Grain and livestock futures melted down on Friday on risk off commodity wide selling.
Broadbased Commodity Wide Selling Friday
Friday and much of the week was dominated by money flow and spillover from outside markets like the metals, the energies, and the dollar. That’s according to Allison Thompson with The Money Farm. She says a huge correction in markets like the precious metals, the dollar and the energy sector, even the stock market came as a result of President Trump announcing his pick for the next FOMC Chair as Kevin Warsh, who is seen as hawkish and is less likely to lower interest rates. However, she says there were various macro market and geopolitical moves that created odd money flow in and out of commodities and outside markets. The end result was a reallocation of portfolios.
Will the Asset Shuffling Continue in Commodities?
Will the reallocation by money managers continue in a new month and do grain markets eventually see fund’s buying that could trigger a larger rally? Thompson says that is possible as funds have a routine pecking order. “They general buy metals, then energies, then grains.” With a 4-year low this week in the dollar there was some buying in the grain markets early in the week and open interest increased in wheat, corn and soybeans which means there was new money coming into the complex. However, some of that money just as easily flowed back out of the grains towards the end of the week after chart failures.
Corn and Soybeans Hit Chart Resistance
Along with outside market spillover the corn and soybeans markets also saw further profit taking after running up into chart resistance on Thursday and failing. March corn was stopped out around the 100-day moving average of $4.32 and March soybeans hit the 50-day moving average of $10.82. These are the top ends of the trading ranges corn and soybeans have both been trading in says Thompson.
Wheat Closes Higher for a Second Week
Wheat futures were higher for a second week in all three classes even though they have tested the top end of their trading ranges and failed on Friday. Is there a technical breakout brewing? Thompson says its possible with the funds short over 125,000 contracts in the three exchanges combined. The market will just need to close over this week’s highs.
Short Covering or Weather Premium?
While there has undoubtedly been fund short covering in the wheat market this week, Thompson also attributes the rally to the market adding weather premium. She says the bitterly cold temperatures in the U.S. and another cold blast on the way deserves some attention. However, there are also -20 degree temperatures forecast in Ukraine with limited snow cover for the crop and Australia has been dry and now is seeing temperatures in the 115-122 degree range which will trim crop yields.
Cattle Consolidate Despite Higher Cash
Cattle futures had a roller coaster ride on Friday trading both sides of steady during the session. The markets were initially sucked into the commodity wide selloff but then ran higher after cash trade developed at higher money. Many contracts make new highs for the move before selling off into the close. While the market may have been positioning ahead of the semi-annual cattle inventory report, this action is a bit concerning to Thompson.
A light cash trade was reported before the close. Southern live deals are marked at $238 to $240, $3 to $5 higher than last week’s weighted averages. Northern dressed business has been reported sold at $375 to $378, $6 to $9 higher than last week’s weighted averages.
Meanwhile the inventory report was bullish with the lowest cattle herd since 1951. All cattle and calves and all cows/heifer at 100% of a year ago. Beef cows 99%, beef replacements 101%, steers at 99%, bulls and calves 100%.
