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

CORN - Corn started off May holding up surprisingly well in spite of the extreme bearishness of outside markets. By the end of the week, everything caught up to it and corn put in its own bearish signals.

Growing fear of how far the economic problems in Europe may spread across the continent brought a stream of sellers into the euro and buyers into the U.S. dollar. The dollar jumped and crude oil crashed and burned, down $11.04 or 12.8 percent to $75.11 per barrel. Trade talk and unconfirmed rumors about possible Chinese buying of U.S. corn provided enough support to limit early week losses, but that changed the closer we got to the weekend. By that time, energy losses were accelerating, soybeans took a hard tumble, and corn found it difficult to stand alone.

On May 6, the Dow fell the most ever in one day, losing almost 1,000 points before bouncing. It plunged over 700 points in just 15 minutes.

All in all, however, corn's losses were relatively small at 3 1/4 cents in the July contract to close at $3.72 and down 6 1/4 cents in the December at $3.86. Cooler temperatures across the northern Corn Belt may slow development, but at this plant stage it should be safe.

Planting progress as of May 2 at 68 percent was a new record. The old record was set in 2004 at 63 percent. Cool, wet planting conditions in China are being monitored as they are a couple of weeks behind in planting, but forecasts look better this coming week. There was talk this past week that China could import as much as 1.5 million metric tons of corn this year. The bushel equivalent of 1.5 mmt is 59 million bushels.

With the current old crop carryout projected at 1.9 billion, even if there is another 59 million in exports, the ending stocks only fall to 1.84 billion bushels. Informa Economics is predicting this year's corn acreage at 89.6 million acres, up 780,000 from the March U.S. Department of Agriculture figure.

The collapsing energy market in combination with comparatively mild corn losses has put pressure on ethanol production margins. The Alliance of Automobile Manufacturers this week released a statement saying that half of the engines that they had tested with E15 had engine problems. Potential problems listed were sensor confusion that may allow engines to overheat and affect catalytic converters, cylinder damage and check lights going on too often. The president of the Renewable Fuels Association said enough information had been gathered for E15 to be approved.

Export sales were excellent this week at nearly 73 million bushels, bringing total sales commitments for the year to 1.6 billion bushels. The number included the 115,000 metric tons that China bought last week, as well as 240,000 mt sold to an unknown and thought to possibly be to China. This is a 9 percent increase over last year while total exports for the year are forecasted by the USDA to be up 2 percent. China also sold 1.22 mmt of their reserve corn again this week with plans to offer another 580,000 mt next week.

OUTLOOK: The losses in stock markets, soybeans and ethanol, in tandem with sharp gains in the U.S. dollar, should begin to take a bigger toll on corn prices with overhanging long-term negative fundamentals. Confirmed corn sales to China and an adverse U.S. weather pattern will be needed to turn the downward direction, but bounces and retracements should be expected periodically until the crop is better established.

FYI: out of the last six years, the high in December corn in the 12 months before expiration occurred three times in June, and once each in April, July and November. The April high was in 2004 when planting records that we broke this year were set.

SOYBEANS - If you ever doubted that we're in a global market, this week was a great example of how world events and economics impact our commodities.

Greece continued to be in the headlines as protesters took to the streets to riot against proposed wage cuts, tax increases, pension freezes, etc. There is spreading concern that the economic woes of Greece will be repeated in other European countries - think Spain, Portugal. This instigated a flight of money out of the euro and into the dollar.

A stronger U.S. dollar usually and did in this case, exert a negative influence on the price of commodities as money exits holding commodities in favor of the dollar. Soybeans also didn't have the demand interest that corn had (from China) this week and price action was dictated by on-going planting progress, the strong U.S. dollar, weaker equity markets and diving energy markets.

Weekly export sales were 10.4 million bushels, bringing sales to 1.375 billion bushels or 15 percent ahead of last year. The USDA is projecting sales to be 12 1/2 percent higher this year versus last year. Sales were expected to have started to fall off as South American supplies became available, but that hasn't occurred to the extent predicted.

There were also 7 million bushels of new crop sold this week. The United States and China are reportedly trying to resolve phytosanitary concerns on soybean oil. China has banned imports of Argentine bean oil due to quality issues and is looking for alternative sources.

Record planting progress in the United States was posted last week at 15 percent complete, breaking the previous record of 12 percent set in 2004. Informa Economics is forecasting this year's planted acreage at 78.5 million acres, 365,000 acres higher than the USDA March report.

And last but not least, at this writing the oil slick in the Gulf of Mexico caused by a rig collapse has not closed vessel traffic in and out of the ports. The Southwest Pass is the main deep water entrance to the Mississippi River. Three leaks are pouring 5,000 barrels per day of crude oil into the Gulf. A dome is being dropped down over two of the leaks in an attempt to control the leaks.

OUTLOOK: With lots of help from outside markets, July soybeans punched through support levels. The low in July beans in April was $9.41 1/2 which will serve as first support, but the $9.30/$9.20 level beckons. Near-term support in the November contract now lies at $9. If we have normal weather, longer term these levels won't be expected to hold. If world economies are perceived to be in more danger than today, those lower prices could come sooner than expected if money exits commodities.

If economic news improves, a weather problem pops us, or we just have a bounce in a bear market, resistance in the July is in the low $9.70s and $9.55 to $9.65 in the November. This week the July soybean contract was down 39 cents to $9.60 and the November was off 41 1/2 cents at $9.34 1/4.

Nystrom's notes: Closing changes this week: July Minneapolis wheat up 4 cents to $5.41 1/2, Chicago up 7 1/2 cents and Kansas City wheat up 6 1/4 cents. Crude oil was down $11.04 at $75.11, heating oil down 23.6 cents, gasoline lost 27.4 cents and natural gas was up 9.5 cents. The Dow was down 661 points as of this writing, gold was up $30.10, and the U.S. dollar index gained 2.85 points to settle at 84.72. The unemployment rate rose from 9.7 percent to 9.9 percent in April. The next USDA monthly supply-demand report will be released May 11, which will include the first estimates for the 2010-11 crop year.

<center>...</center><i>Phyllis Nystrom is a market analyst with Country Hedging in St. Paul.</i>