Published: July 01, 2008 05:59 pm            

Grain Outlook: Lieberman plans to curtail speculation

Originally published in the June 27, 2008, print edition.

The following market analysis is for the week ending June 20.

SOYBEANS — It took soybeans and corn until Thursday to break outside of the trading range established on Monday. July soybeans came close Monday to eclipsing the old high at $15.96, but were unable to get past $15.93. November beans did set a new contract high at $15.66 3/4.

The flooding and speculation over how many acres have been lost were the catalysts for the surge higher as the week began. Later in the week, it felt like traders had had enough of trading high water and began to entertain ideas about how many bean acres may get planted or replanted.

In on-going coverage of index funds and the Commodity Futures Trading Commission, Sen. Joe Lieberman, the head of the Senate Government Affairs Committee, is proposing three different plans to curtail financial speculation in commodity markets.

• Prohibit private and public pension funds with more than $500 in assets from investing in agricultural and energy commodities traded on a U.S. futures exchange, foreign exchange or over the counter derivatives.

• Direct the CFTC to establish total limits on the share of the commodity market held by financial investors.

• Direct the CFTC to impose speculative-position limits on any stakes not related to real hedging activities. This could limit the swap activities of big investment banks. Legislation may be introduced after the Fourth of July recess. Discussions are to be held at a June 24 hearing.

In Argentina, supposedly the president wants Congress to vote yes/no on the proposed export tax increases. Farmers, still believing that the tax is unconstitutional, are hoping for some discussion or debate before a vote. Since the president’s party holds a majority, the tax is likely to be approved.

Brazil is still an attractive market for bean buyers in spite of a spike higher in basis levels.

Soybean exports were 6.3 million bushels this week, bringing total commitments to 101 percent of the U.S. Department of Agriculture’s export forecast. China bought 2,240 metric tons of new crop U.S. beans this week, which will be included on next week’s report.

Corn sales were 13.5 million bushels. Corn’s total commitments are 96 percent of the USDA projection.

OUTLOOK: Most of the growing season in ahead of us and there’s still significant uncertainty about how many acres will be harvested this fall.

For the week, July beans were down 27 1/2 cents and the November contract lost 22 cents. I’ll look for further consolidation ahead of the June 30 acreage report, giving November beans a nice big range of $14.40 to $16.

CORN — Corn was the directional leader this week, higher on Monday, sideways, then lower.

Corn contracts reached new highs Monday with July hitting $7.60, December $7.91 1/2 and July 2009 an all-time high corn price at $8.07, which on the charts is a double top. July corn was down 10 1/2 cents on the week and December corn was 9 1/2 cents lower.

Corn was dealing with the same issues that beans were battling — weather, politics and acreage forecasts. The Informa Economics were discussed in the soybean section. The U.S. dollar staged a rally last week, but this week retraced those gains.

Warmer, drier weather is allowing planting to resume in areas of the Midwest. The next thing to watch for is areas that will welcome a few showers over the next couple of weeks as temperatures rise.

Informa Economics updated their planted acreage estimates on June 20. Due to the extreme weather conditions in June, they made adjustments to their survey estimates. Their new planted numbers are 87.399 million corn acres versus the last USDA estimate of 86.0 million corn acres.

Their soybean acreage forecast is 73.268 million acres versus USDA’s 74.8 million estimate. If they had not taken weather conditions into account, their corn number would have been 88.3 million and the bean number 72.1 million acres.

The USDA has said they will conduct a special survey the week of June 23 in the flood affected states of Illinois, Indiana, Iowa, Minnesota, Missouri and Wisconsin to determine how much of the planted area will actually get harvested. They will use the new information for their June 30 Planted Acreage report.

Ethanol spot board crush margins improved from a negative 32 cents to a positive 24 cents in two weeks as ethanol prices recovered.

OUTLOOK: The charts may be beginning to look a little toppy and seasonals would confirm that. However, with this year’s uncertainty about acres, I would look for consolidation before the USDA acreage report. December corn’s range may be pegged from $6.80 to $8.

Nystrom’s notes: The June acreage report will be released June 30. New highs in energy this week with crude hitting $139.89, gasoline $3.5762 and natural gas $13.350.

        

• Click to discuss this story with other readers on our forums.