside will be limited unless the product market strengthens and packer margins move closer to breakeven.

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