Today’s Spotlight Market
Normally lower prices for feed grains such as Corn are viewed as beneficial for the Livestock sector, however market forces are also weighing on both Hog and Cattle prices of late. Large supplies of both beef and pork have kept prices on the defensive, and while the fundamentals for pork prices are starting to improve, continued weakness in the Cattle market has prevented any meaningfully rallies from occurring. However, with lead-month Live Cattle futures trading at a large discount to cash prices and technical indicators like the 14-day RSI reaching oversold levels, a short-covering rally in Cattle futures may spillover to the Hog market, where the fundamentals are starting to become supportive for a price rally.
Fundamentals
Grain market prices continue to tumble, as the prospects for a record U.S. Corn and Soybean harvest and a rejuvenated U.S. Dollar are helping to support the bearish cause. In fact, many commodity prices are taking it on the chin the past several trading sessions, on what some may argue was a case of buyer?s remorse by large speculative commodity funds.? A look at the most recent Commitment of Traders (COT) report shows non-commercial traders (usually large funds or speculators) were aggressive buyers across a broad spectrum of markets and, in particular, the grains, energies and the major softs like Coffee, Cocoa, and Sugar. The COT report was for the reporting period ending August 23, which was just prior to Fed Chairwomen Janet Yellen?s speech at Jackson Hole, where many market participants interpreted that the Fed may indeed consider an interest rate hike as early as the September Federal Open Market Committee Meeting.?
This possibility, while still remote, has given new life to the ?greenback,? which acts as a weight on commodities that are priced in Dollars, as it makes them more costly for non-dollar buyers. The effects of a strengthening Dollar and potentially record production are a double whammy for the grain markets in the U.S., where export sales are vital for producers. New-crop Soybean prices have fallen over 70 cents the past week and appear set for a test of 1-month lows. Corn prices have fared even worse, with the September contract moving ever closer to the $3 price level. Ironically, it may be the Wheat market, where funds have already been net-short for some time, that may be the signal for a near-tem bottom. While Wheat has drawn little in the way of bullish interest for months, any signs of short-covering buying could be the catalyst for a major low being in place for the entire complex. While we have not yet seen any signs of a bottom for Wheat, traders may wish to remember the old adage that the ?cure for low prices is low prices,? and the grain complex may be in the process of reaching price levels that could spur renewed buying interest, even with a stronger Dollar as a headwind.
Technical Notes? -? View Today’s Chart
Looking at the weekly continuation chart for Chicago Wheat futures, we notice prices plunging to lows not seen since 2006, as psychological support at 400.00 failed to hold. We note that the 14-week RSI is hovering just above the 30 level, which many technicians view as in indicator of oversold market conditions. We do notice very few occasions the past 10 years where the RSI has fallen below 30, and when it did, a short-covering rally was soon to follow. The September 2006 low of 387.50 looks to be the next support level for the lead month December futures, with chart resistance found at the July 2016 high of 451.75.?
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