Published: August 01, 2008 11:23 am            

Grain Outlook: Speculation affect may be moot

Originally published in the July 25, 2008, print edition.

The following market analysis is for the week ending July 18.

CORN — I take a couple of weeks off and we’re in a new environment of sharply lower prices. I guess I should take up a collection from those who want to keep me at my desk.

Looking back over the past few weeks, all you have to do to understand why we are trading over $1.20 lower in December corn is look out the window. The one question to ask yourself daily is, “Is the crop getting bigger or smaller?” The crop in general has been improving with sunnier days and timely rainfall.

On the technical side, December corn finished the week under a bearish cloud and below the 100-day moving average. It had not traded under this average since last fall. December corn tumbled 80 3/4 cents on the week and are down $1.28 1/2 since the beginning of the month.

It felt like we went back to trading fundamentals this week in the grain markets. There were no new developments from the Commodity Futures Trading Commission concerning index and speculator trading, although it was a relief to energy traders that margins were not pushed to 50 percent of contract value.

The rally in the stock market attracted money out of commodities in general this week. The exodus of money from commodities was especially noted in crude as it crashed $16.20 per barrel this week. If this continues, the issue of how index money “speculation” affected the markets may become a moot issue sooner than later.

The next weather issue may be not enough moisture going into pollination. The areas that receive a shot of rain before the midsummer temperatures arrive should be in decent shape. On the last U.S. Department of Agriculture report July 11, a yield of 148.4 bushels per acre was used. The trade is now writing in a number closer to 150 bu./acre. Before the wet spring arrived, the USDA was pegging 153.9 bu./acre.

OUTLOOK: Looking out various windows and at charts, unless the weather turns hot and dry, it’s hard to build a case to jump back to new highs. Remember that perception is reality in many cases, and as long as the crop condition is perceived to be improving (or not getting worse), that will be the reality of traders.

Also, keep an eye on the crude oil and stock markets for insight as to where the money is flowing. The next major area of support in December corn is $6.00. Once we get past pollination, be ready for the frost talk to start.

SOYBEANS — Beans took to the downside this week, falling $1.48 in the November contract. Beans were influenced by the same weather as corn, but demand was able to limit the percentage of losses. However, new developments in Argentina on Friday sent beans flying lower.

On Thursday, the Argentine Senate tied on a vote of whether or not to approve the sliding scale export tax that prompted farmer strikes and slowed any soybean movement to a crawl. It was thought that the President had enough of her own party on her side to pass the bill, but some Senators defected and voted against the bill because they were worried their constituencies (farmer base) would remember come the next election. The Vice President belongs to different political party than the President and cast the tie-breaking vote, defeating the bill.

On Friday, the Argentine government repealed the controversial export tax and returned to the fixed rates that were in effect before the executive order. This sent soybean prices plummeting on fears we’ll begin to see export sales switched back to Argentina and supports ideas they will increase bean acres next year.

Before the announcement from Argentina, there was talk in the trade that China was buying both soybeans and soyoil to build up their grain reserves. The business reportedly was being split between South America and the United States.

OUTLOOK: Watch for any export sales switching from the United States to Argentina as they begin the process of getting back to normal trading routines. Weather will continue to be a headline as usual, especially as we head into the critical bean month of August. The next major support level in November beans is the 100-day moving average at $13.59. We could still see some recovery, but it will probably take Mother Nature to start it.

Other observations: Crude oil traded from a high of $146.23 to a low of $128.23 this week, settling down $16.20 on the week. Refined products fell around 39 cents per gallon. The stock market gained roughly 380 points this week. The Chicago Mercantile Exchange is working with the CFTC to figure out why and how to fix the lack of convergence in the wheat delivery process. The Consumer Price Index for June posted a 1.1 percent gain, the biggest monthly increase since June 1982. Year to date the CPI is up 5 percent.

        

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