Published: March 13, 2008 11:30 am            

Grain Outlook: Edible oil market plummets

Originally published in the March 14, 2008, print edition.

The following market analysis is for the week ending March 7.

SOYBEANS — The soybean market underwent a sharp correction this week as the world edible oil market saw severe setbacks.

China announced that they would release edible oil from their stockpile into their domestic market to combat food inflation-high prices. Rumors surfaced that China had canceled three soyoil cargoes during the week. The result was a plummet in both palm oil and soybean oil prices.

In addition, China stated they would increase soybean plantings this year to make up for the shortfall of their rapeseed crop. Malaysian palm oil lost 17 percent of their value for the week. U.S. soybean oil prices fell 5 1/2 cents per pound or 8 percent of their value.

Since soybeans are only worth what you can make out of them, July soybeans traded from a new all-time soybean high of $15.96 on Monday to a low for the week Friday when beans locked limit down at $14.21. March 2008, which is in delivery and thus no limits, traded a range of $15.70 to $13.41 this week.

Soybeans closed lower for the week for the first time in six weeks. The technical key reversal lower on the weekly chart is a bearish indicator which may lead the market to feed on itself for a few more sessions.

Talk in the trade late in the week included reports that a couple of hedge funds missed margin calls in the mortgage bond market this week. This led to whispers that money could be pulled from some commodities.

Exports this week were only one-third of last week at 7.4 million bushels. Correspondingly, China’s purchases were a dismal half million bushels. Total sales for this marketing year at 950 million bushels are still 1 percent ahead of last year. Soyoil sales at 6,800 tons were less than one-quarter of the previous week; however, total oil sales for the year are over double last year.

The new crop corn-bean ratio started out the week at 2.52 and ended the week at 2.34. This indicates the market may believe that additional acres are being pulled into soybeans at the expense of corn acres. We’ll know soon.

OUTLOOK: The winds of change hit the soy complex this week as Chinese buying evaporated. The old saying that “high prices cure high prices” is ringing true in many traders’ ears as I write.

However, China is expected to return to the soy arena before the crop year is out. This, and the fact we have a full growing season ahead of us, does not rule out the possibility for higher prices before this crop is in the bin.

CORN — Corn followed soybeans’ lead, setting a record all-time high early in the week at $5.95 (July 2009 contract) to locking limit down as we headed into the weekend.

July corn for the week was only down 9 1/2 cents, but they traded a range of 27 1/2 cents. December corn was only down 5 1/2 cents on the week, but traded a range of 25 3/4 cents. The July and December contracts closed lower on the weekly chart for the first time in six weeks.

Export sales at 25.5 million bushels were on par with last week’s sales. Total sales for the year continue to run nearly 30 percent ahead of last year.

The Federal Crop Insurance set their 2008 crop year bases prices for the Crop Revenue Coverage and Revenue Assurance program at: soybeans, $13.36; corn, $5.40 and spring wheat, $11.11.

The monthly U.S. Department of Agriculture crop report will be issued March 11 and is expected to show a small increase in the corn ending stocks by reducing the ethanol usage category. The soybean balance sheet is anticipated to shrink due to growing exports and crush lines. In the new crop vein, the new crop corn-bean ratio saw a big move (see above comments).

OUTLOOK: We have stated several times that the market will tell us when it’s done. This week’s action may be sending us that signal, at least for the time being. We have not traded any weather threats yet.

The charts are resting precariously on support levels and the five and 10-year seasonal charts show a tendency for prices to break lower in March before staging a rally into early April. This corresponds with producers heading to the fields and planting conditions becoming headlines.

Based on what we currently observe, we could be in for the same type of direction for the next few weeks as we have seen in the past. We’ll look for a continued correction before focusing on planting conditions.

Nystrom’s notes: Minneapolis March wheat, which is in delivery, is down an even $9 from its $25 high set on Feb. 25. Crude oil traded to a record high level of $106.54 per barrel this week on a bullish stocks report, the U.S. dollar faded and rumblings of another 0.5 percent interest rate cut may be in the works circulated.

        

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