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Published February 21, 2012, 02:49 PM

China buys US corn

Cattle and grain markets ended last week near the highs for the week. Perhaps some traders thought the grains would see weakness ahead of a three-day weekend, but the story was different.

Cattle and grain markets ended last week near the highs for the week. Perhaps some traders thought the grains would see weakness ahead of a three-day weekend, but the story was different. Cash markets for corn along the Mississippi River and in the western Corn Belt added support to the market on Feb. 17.

More importantly, traders were predicting that China would not buy more corn until April/June. The Pacific Northwest line-ups, however, continued to show corn vessels declared for China, raising a question about the size of China’s crop and overall demand after a good short-covering rally on Feb. 16.

The recent rally in corn, along with the continued rally in feeder cattle caused feeding spreads to remain on the defensive, even though fats rallied strongly on Feb. 17. The June board crush settled off $3.40 at $110.73 per head. August feeders have reached some long-awaited price targets and producers are bullish. I think it’s time hedgers start placing hedges and locking up some of these profits. Is this like $8 corn?

On May 24, the price of August feeders was at $120.45. Prices have increased in just nine months to the tune of $43-plus. Talk of tight supplies in Colorado gave some a reason to expect more. Still, a client that raises feeders in Nevada says demand for his cattle has slowed. Could the rally we are seeing now be a top being formed? Certainly feels frothy enough.

What could cause a crack in this market? I talked with someone who I value for insight. The main focus of the conversation was to check my timing in March. There is some timing around March 22, but this individual had an email about an announcement that might be made on March 23. Note, we have heard in the past that Greece might need an orderly default. An orderly default would mean banks, Wall Street and the powers that be are already in the planning stages. When the announcement comes everything will have been laid in place. When that happens, foreign money rushes to the U.S. dollar for safety. The dollar rallies and helps the price of grain (cattle) to fall. I am told that Wall Street will not take any euros at that time. Does the stock market peak? Rest assured there should be some volatility. Through this process, will bonds move higher? I would be watching the timing in March.

However, a Greek default and demise of the euro could play havoc with the markets and if this is true, it would lay the groundwork for the break in grains. This latest rumor and the weather forecast I am picking up plays well into my yearly highs-lows outlook and timing.

Soybeans pushed for new highs Feb. 17, and now have the October highs in sight. Basis the March soybeans, the October high was $12.90. Firm cash markets both in Brazil and the U.S. is supporting the sell-offs in this market. Notice how quiet this market gets many times on the break.

The recent rally in soybeans has been outpacing the products and keeping the board crush under pressure. An ABC Fibonacci projection is near $12.90¼, which was also the October high. My floater and timing indicators in percent are becoming rich, but no indication of a negative turn.

Sue Martin of Ag & Investment Services Inc. in Webster City, Iowa, can be reached at 800-527-0051, email ag_invst@wmtel.net. This publication is strictly the opinion of its writer and is intended solely for informative purposes and is not to be construed, under any circumstances as an offer to sell or a solicitation to buy or trade any commodities or securities herein named. Futures and optioning involves substantial risk of loss and may not be suitable for everyone.

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