By Eric Dutram
U.S. markets started the day on a high note only to finish much closer to the breakeven level as traders digested testimony from Fed Chairman Ben Bernanke. In his report, the chairman suggested that another round of stimulative measures wasn’t completely out of the question and that more "untested" methods may be used to bring the economic growth rate back up. Utilities were one of the losers on the day while traders continued to push into the basic materials and services sector as strong prices for natural resources and hopes for more easing carried the riskier sectors higher on the day. International markets also did pretty well to open up Wednesday trading, as the Shanghai Index gained 1.5% and India’s Sensex added 1.0%. Europe also had a solid day as cooling fears over the Italian situation allowed the main exchange in the country to add nearly 1.8%, beating its northern counterparts which were led by the main German index, which rose by 1.3%. While the talk of more easing may have boosted equities, it led to a minor plunge in the dollar, creating large headwinds for most commodities. All four of the major commodity indexes gained on the day, spurred by a nearly 1.5% loss in the U.S. dollar index during Wednesday trading as the euro added nearly 1.8 cents against the greenback.
One of the biggest winners in the commodity world was in the Chicago grain trade as futures for the staple crop soared higher by 6.3% in Wednesday trading. Today’s gains came thanks to a USDA crop report which declared that world wheat production would fall by 1.9 tonnes to 662.4 million tonnes this year. The biggest cause for the decrease came from poor weather in Canada as the crop estimate for that important wheat exporting country was slashed by 3.5 million tonnes, forcing other nations to make up the difference and helping wheat producers across the border in the U.S. see higher prices as a result of the news. Additionally, some traders felt that declining worries over Spain and Italy also helped to boost prices for the staple grain during Wednesday’s trading. ”Risk assets, including grain markets, rallied as European sovereign concerns eased,” said Luke Mathews of CBA. As a result, September delivery of Chicago wheat saw prices rise by 42 cents a bushel on the day, putting the contract close to the $7.15/bu. level to close Wednesday trading.
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One of the biggest losers in the commodity world was in the cattle feeder futures market as front month contracts lost close to 1.5% on the day. Today’s losses came thanks to continued strength in the corn market which is threatening to increase costs for this class of livestock. Feeder cattle are young steers that are less than two years old and, according to CME contract specifications, are between 650 and 849 pounds. Since these cattle are fed enough grain over the next half year period in order to put on roughly 500 pounds, higher corn prices can raise input costs and lessen the appeal of this form of livestock in the near term. With hot weather threatening to limit the crop this year, investors could see lower demand for feeder cattle, potentially pushing front month futures contracts further below the key 140 level.
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Disclosure: No positions at time of writing.