Schwieterman: Interesting Week For Cattle, Poor Wheat Fundamentals
10/30/2009 05:33PM
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The US Dollar Index didn’t fall to a new low for a change and made a sizeable corrective bounce. There has been a tendency over the past several months for the Dollar to have strength right at the end of the month and sometimes for a day or so in the new month. Any strength that last beyond next Tuesday would be a sign that a larger correction is about to unfold. This week’s strength in the Dollar certainly didn’t help the ag markets or the stock market and further strength next week could have the same consequences. We will have to see price protection in the grains or make sales if we see the Dollar Index make new highs.
Last week I mentioned the likelihood of a correction in the corn market and that is certainly what we got.
Last Friday’s poor close led to a sharp break on Monday. Part of the reason for the weakness was, of course, the strong Dollar and weak stock market. There was also the belief that the weather pattern was drying out and that there would be a better opportunity for harvest next week. Slow harvest progress is still a concern and Monday’s numbers will show that little was accomplished this week, but a late, slow harvest isn’t as big of a concern to traders as is the direction of the outside markets.
Looking ahead to next week, I am concerned about the outside day lower on the charts that we had Friday.
We typically see follow through selling at some point when we have moves like that on the charts. If the Dollar is firm next week, and the forecasts for the Corn Belt look clear, we will likely see the December corn move down to the $3.58 level and possibly $3.45.
The wheat had been the upside leader for two weeks in a row, but that ended this week and the wheat was the down side leader for the week. The December KW fell back to the support at the $4.98 level, which is the 50- day moving average. A move down to the $4.85 level is looking more and more likely.
The wheat still has the poorest fundamental outlook of the bunch. The threat of losing SRW production due to planting delays is certainly supportive, but the fact that we haven’t seen consistently good exports and we have huge ending stocks is more important. That is especially true when the Dollar is strong and the stock market
is weak. If we see the Dollar drop next week we will go back to talking about planting delays.
The trading action in the soybeans wasn’t much different than in the wheat or the corn, but the beans do have a bit more of a sideways pattern on the charts. Demand is still tremendous; there is no doubt about that.
Harvest delays are a concern and that is supportive as well. The Dollar and stock market action were the main forces in the market, but there is also still some concern that there is going to be a large crop and that it will eventually give us abundant supplies. What you end up with is a sideways market. The rallies and the pull backs are both more muted than they are in the corn and wheat and the market ends up being flatter.
In the short run I look for the sideways/lower pattern to continue. If the corn and wheat are lower due to Dollar strength, the soybeans won’t be able to rally very much independently no matter how good demand is. A move down to the $9.58 area is likely for the January soybeans and $9.40 is a possibility if the forecasts stay clear.
We had a very interesting week in the cattle market. There were cash cattle that traded as high as $88 in Texas, but the October LC went off the board Friday at $81.65. The government is worried about a lack of convergence in the wheat market, but I wonder what they would think about this week’s failure of the cattle
market to converge. Anyway, we had higher cash cattle prices, but lower futures this week. The December LC lost about $1.70, which took the market below the support at the 40 and 50-day moving averages. The December LC did find support on Friday at the $88.25 area, which will be watched closely next week. For the moment I would look to sell a bounce early next week and add to the position on a close below $88.25.