The following market analysis is for the week ending March 20.
CORN — It looked as if the grain market was ready to retrace a portion of the previous week’s gains; until the announcement by the Federal Reserve that they would purchase $300 billion of long-term Treasuries over the next six months and raise the ceiling on purchases of mortgage-backed bonds from $500 billion to $1.25 trillion.
The short explanation of what the Fed has done is to print $1 trillion more dollars. More dollars caused the U.S. dollar to plummet. The weaker dollar led to buying of physical commodities as a hedge against expected inflation. Buying of commodities pushed up commodity prices across the spectrum. The 10-year T-bills dropped to 22-year lows.
Fundamentals have been temporarily thrown out the window. If the market’s perception is that this “fix” won’t work, look for an easing back of prices. However, a rising tide raises all boats, and grains will be heavily influenced by the outside markets until we see the March 31 U.S. Department of Agriculture Acreage Report. This week the Dow was up 54 points and the U.S. dollar index was down 3.61 points.
The sale of all the VeraSun facilities was announced this week. Valero, the largest oil U.S. refiner, bought seven existing plants and one development site. Those sites were Aurora, S.D., Albion, Neb., Charles City, Hartley, Fort Dodge and Albert City in Iowa, and Welcome, Minn. The development site is in Reynolds, Ind. Other credit bid facility buyers were: Ag Star Financial bought Central City and Ord, Neb., Dyersville, Iowa, Hankinson, N.D., Woodbury, Mich., and Janesville, Minn.; West LB bought Bloomingburg, Ohio and Linden, Ind.; and Dougherty Funding bought Marion, S.D.
Export sales were dismal at 17.3 million bushels for the week ended March 12. Total sale commitments remain at 42 percent less than last year. The latest USDA report anticipates total corn exports to be down 30 percent for 2008-09.
OPEC decided at their March 15 meeting not to make any additional production cuts at this time. They have reduced quotas by 4.2 million barrels per day since September 2008. What they will do is try to gain better compliance with the current quotas. To reach 100 percent compliance it’s estimated they would need to shave another 800,000 bpd off current levels. Financial markets are having a major impact on the energy markets as well as grains. Inventory reports this week for crude oil and gasoline were very negative, but that couldn’t outweigh the government’s announcement.
OUTLOOK: Corn was the follower for the week, May corn closed up 8 cents at $3.96 1/2 and the December contract was up a dime to settle at $4.28. Corn direction will take cues from the soybean market and the financial sector. Fundamentals for corn don’t inspire confidence (without a weather problem) for significant rallies with feeding and crushing margins questionable, struggling export demand, and large supplies of world feed grains. Resistance in the May contract comes in at $4.03 1/4, a retracement from the January high to the March low. First support lies in the $3.65 area, then $3.45.
SOYBEANS — While the same scenario developed in the soybeans as in corn due to the Federal Reserve’s actions, there were some positive fundamental influences as well in the soy market this week. Argentine President Kirchner’s proposal that 30 percent of the 35 percent soybean export tax be pushed back to provinces did little to appease growers. In fact, the farmers have called for a strike the week of March 21-27. The government wants their October elections moved up to June in order to try and gain support for their positions. The Argentine House has approved the date change and the Senate will vote in the coming week. Argentina’s bean harvest is pegged at only 2-4 percent complete and Brazil’s at 43-45 percent complete.
Export sales hit a marketing year low this week at 5.3 million bushels. Total sales commitments are still 6 percent ahead of last year, while the USDA is forecasting a 2 percent increase for the year. China accounted for a measly 17.5 percent of the week’s sales. The NOPA crush report for February showed the crush at 128.7 million bushels. The year-to-date crush is down 9 percent from last year, equal to what the USDA is forecasting.
OUTLOOK: Money rules. Outside influences are at center stage with little improvement in fundamentals to justify the sharp rally. Soybeans were definitely a recipient of outside market strength this week with the May soybean contract settling 75 1/2 cents higher at $9.52 and the November contract up 69 1/4 cents at $8.93. May beans traded right up to the 50 percent retracement from the January high to the March low, but couldn’t close above it. First resistance will be $9.53 1/2 in the May contract, then $9.81. Support is first seen at the gap at $9.20 3/4, then $8.92 1/2.
Spring is finally here — at least on the calendar — so enjoy.
Nystrom’s notes: Report updates this week: February housing starts were better than expected; U.S. producer prices rose 0.1 percent in February, less than expected; total jobless claims set a record for the eighth week in a row up 185,000 to a seasonally adjusted 5.47 million; initial jobless claims fell to a seasonally adjusted 646,000. Crude oil was up $4.81 for the week, with heating oil 10.41 cents higher and gasoline 10.41 cents higher. Natural gas was up 29.5 cents for the week.
Phyllis Nystrom is a market analyst with Country Hedging in St. Paul.