Grain Outlook: Trading ranges cause whiplash

Originally published in the November 13, 2009, print edition.

— The following market analysis is for the week ending Nov. 6.

CORN — Money, money, money!

I hope everyone has recovered from the whiplash of prices this week. Last week December corn was down nearly 32 cents. While corn was up only a penny for the week, it traded a huge range from $3.59 1/4 to $3.98 3/4. This week’s fund-buying activity rocketed prices higher for the first two days of the month before reversing to the downside at mid-week.

While fundamentalists will point to a drier week that allowed harvest to progress, the real instigator for the sharp rally to begin the new month was money. The beginning of a fresh month seemed to flip the switch on the river of money that was poised to buy, buy, buy commodities — and buy they did. Gold hit an all-time high of $1,101.90 per ounce.

Earlier in the week India bought 200 tons of gold from the International Monetary Fund (about half of what they were looking to sell). Is India tired of holding U.S. dollars? And when they were done buying, they turned sellers.

The direction of the dollar was in tandem with grains and energies this week, which doesn’t normally occur. The dollar found support at 75. The October unemployment rate hit 10.2 percent on Friday, above the 9.9 percent estimate. The payroll number also fell more than expected, down 190,000 versus a 175,000 decline expected. This is the highest unemployment figure since April 1983.

Fundamental factors were at play during this the week also. Early weather forecasts were predicting a rain system for Nov. 9-10, but by the end of the week the forecasts were coming in warmer and drier. Harvest progress for Nov. 9 is expected to reach 35 percent versus only 25 percent last week. Grower selling has remained fairly quiet with so little of harvest complete. What is coming in is going on contract or into storage.

How well this corn crop will keep will be an issue the market will have to deal with down the road. Quality problems may force corn to move earlier than usual from piles and storage. If so, what will be left for late summer needs? Basis levels began to decline this week around the country as harvest moved forward.

Weekly export sales were neutral this week at 22 million bushels. We need nearly 37 million bushels per week in sales to meet the 2.15 billion bushel U.S. Department of Agriculture target. The USDA is projecting a 16 percent increase in exports this year and we are only 5 percent ahead of last year thus far. Adding salt to the wound, Argentina issued export licenses for 3.0 million metric tons of corn this week to be used in the coming year. Israel also bought Black Sea corn and feed wheat citing high U.S. prices.

OUTLOOK: We should finally get into full-fledged corn harvest this week. I would expect prices to respond in search of support near $3.60, then $3.50. Resistance begins at $3.85 and every nickel above. The USDA will release the November crop report on the 10th. The average trade guess is 163.194 bushels per acre, crop at 12.94 billion bushels. The October USDA numbers were 164.2 bu./acre and 13.018 billion bushels.

SOYBEANS — Beans moved in the same direction as corn, and for the same reasons, but the magnitude was much larger. January soybeans were down 21 1/2 cents this week and closed at the week’s low of $9.55. It traded as high at $10.22 1/2 early in the week. Fund buying and another rain system in the forecast drove prices sharply higher early in the week. Mid-week saw the funds switch sides and forecasts turn warmer and drier which pushed prices to give back all of the gains and then some.

Bean harvest is estimated to hit at least 75 percent complete in the United States by Nov. 9, up from 51 percent complete last week. Basis levels and spreads both weakened throughout the week with a clear weather picture and drier beans getting delivered locally on contract.

Weekly export sales at 19 million bushels were on the low side of expectations, with China accounting for 56 percent of the sales. Sales commitments to China stand at 14.2 mmt, almost double what they were last year at this time. They added to that total on Friday, purchasing 356 mmt for December/January as basis levels retreated. Total export commitments are 55 percent ahead of last year when the USDA is only forecasting a 2 percent increase this year. Our sales should begin to wane as the South American crop size becomes better defined.

The average trade estimate for the Nov. 10 USDA crop report is 42.654 bu./acre and a crop of 3.262 billion bushels. In October, the USDA was using 42.4 bu./acre and 3.250 billion bushels. Production estimates for Brazil were issued by two government arms, Conab (National Commodities Supply Corp.) estimates 62.5-63.6 mmt, and IBGE (the Ag survey group) published 63.7 mmt. Although no new estimates were released for Argentina, dryness in the western area is being watched.

OUTLOOK: Chart support in the January soybean contract is near Friday’s close at $9.53 (200-day moving average), then $9.40, with first resistance at $9.88. If the USDA shows a surprisingly high bean yield, don’t rule out revisiting the $9 area. If the report is neutral, we could spend some time between $9 and $10.25.

Nystrom’s notes: The next USDA supply/demand report will be released on Nov. 10. Berkshire Hathaway bought the remaining 77 percent of the BNSF Railroad that they didn’t own for $100/share.

Changes for the week: December corn up a penny at $3.67, January soybeans down 21 1/2 cents at $9.55, Minneapolis December wheat up 5 1/2 cents at $5.18 1/4, Kansas City December wheat up 4 cents at $5.01, Chicago December wheat up 3 cents at $4.97 1/4, crude oil up 43 cents at $77.43, heating oil nearly unchanged at $235, gasoline down 3 1/2 cents at $1.9243, and natural gas down 45 cents at $4.595.

As of 2 p.m., for the week the U.S. dollar index was down 0.50 at 75.80, gold (it hit an all-time high of $1,101.90) up $54.90 at $1,095.30, and the Dow up 303 points at 10,016. December live cattle were down 67 cents at $85, feeder cattle down 15 at $94.65, lean hogs down $1 at $55.70, and milk down 18 cents at $14.69.

Phyllis Nystrom is a market analyst with Country Hedging in St. Paul.