Published: May 06, 2008 10:03 am            

Grain Outlook: Planting delays bearish for beans

Originally published in the May 9, 2008, print edition.

The following market analysis is for the week ending May 2.

SOYBEANS — For the week, July beans were down 32 1/2 cents while November beans only lost 3 1/2 cents.

The weather conditions that have led to delayed corn planting have been slightly bearish to beans. If the corn can’t get planted, beans acres may increase or may not drop as much as had been previously talked about.

On-going developments in the Argentina situation have had old crop beans on a roller coaster. Early in the week, there were indications that two or three soybean vessels' destinations had been switched from the United States to Argentina and prices plummeted.

By mid-week, the chief of staff in Argentina had resigned. He had been a lead negotiator with the farmer unions and this was viewed as a setback to the talks and prices charged higher. But the Argentine President did not accept his resignation and he went back to the bargaining table and prices rolled lower.

The bottom line is that it looks like they are closer to an agreement than they were at the beginning of the week. Wheat and beef exports will reportedly resume soon. The soybean export tax is still on the table. A compromise at 40 percent (which farmers can supposedly live with) versus the 45 percent that started all this hoopla may be the deal maker.

As of May 2, the strike is back on, but no blockades are planned and more meetings with the government are already scheduled for the week of May 5.

U.S. export basis levels were down roughly 15 cents this week while domestic values were firmer.

The U.S. dollar jumped higher this week, trading to seven-week highs versus the euro. This, and a bearish energy inventory report, precipitated a general sell-off in the energy sector. Crude oil traded lower for three consecutive days for the first time this year before profit taking trading recouped some of the losses before the weekend. Energies are often a barometer of fund and general market sentiment.

The Federal Reserve cut the interest rate as expected by 0.25 percent to 2 percent at their meeting. Popular consensus was that their verbiage confirmed expectations that this will be the last rate cut for awhile. Inflow of money into commodities was notably absent when the calendar flipped to a new month according to floor sources.

Exports this week were within pre-report estimates at 11.4 million bushels for old crop and 2.4 million bushels for new crop. Old crop commitments stand at 1.06 billion bushels versus the U.S. Department of Agriculture projection for 1.075 billion bushels. However, this number is subject to change if bean cargoes get switched back to Argentina.

Soybean planting was 2 percent complete as of April 27 versus 5 percent on average. The average for May 4 is 13 percent.

OUTLOOK: A well-respected market analyst/consultant stated this week that the commodity bubble had finally burst — at least in the near term.

If money begins to pull away from commodities as a hedge against inflation, the downside for commodities overall could be significant. Keep an eye on the dollar and money flows in/out of commodities in general.

In April, July beans were 99 cents higher and November beans were $1.36 higher. First support in the July bean contract is near $12.20, then $12; resistance at $13.25, then $13.70. With November’s tendency to trade lower in May, first resistance is $12.45 to $12.50, support $11.25 to $10.87.

CORN — Wet conditions, wet forecasts and delayed plantings pulled prices higher throughout the week. The December contract set a new contract high at $6.41 1/4. Corn planting was only 10 percent complete as of April 17, 25 percent behind the five-year average and the third slowest in recent history.

While planters were going this week, we’re not expecting planting progress to catch up to the average this week. Pre-report estimates for May 4 are 25 to 30 percent complete versus the average of 59 percent.

In recent history, there were five years when corn planting was less than 10 percent complete by April 27. In four of those five years corn acres declined from the March to June reports: 1991: down 200,000 acres, 1993: down 2.2 million acres, 1995: down 3.3 million acres and 1999: down 600,000 acres. Corn planters will keep running since the new crop corn-bean ratio is 2.01.

Ethanol mandates are attracting attention. After the Texas governor and a Texas senator called for freezes or cutbacks to the mandates, comments from other elected officials indicated their concern on what effect the mandates were having on global food prices.

The USDA’s chief economist Joseph Glauber, in testimony before a congressional hearing, laid the blame for high food prices at the feet of the ethanol industry. Talk is circulating that the Senate Majority Leader may want to re-evaluate the energy bill. I don’t believe we’ve seen the last of these dialogues, especially if commodity prices continue to rise.

Keep in mind that this is an election year and not many would want to stand out on this issue. The latest version of the farm bill includes a drop from 51 cents to 45 cents per gallon in the blenders credit. Mandates or not, if it’s profitable to produce ethanol, it will get made.

February ethanol production was up 39 percent versus last year at 631 million gallons. Halfway through the marketing year, ethanol production is 37 percent higher than last year. The USDA has projected a 46 percent increase for the year.

Exports were respectable at 21.7 million bushels of old crop and 1.8 million of new crop. Old crop sales commitments grew to 2.212 billion bushels or 88.5 percent of the USDA forecast.

Egg sets were on 98 percent of last year and chick placements 99 percent of last year as the five-week slide continues.

OUTLOOK: Weather is the key. For the month of April, July corn gained 30 1/4 cents and December corn gained 47 1/4 cents. The July 2009 corn contract traded at the highest level of all-time high any corn contract at $6.59 this week.

Closer to home, first resistance in the July contract is $6.25, then $6.50; December, $6.50, then $7.

Nystrom Notes: The June crude oil contract rose to another all-time high of $119.93 this week. The Senate approved a two-week extension for a new farm bill. The White House is expected to approve it. The May USDA Supply-Demand monthly report on May 9 will include the first balance sheet for the 2008-09 crop year.

        

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