Schwieterman: World economies pressure cattle futures

Corn                                        Estimated Fund Position
Trends
Short Term: Up                     Net Long Futures and Options: 165821
Long Term: Up                      Change: -18000
Overnight Trade: N -2 1/2 Z + 1/4
Opening Calls: Mixed

Corn was weaker again overnight and the front months of the corn are testing the 50-day moving average support. The big question, of course, is when will the Chinese buy more corn? The spread is widening and imports are profitable, so it is doubtful that we see much more pressure in the front months. The market has corrected, the bull spreads have corrected, and now it is probably time for the market to continue on with its sideways/higher pattern.

Wheat                                      Estimated Fund Position
Trends
Short Term: Down                 Net Long Futures and Options: -79884
Long Term: Down                  Change: -3000
Overnight Trade: Chicago: N -2 3/4 KC: N -2 1/4
Opening Calls: 1-3 Lower

Wheat is clearly the weak link. The July KW will test the $6.80 support and scare whatever bulls are in this market. There is just not any reason to be a wheat buyer if the corn and the French wheat aren’t moving higher. Today will be an important technical test for the wheat market. Holding above $6.80 would mean we are going to continue on with the sideways pattern, while a failure would be disastrous.

Soybeans                                 Estimated Fund Position
Trends
Short Term: Up                       Net Long Futures and Options: 150420
Long Term: Up                        Change: -8000
Overnight Trade: N +1 X +3 1/2
Opening Calls: 2-4 Higher

Is a two day correction enough for the soybean market? Probably not. We do have talk about more Chinese buying so we are the end of the correction for the same reasons we are near the end in the corn, but the lack of enthusiasm in the outside markets and the bear spreading overnight suggests we could end up seeing pressure again today. The way to tell when the correction is over is when we shift back to bull spreading the market. When that happens that will be the all clear signal to buy beans.

Live Cattle
Trend
Short Term: Down
Long Term: Down
Opening Calls: Mixed

Live cattle futures closed moderately lower on Tuesday, as fears over world economies seemed to outweigh current fundamentals. Chart patterns are becoming quite negative on deferred contracts. Cutout values strengthened once again, keeping some hope for the bull camp. Overnight activity has been two sided, with mild bull spreading continuing to be a feature. We suggest producers continue to hold a protective until this week’s cash activity is more established.

Feeder Cattle
Trends
Short Term: Down
Long Term: Down
Opening Call: 10-30 Lower

Feeder cattle futures struggled once again on Tuesday, with new lows for the move established across the board. Sharply lower closes in the face of 15 cent losses in the old crop corn futures does not look very supportive. The fact that recent close outs show losses for some cattle feeders at record high fat prices is pulling the string on some of the replacement spending. Feeders are trading lower in overnight trade in spite of further weakness in the corn. The market is becoming oversold, but there is no divergence in the indicators at this point.

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