Published: September 23, 2008 01:56 pm            

Grain Outlook: Economic news spills over to ag

Originally published in the Sept. 26, 2008, print edition.

The following market analysis is for the week ending Sept. 19.

CORN — The biggest news this week centered on the economy and financial markets, which definitely has a carryover influence into the agriculture sector.

We saw history being made this week with Lehman Brothers declaring bankruptcy, Bank of America buying Merrill Lynch, American Insurance Group being shored up by the U.S. government, and Morgan Stanley apparently in talks with Wachovia Corp.

The largest ethanol producer by capacity in the United States also reported that they will see losses of between $63 million and $103 million in the third quarter due to poor corn positioning. The crude oil market dropped to its lowest level since February, touching $90.51 or 38 percent off the $147.27 high set in July, before rebounding to $104.

Corn was able to make a jump higher on Monday, and then spent the balance of week trading a wide, mostly lower range. For the week, the December corn contract lost 21 cents and settled just under the five-day moving average resistance line. Open interest fell this week which implied that long position holders were liquidating positions.

The Dow Jones Industrial Average, after plummeting as much as 826 points from last Friday’s close at one point this week, was only 34 points lower for the week.

The U.S. House this week passed legislation that would place limits on speculators in the energy and agriculture markets. The Senate must approve the bill, but the White House is expected to exercise a veto. The government announced they would guarantee money market mutual funds and banned shorting almost 800 stocks until at least Oct. 2 to help stabilize markets.

Argentina this week halted corn export registrations in an attempt to re-evaluate domestic supplies. Talk in the trade is that they may not come back into the export market until after the first of the year, but ample supplies in Brazil will minimize the impact.

U.S. exports this week were slow, but in line with projections at 12.8 million bushels. Total export commitments are 34 percent less than last year at this time when total exports are only projected to fall 18 percent. The weakness in the Brazilian real has made their corn competitive with U.S. supplies.

The 2009 corn-bean ratio has narrowed to 1.95. This level of ratio would promote additional corn acres at the expense of soybeans. This ratio should impact spreads and cause 2009 corn prices to lose ground to 2010.

In addition, Informa Economics released their initial 2009 crop acreage estimate at 90.5 million acres, up 3.5 million acres from 2008.

OUTLOOK: The August low in December corn at $5.04 1/2 stands as support, with resistance at $5.85 to $6. We’ll be watching future developments in the financial sector, as well as weather and demand, for the next market-driving headline. For the moment, frost is off the radar.

SOYBEANS — Beans did not fare as well as corn this week with the November contract falling 58 1/2 cents on the week and settling slightly higher than short-term resistance.

The turmoil in the financial markets surrounding the economy was a major contributor to the overall commodity weakness.

Weather this week was bearish with any frost concerns put on the back burner. Soybeans were able to bounce back slightly going into the weekend on improving financial headlines. Early harvest reports out of the South include more damage than anticipated after wet weather.

Crop adviser Michael Cordonnier last week lowered his U.S. soybean yield to 39.0 bushels per acre versus the U.S. Department of Agriculture’s last forecast of 39.5 bu./acre. He is projecting the U.S. corn yield at 150.0 bu./acre versus USDA’s 152.3 bu./acre.

Bean basis collapsed this week as harvest begins and end-users are going hand to mouth. Exports were at the lower end of expectations at just over 15 million bushels. This brings total export commitments to almost 344 million bushels or 9 percent ahead of last year. Exports are projected to be down 13 percent this year.

While U.S. soybean production may be perceived to be shrinking, the demand side of the equation is also suspect. In the end it may be a wash, but daily volatility in the meantime may be wild.

Informa Economics issued their preliminary 2009 soybean acreage forecast at 73.1 million acres, down 1.7 million from this year.

OUTLOOK: The $11 level will suffice as the first support, then $10.50. Resistance is at $12.30, but if an unexpected freeze occurs that will move to $13. We’ll also keep an eye on crude oil and its extended influence on soybean oil and in turn soybeans.

Nystrom’s notes: Crude oil traded to its lowest level since February, hitting $90.51, but rallied back to $104 as the financial news leveled off at the end of the week. Gasoline inventories were reported at record low levels. For the week, crude oil was up $3.37, heating oil down 4 cents, and gasoline down 17 cents.

        

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