What Should We Expect On Fed Day Wednesday?

• Despite demands being made by the US president, the Fed fund futures forward curve continues to indicate no rate cuts are expected by the US Federal Reserve until its May meeting. 

• US cattle markets continued to soar Tuesday on strong commercial buying tied to cash markets. 

• Corn saw renewed buying interest overnight, enough to take contracts above their nearest round numbers. 

Morning Summary: What should we expect with markets today? First and foremost, we have to keep in mind it is Fed Day, meaning the January meeting of the US Federal Open Market Committee concludes with an announcement on interest rates by Chairman Powell at 14:00 (ET). As discussed in Wednesday’s Chart of the Day, the Fed fund futures forward curve is showing the market is not expecting a rate cut until the May meeting, despite the demand of the US president for immediate action. Speaking of which, we should also expect Wednesday to be filled with chaos similar to what was seen Tuesday, so the spotlight stays on the White House rather than other government business. Given this, look for precious metals to find renewed buying interest regardless of what the Fed says. We also have to keep in mind Wednesday is the first day of the new positioning week for Watson, something that can easily be overlooked given the current hurricane-like environment. As for markets, with all that was going on Tuesday afternoon I didn’t mention the incredible rally in the Livestock sector. February live cattle (LEG25) closed at $208.55, up $2.875 (1.4%) while April was $3.45 (1.7%) higher and gained $0.30 on June meaning solid support from both commercial and noncommercial traders. 

Corn: The corn market was in the green for much of the overnight session on an uptick in trade volume. March (ZCH25) posted a 6.25-cent trading range, with all but 0.25 cent at unchanged or better, while registering 28,200 contracts changing hands. Lost in all of Tuesday’s hubbub was commercial activity. The March-May futures spread closed at a carry of 10.75 cents, taking out its previous low daily closes of 10.25 cents carry from January 13 and 14. Additionally, the May-July futures spread closed at a carry of 2.25 cents as compared to Monday’s 1.5 cents carry and last Friday’s settlement of 1.0 cent carry. After the dust had settled and the furor had died down, the National Corn Index came in near $4.5275, up 3.25 cents from Monday’s figure. This kept national average basis at 32.5 cents under March futures, an interesting development given all the activity in the futures market. The first two days of this week have seen new export sales of corn announced, 139,000 mt to Mexico (Monday) and 132,000 mt to South Korea (Tuesday), putting a spotlight on if Wednesday can pull off a trifecta. Technically, March corn poked its head back above $4.90 overnight while both May and July reached above $5.00 through the pre-dawn hours. 

Soybeans: The soybean market was quietly higher, and when I say “quietly” I mean you could’ve heard a pin drop during the overnight session. Remember, China is now in its weeklong New Year holiday so a lack of activity in soybeans is expected. Still, March (ZSH25) posted a 9.25-cent trading range, from down 1.0 cent to up 8.75 cents on trade volume – are you ready for this? – of only 10,300 contracts. Again, this is a good indication the world’s largest buyer isn’t playing at this time. That being said, it’s still possible for some export sales to be made because after all business is business and global markets never take a holiday. There is always something happening somewhere. Tuesday evening saw the National Soybean Index calculated at $9.8250, down roughly 0.75 cent from Monday after the March futures contract slipped late to close unchanged for the day. This put national average basis at 62.5 cents under March futures as compared to last Friday’s final figure of 62.25 cents under and the previous 5-year low weekly close for this week of 53.75 cents under March. The bottom line is national average basis has weakened while Watson moved to a net-long futures position. 

Wheat: The wheat sub-sector was also in the green to start the day with all three markets showing quiet gains. This time around the clock, Kansas City (HRW) (KEH25) led the way as the March issue was sitting with a gain of 5.5 cents after rallying as much as 8.0 cents overnight. However, trade volume was less than 3,000 contracts through early Wednesday morning meaning it wouldn’t take much in the way of sell orders to knock this house of cards down. Fundamentally the market remains bearish with the National Price Index calculated near $5.0275 Tuesday evening putting national average basis at 58.25 cents under March futures as compared to the previous 5-year low weekly close for this week of 54.75 cents under March. Over in Chicago the nearby issue (ZWH25) rallied as much as 5.75 cents on trade volume of less than 7,000 contracts and was sitting 3.25 cents higher at this writing. It’s interesting to note the March-May futures spread has seen its carry weaken so far this week, though I don’t think it means what we usually read into such a move. We’ll see how this plays out. Maybe there has been an uptick in demand given national average basis has firmed slightly the past couple weeks.