Grains and livestock futures closed mostly higher again on Wednesday. Setting the early tone was news China cut their reserve rate for their banks in just the latest effort to stimulate the economy. The U.S. dollar index fell sharply in response.
The corn market was up for a 5th day and got some help from the higher day in wheat but most of the rally continues to be tied to corrective buying. Oliver Sloup, Blue Line Futures says the market is trying to correct the oversold condition and bearish sentiment. “You know, over the last couple of weeks, we’ve just gotten so much bearish news thrown at the market that maybe it was a purge of bad news and there’s no more bad news to throw at market.”
March corn was up 5 ¾ cents Wednesday, but will the rally continue? Sloup says the funds are short around 260,000 contracts and so they will need a bullish catalyst, or the bears will remain in control.
Technically, he says corn is also running into chart resistance. “So, we’re right back to the breakdown point after the WASDE at around $4.50. I do think that is going to be a huge hurdle for the bulls to overcome. If we can get above there, I think we could spart some additional short covering, but I think its mostly a relief rally.”
March soybeans closed only ¾ cents higher, but the market still chalked up the 5th higher close. Sloup says soybeans and soybean meal are watching South American production estimates and weather with hot and dry conditions now building in Argentina. However, soybeans are starting to look a bit tired after ending well off session highs. Sloup says, “I think $12.50 to $12.60 is going to be a big barrier for the bulls to overcome here. At least in the very near term. That was all in support back in October, that’s now going to act as resistance going forward. If the bulls can get out above there, potentially, we see some follow through and maybe work into the $12.70s maybe make another run at $13. But I think if we do get up towards those levels here, producers who have some unsold bushels will probably be a little bit more proactive.”
Wheat also saw short covering as the funds are short in all three classes in that market and also got a push from the sharply lower dollar index. Again, Sloup says March Chicago wheat is running into chart resistance and so he’s looking for a close over $6.20 to keep that momentum going.
Both live and feeder cattle futures scored new highs for the move and Sloup says it looks like the funds are back in buying in the market and have enough dry powder to add to their long position. “And the funds are long, only 13,000 futures and options contracts which is very neutral if not a bearish position for them. So, if we continue to see the cash market firm up, I wouldn’t be surprised to see a funds step back in.”
Lean hogs also had a chart breakout with the April contract taking out trendline resistance and getting above the June highs. “And now we’re just a stone’s throw away from the November highs at $82 to $83.” Sloup says news out of China this week has ignited the fire. “I think a lot of that was on the back of news from China that China wanted to guide farmers to reduce hog production capacity, which is kind of a head scratcher because they made the step in increasing capacity in such a meaningful way.”
