— The following market analysis is for the week ending Feb. 19.

CORN — A holiday-shortened trading week was highlighted by events late in the week: the U.S. Department of Agriculture Outlook Conference releases and the Federal Reserve making some unexpected interest rate changes.

There were no features early in the week as grain markets pushed higher and set the highs of the week on Monday when the dollar was slipping and funds were buyers, only to trend lower the balance of the week.

The Federal Reserve this week announced they would increase the emergency loan rate or “discount” rate by 0.25 percent to 0.75 percent effective immediately citing improving financial conditions. The length of the loans will revert to overnight effective March 18. They also vowed to keep interest rates at “extraordinary low” levels for an “extended period.” This action pumped up the U.S. dollar to highs not seen since last summer. Prices of commodities in general may be expected to experience some setback as a result.

News from the USDA Outlook Conference wasn’t a major market mover; in part due to the fact most private estimates have bigger acreage ides for 2010-11 and larger carryout forecasts. The USDA is pegging corn acreage for 2010-11 at 89 million acres versus this year’s 86.5 million acres. The average trade projection is near 90 million acres.

For ending stocks, the USDA is predicting 1.654 billion bushels. Informa Economic is expecting 2.266 billion bushels. This compares to the 2009-10 latest USDA carryout estimate of 1.719 billion bushels. Argentina’s Ag Ministry, in their first crop estimate of the year, pegged corn production at 19 million metric tons to 21 mmt. as compared to the USDA’s 17.2 mmt. estimate.

Argentina also will allow another 1.0 mmt. of corn to be exported. This keeps them in competition with the United States for Japanese business. There have already been reports that Japan has bought Brazilian and Argentine corn due to quality concerns about U.S. corn this year.

In automotive news, General Motors said more testing needs to be conducted before the blend cap can be raised from the current 10 percent to guarantee that no long-term negative effects could occur. The fear of liability will keep blenders from increasing the blend until such a time as testing is concluded. The 45-cent per gallon tax credit for ethanol and 54-cent import tax for ethanol expire at the end of the year.

Most believe it will be extended, but probably not without a fight and maybe at lower levels.

Export sales were decent this week at 38.4 million bushels. We are 11 percent ahead of last year on total commitments and need 32.4 million per week to meet the USDA forecast.

OUTLOOK: We will have plenty of corn this year, it’s just a question of the quality and when growers will part with it. Our estimates are that the grower has around 40 percent of old crop corn left to sell and has sold less than 20 percent of new crop. The next possible bullish influence may just be what spring weather turns out to be.

With the heavy snow pack this year, many are already forecasting a wet spring. The first support in the March corn contract is at $3.47 1/2, then $3.15 1/2 (March contract low). Resistance held this week at $3.68 1/4, with secondary resistance at $3.85 1/2. Fundamentals continue to be bearish with outside markets having a modicum of influence.

SOYBEANS — With China on holiday the entire week to celebrate the Lunar New Year and Brazil off for half the week to commemorate Carnival, export sales and news features were quiet this week.

The decision on the $1 tax blend credit has been delayed until spring-summer, keeping biodiesel production unprofitable. The USDA released new balance sheets for soybeans on Feb. 19. They are forecasting 77.0 million planted acres for 2010-11, down 500,000 from this year.

Their ending stocks figure is 330 million bushels as compared to 210 million for this year. Informa Economics is anticipating carryout in beans in 2010-11 at 615 million bushels at this time. Export sales were a marketing year low for the third week in a row at only 7.5 million bushels, with nothing sold to China. We only need 5 million bushels of sales per week to reach the USDA projection. Sales for the year are 33 percent ahead of last year.

OUTLOOK: South American supplies are beginning to hit the market, although no major switches or cancellations were reported this week.

We have heard rumors of China inquiring about a few cancellations for March shipment. Wet areas and rust issues in Brazil have halted talk about the crop in Brazil getting any bigger.

Growers there are thought to be undersold versus previous years. We punched through the $9.55 resistance this week when we hit $9.66 before selling off. We’ll use this week’s high as resistance with $9.18 3/4 as support in the March soybean contract for the coming week.

Nystrom’s notes: Nearby contract changes for the week as of Feb. 19: Minneapolis wheat was up 4 cents, Kansas City wheat up 3 3/4 cents and Chicago wheat up 3 1/4 cents. Crude oil was up $5.68 at $79.81, heating oil up 15 cents, gasoline up 15 1/2 cents and natural gas down 42 1/2 cents. As of late afternoon Feb. 19, the Dow was up 288 points, gold up $31.30 and the U.S. dollar index up 0.30 points. The Chicago Mercantile Exchange will introduce a dried distillers grains contract on the Globex platform beginning April 26.

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