EHedger Weekly Grain Wrap-Up 10/16/09

Published on: 16:09PM Oct 16, 2009
Dec 09 Corn
- 1  
Nov 09 Beans
977 ½
- 5 ½
Dec 09 Wheat
498 ¾  
- 6 ¼ 
Dec 09 KC Wheat
510 ½ 
- 7 ½
Dec 09 Min Wheat
526 ½     
- 4 ¾   
Dec 09 Meal
- 1.5
Dec 09 Oil
+ 0.16

The decline in the US dollar index to its lowest level in more than a year gave the commodities arena a broad boost this week, and accounted for a majority of the gains seen in the grains and oilseeds markets in recent sessions. Fresh inflows of investor money were seen in several arenas, with gold scaling fresh all-time highs above $1,070 an ounce and crude oil pushing above $79 a barrel for the first time in close to a year.
This influx of speculative interest also steered the ag markets higher, with Dec corn hitting its highest level since June and Nov soybeans climbing to their highest level since late August. CBOT Dec wheat also made an impressive advance, and resurfaced above $5 a bushel after having spent most of September below that level.
Given how close we are to cranking up the US harvest, we think this recent price advance provided growers with a terrific sale opportunity - even with the lingering concerns about crop quality due to pockets of disease and ‘early-frost’ impact. We appreciate the slow harvest pace so far is preventing most growers from getting a solid feel for overall crop quality and yield totals, but are very concerned that even a modest improvement in weather conditions will unleash a wave of aggressive harvest activity that could dent prices quite suddenly. We feel the soybean market is especially vulnerable to aggressive sales given that the crop is now fully ready for cutting across the country while corn remains a touch too wet in many areas for widespread harvesting.
Further, as the meat of the US harvest nears, many soybean market watchers are now turning their focus to South America and to how crop plantings are progressing in that region. In general, planting conditions have been very favorable and analysts are forecasting a substantial jump in production from that region over a year ago. Current estimates are calling for an increase of more than 1.1 billion bushels of soybeans from the region, which if confirmed has the potential to flood the global market with excess soybean supplies during the first quarter of 2010. This prospect worries us greatly, which is why we have been urging customers to fire off sales during rallies throughout this past summer. Producers who have not yet caught up on sales are strongly encouraged to do so before a potentially steep price break is seen.
Corn may see a more gradual descent than soybeans, but is still expected to favor the downside once harvest does finally get into full swing. The prospect of a long, drawn-out harvest season should prevent an all-out corn price slump, but producers should be under no illusions that there will be not enough corn to go round. Ethanol and processing plants may be scrambling for supplies right now, but once we get 1-2 weeks of harvest under out belts the supply pipeline will be refilled and the current strong bids from those end users will dry up to leave cash corn prices susceptible to grinding back to $3 a bushel for lower.
Wheat prices managed to perform strongly on the week thanks to sustained speculative interest and bursts of global end-user buying. Generally speaking, sub $5-wheat is cheap, so we’re not surprised to see this market enjoy the odd rally, but it must be remembered that wheat inventories globally are still rising, which will mean rallies will be difficult to sustain. Further, a major commodity index fund is on the cusp of reducing its wheat position by half in order to comply with regulatory requirements, so waves of aggressive selling should be expected in the days ahead.
In all, while the slow US harvest pace combined with supportive outside markets have given the grains and oilseed markets a very positive vibe lately, we are concerned that a drier forecast for the Midwest next week will turn sentiment around fast, and set us up for a speedy return to below the price levels we saw at the beginning of October – around $3.40 for Dec corn, $9.15 for Nov soybeans and $4.45-4.50 for Dec wheat.
Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of E Hedger, its affiliates, officers, directors, employees, or agents. Recipients assume the risk of reliance on and indemnify and hold E Hedger harmless for any and all losses, costs, or tax consequences incurred as a result of their use of market information.