Fund liquidation seems to be depressing the commodity markets. Broad fund selling, possibly forced by investor liquidations, depressed most commodities Tuesday. Investors and money managers probably worry about an energy-led deflationary environment. They may be right, but lower energy costs may substantially boost consumer buying in the short term. Corn losses are seemingly being exaggerated by yesterday’s drop below intermediate-term moving averages. March corn futures fell 5.25 cents to $3.805/bushel Tuesday night, while July lost 4.75 to $3.955.

The soy complex is also trading mostly lower. As in the grain markets, widespread fund liquidation is apparently weighing on the soybean and product markets. The bean and meal losses at least partially reflect the prospect of huge South American crops during the coming weeks, but deflationary concerns and fund liquidation are clearly added to the pressure. Suggestions of crude oil support seemingly boosted soyoil prices slightly. March soybean futures tumbled 7.25 cents to $9.9675/bushel early Wednesday morning, while March soyoil inched up 0.02 cents to 32.56 cents/pound, and March meal slid $2.7 to $330.9/ton.

The wheat markets also continued declining Tuesday night. Little news concerning wheat emerged overnight, so traders had little reason to deviate from the bearish line. Neither fundamental nor technical factors appear supportive at this juncture. Overnight U.S. dollar slippage seemed too small to matter. March CBOT wheat dropped 7.75 cents to $5.4025/bushel in pre-dawn Wednesday action, while March KC wheat slumped 5.5 cents to $5.7625/bushel, and March MWE wheat sank 7.5 to $5.81.

Cattle futures broke down once again Tuesday. Persistent beef gains again supported cattle futures in early Tuesday trading, but the tide turned bearish soon thereafter and swamped the market by the end of the day. Traders cited active fund selling for the drop. We believe commodity traders expect a deflationary commodity environment in the wake of the recent energy sector breakdown. We tend to expect a weak opening this morning. February live cattle futures crashed the 3.0-cent daily limit to 157.45 cents/pound at Tuesday’s CME settlement, while the April contract plummeted 2.95 cents to 156.40. January feeder cattle futures plunged 1.85 cents to 221.55 cents/pound, and March feeders tanked 2.37 cents to 210.92.

Hog futures were caught in Tuesday’s downdraft. CME hog prices resumed their recent decline soon after yesterday’s opening, and remained weak through much of the day. Traders were apparently looking for persistent cash losses, particularly as deflationary psychology dominated the commodity markets. Mixed midday pork quotes did little to discourage bears. However, afternoon news of sizeable pork gains seemingly bode well for today. February hog futures ended Tuesday having fallen 1.47 cents to 75.17 cents/pound, while June hogs dropped 0.92 cents to 86.57.