Archive » Christine Stebbins

CBOT fund-led wheat rally another Wall Street hurdle for grain exporters?

Christine Stebbins — Sun, 22 Nov 2009 14:27:55 +0000

The weakest U.S. dollar in 15 months along with ample American wheat supplies should be spurring strong U.S. wheat exports this season. But the United States, typically the world's largest wheat exporter every year, is seeing exports of that grain down 30 percent from a year ago as many big overseas buyers source wheat from cheaper suppliers, namely Russia, France and Germany.

What's more, nearby Chicago Board of Trade wheat futures prices have jumped nearly 25 percent since October 1, ignoring the weak exports, weak domestic cash basis and ample stocks of wheat on hand.

The economics of wheat supply and demand don't seem to be adding up. What gives?

Some grain traders and analysts who study the CBOT wheat market think the latest price action in wheat may just be another symptom of the malaise grain traders have complained about with "convergence." A chorus of protests by grain users like the National Grain and Feed Association for two years have blamed "Wall Street Index Funds" for buying grains -- particularly, CBOT wheat -- en masse and far beyond what is merited by basic grain market fundamentals.

The price inflation has caused a persistent disconnect, they say, between CBOT wheat and real-world prices and essentially ruined CBOT as a reliable hedging market for grain firms because the inflated CBOT wheat futures prices no longer "converge" with cash markets in delivery periods. Now, some traders wonder if the same fund-driven demand for CBOT wheat contracts is pricing U.S. wheat out of the world export market at a time fundamentals should be letting it compete.

Egypt's main government wheat buyer, for example, has passed on U.S. wheat in its last six snap tenders. The most recent snub occurred this past week when it bought cheaper French, Russian and German supplies. Egypt has long been the single biggest buyer of U.S. soft red winter wheat, the CBOT par delivery grade. U.S. wheat shipped from the Gulf of Mexico this marketing season has been running roughly $25 to $35 per tonne higher than the wheat from the Black Sea region or France, exporters say. Freight is also more expensive.

"What worsened the situation in just in the last week or two is we've seen U.S. wheat futures escalate 60, 70, 80 cents despite a weak fundamental outlook, basically on fund buying," said Mike Krueger, senior analyst for World Perspectives, who also runs a grain advisory service in Fargo, North Dakota. "Funds of all types, index and hedge funds whatever you want to call them, have simply been buying wheat and that drove markets sharply higher."

Weekly trader commitments data issued on Friday afternoon from the Commodity Futures Trading Commission confirmed the trend.

Index funds -- funds which by their nature only hold a long position -- were shown to be holding almost half (47 percent) of all the total long open interest in CBOT wheat as of Tuesday, Nov. 17.
Managed funds -- speculators which hold both long and short positions based on daily market trends -- were also buyers, reducing their net short position in CBOT wheat by 10,300 contracts in the same period. But these big players remained net sellers in the wheat market as a group.

So it all adds up to what? For starters, probably a more critical eye once again from the CFTC, which has been holding public hearings since the summer under its reform-minded chairman Gary Gensler seeking a solution to the convergence issue as a way to restore the CBOT's role as a hedging market.
Few are happy with the "convergence" solutions proposed so far by the CME, including the most recent one -- still under consideration -- of tinkering further with wheat storage fees at elevators. CME -- dependent on volume to remain the dominant market for world wheat speculators -- continues to try to please all players, from Wall Street to Main Street.

But it may be only a matter of time before U.S. wheat exporters as a group -- all of whom are members of the influential NGFA -- come to CFTC and blame Wall Street's financial engineers for sabotaging the world's top wheat exporter.

Weather, dollar likely to keep grains in recent ranges at harvest

Christine Stebbins — Mon, 16 Nov 2009 13:34:11 +0000

If this week in Chicago Board of Trade grains is anything like the last couple, traders can expect plenty of volatility -- lots of sound and fury -- but with prices likely to stay in recent ranges.

"This really isn't a trending kind of market," said senior analyst Anne Frick with Prudential Bache Commodities.

Mother Nature and the dollar have had the biggest impact on grain prices this autumn. That looks set to continue. Analysts say those two uncertain and thus supportive price factors, countered by rising supplies of harvested grain, will tend to restrain "spikes" either way. Day-to-day moves on the other hand, are still seen as being more dictated by buy/sell trigger points on price charts and by speculative money flows.

Despite a steady to lower close in CBOT corn and soybeans on Friday, both closed higher on the week as did wheat. So some bullish technical indicators remain in place, analysts said. Fundamentals -- huge U.S. harvests now under way -- should be weighing on corn and beans. But U.S. farmers are struggling to wrap up the harvest. A soggy October has put them about four weeks behind on corn and, traders say, sowed seeds of doubt in the markets' mind about final crop yields and quality.

Farmers finally saw some ideal harvest weather in November -- warm, sunny days that allowed them to work all day and night to harvest and dry rain-soaked crops. But their luck may be running out. Rains are now forecast to return to the U.S. Corn Belt by Tuesday or Wednesday.

That is especially bad news for corn, as only about half the projected 13-billion bushel crop is expected to be off the field by Sunday, traders said. By contrast, they estimate soy harvest will be reported 90 percent complete when weekly crop progress updates are issued by the U.S. Department of Agriculture on Monday afternoon.

ARGENTINA DRYNESS STRIKES A NERVE
"No doubt for corn: weather is at the top of the list. And weather in South America for beans," analyst Brian Basting with brokerage Advance Trading said, referring to concerns starting to surface about dryness in Argentina's fields.

The world's No. 3 soy producer is in the midst of planting its next soybean crop. Although it is too early in the season to get excited about the dryness and potential threat to yields, traders are hyper-sensitive to conditions in Argentina after a drought last season drastically reduced that important crop. The No. 1 concern now, traders noted, is in Cordoba, a top soy region in central Argentina.

Underscoring the current range-bound market mentality in grains, however, traders said any rallies in Chicago soybeans would likely be met by South American sales to price their new crop. That action was already detected on Friday.

"Once beans got above $10 in the March contract, we saw hedge sales out of South America," said one CBOT floor broker with commercial grain clients.

Also, USDA on Nov. 11, repeated its rosy outlook for South America's coming soy crops. It boosted the estimate of Brazil's crop by 1 million tonnes to a record 63 million and raised its Argentine soy estimate 500,000 tonnes to 53 million. The U.S. crop this year equates to 90.3 million tonnes.

Aside from weather-related harvest news, the U.S. dollar will also remain a major influence on commodity prices. Generally, the two move inversely. A weak dollar lowers the price of U.S. grain exports for overseas buyers and attracts investors who buy commodities as a hedge against inflation.

In recent months on days when the U.S. dollar was weak, corn futures rose 72 percent of the time, David Hightower of the Hightower Report told a CME grains panel last week.

Traders are also keeping a close eye on December corn options, which expire on Friday. Large open interest in the December $4 options is expected to act like a price magnet.
Photo: Northern Illinois corn field taken Nov. 8 by Christine Stebbins

Good weather to press U.S. grain, soy futures

Christine Stebbins — Mon, 09 Nov 2009 01:40:11 +0000

U.S. grain markets look headed for more seasonal harvest selling pressure on Monday after Midwest weather forecasts pointed to an active harvest weekend, but traders said the focus will quickly turn to the government's next monthly crop report due a day later.

A lot hinges on Tuesday's numbers. Typically, the November report confirms the U.S. Agriculture Department's previous estimates. But given the unusually slow 2009 harvest pace amid persistent autumn rains, this month's report will play a bigger role than usual in trade attitudes going forward.

"We're going to get actual harvest data. So this report becomes more important for the industry and there is that element of surprise," said Dan Basse, president of AgResource, a Chicago-based ag consultant.

Analysts polled by Reuters last week said on average they expect USDA to make a modest upward revision to its 2009 U.S. soy output forecast -- up about 12 million bushels to 3.262 billion, surpassing the current record of 3.197 billion. Soybean demand is strong, but the supply number will matter.

"If those numbers get significantly larger, you're going to see some pressure in beans," said Dan Cekander, an analyst with Newedge USA in Chicago.

For corn, most analysts expect to see a downward revision due to the delayed harvest -- down 78 million bushels to 12.94 billion. However, there were also a handful of analysts who said USDA could boost its forecast to approach the all-time high of 13.038 billion bushels harvested in 2007.

DOLLAR BULLS VERSUS HARVEST BEARS
While the weak dollar was key to the moves in commodities early last week, with grain prices rising as the dollar fell, it was all about harvest supplies the remainder of the week.

The net effect was corn for December delivery closing basically unchanged for the week at $3.67 a bushel. November soybeans fell 3 percent to $9.48, and December wheat was down just a fraction at $4.97-1/4.

Traders said on Friday that unless U.S. economic fundamentals trigger a collapse in the dollar or crude oil rallies, breaking out of its $75-$80 a barrel range, a lower trend in grains was likely ahead of USDA report on Tuesday.

U.S. cash grain markets weakened across the Midwest on Friday as farmers worked around the clock to harvest crops. There were reports of farmers waiting hours in truck lines to dump freshly harvested corn and soybeans, and many country elevators were only taking grain every other day, as the magnitude of the harvest logjam created logistical nightmares.

That meant a pickup in harvest hedge sales on Friday, which will likely surface again when CBOT markets open Sunday night given the near-perfect weather forecast for the weekend.

USDA will issue its weekly crop progress data on Monday. As of late Friday, traders were expecting the government to report a huge advance with roughly 75 percent of the soy harvest complete, compared with 51 percent the previous week, and 40 percent of corn off the field, versus 25 percent a week ago.

"We have made some very good progress this week and heavy grain movement. One good thing about this pattern is we are going to fill the pipeline quickly," Basse said.
Photo: It was an active harvest weekend across the U.S. Midwest. Illinois corn field taken Nov 8 by Christine Stebbins.

Dollar, weather to steer U.S. corn, soy prices

Christine Stebbins — Mon, 26 Oct 2009 16:55:15 +0000

Veteran traders say U.S. grains feel "toppy" after last week's rally to multimonth highs, but many remained hesitant to pick a direction for the coming week given the outside storms rattling the markets. What they would agree on is that the two main factors which have directed the markets for the past month -- U.S. harvest weather and the dollar -- will remain center stage this week.

Typically, Chicago Board of Trade corn and soybean prices slump during October, the traditional prime time for harvesting U.S. grains, as more supplies flood into country elevators, grain processors and other marketing channels. But Mother Nature has not cooperated this autumn. Persistent rains and cool temperatures have put the 2009 harvest off to the slowest start in more than two decades.

Corn, the biggest row crop, was only 17 percent harvested on Oct. 18, versus the usual 46 percent. Soybeans were 30 percent harvested, versus the usual 72 percent. The delays increase the chances of quality problems for both jumbo crops this year, and boost costs for drying and grain handling. It also makes it tough for U.S. exporters to meet their sales commitments, especially in soybeans given the record sales for the start of the 2009/2010 marketing season.

"This spring you couldn't get the crop in and now you can't get it out. So you're seeing a lot of premium built into the market," said Dax Wedemeyer, an analyst at brokerage U.S. Commodities in Iowa. "Everybody knows it's wet -- eventually it will dry out and you will be able to harvest this crop."

The question is when, analysts say. Forecasters on Monday are calling for more rain this week across the Midwest but it will be warmer and slightly drier than last week. So the U.S. Department of Agriculture's harvest progress report at 2 p.m. EDT (1800 GMT) on Monday will keep the attention of traders.

CBOT traders are guessing USDA would report the soy harvest about half done. Corn harvest was seen at only 25 percent as farmers focus on soybeans, which are seen as more vulnerable to damage from rain and cold temps.

EYES ALSO ON THE WEAK DOLLAR
"There is definitely macro money coming into grains because of the dollar," said analyst Charlie Sernatinger with brokerage Fortis Clearing Americas.

A weak dollar is a buy signal for dollar-based commodities, making U.S. grains more attractive to overseas buyers. Last week was a classic example. The Reuters-Jefferies CRB index <.CRB> of 19 commodity futures hit a one-year peak of 285 as the dollar fell to a 14-month low against a basket of key currencies. The dollar has been under pressure as the global growth outlook improves more than that of the battered U.S. economy and with financial markets anticipating record low U.S. interest rates staying in place well into next year.

"The money that is flowing in here is not flowing in based on any kind of expectation of return. It's flowing into commodities because of fear the basement of the currency," Sernatinger said. "That makes it awfully difficult to predict -- what the next flow is going to be."

Weekly commitments of trader data issued late on Friday by the U.S. regulator, the Commodity Futures Trading Commission, confirmed a big flow of speculative money into CBOT grains last week, traders and analysts noted. The end result was a surprise buoyancy in grains last week. CBOT corn for December delivery rose 7 percent to $3.97-3/4 a bushel for the week. Chicago December wheat climbed 10 percent to $5.47-3/4 and November soybeans rose 3 percent to $10.06.
Photo: Iowa corn field taken in late September by Christine Stebbins.

USDA monthly report, weather in spotlight for CBOT grains

Christine Stebbins — Sun, 04 Oct 2009 21:02:46 +0000

At this time of year there is generally a bearish sentiment in Chicago grain markets due to the onset of the U.S. harvest, a world bellwether for supply. That is particularly true this autumn as evidence mounts that U.S. farmers will harvest not only their largest soybean crop in history, as the government is currently forecasting, but perhaps a record-large corn crop as well. USDA's next crop estimates will be issued on Friday.

"It's going to be a biggie -- the big dominant feature. Where do you want to place your bets heading into those numbers?" said Dan Basse, president of AgResource, a Chicago-based ag markets consultant.

Last month, the U.S. Department of Agriculture forecast a 2009 U.S. corn crop at 12.954 billion bushels, with an average yield of 161.9 bushels per acre, and soybean production at 3.245 billion bushels, yielding 42.3 bpa. The record for the U.S. corn crop is 13.074 billion bushels in 2007, and for soybeans, the 3.197 billion bushels reaped in 2006. Two closely watched research firms updated their forecasts last week, with brokerage FC Stone of Des Moines, Iowa, and consultant Informa Economics in Memphis both expecting USDA to boost its crop estimates this Friday.

"With the private survey guys all showing higher corn and bean production, you've got a negative yield psychology all week going into the report," said Dan Cekander, a grains market analyst at brokerage Newedge USA in Chicago.

That sentiment hit CBOT markets hard on Friday, especially soybeans, which fell below $9 a bushel to a 6-1/2-month low. Sobering U.S. jobs data issued by the U.S. Labor Department on Friday added to bearish sentiment and worries about a recovery in the economy. Employers cut 236,000 jobs in September, far more than the 180,000 that had been expected.

MOTHER NATURE NOT HELPING
It is an adage at the Chicago Board of Trade that "big crops get bigger" once the late stages of maturity are reached and corn kernels and soybean pods make a final "fill." But if there is anything injecting caution to all the bears in the grain markets at the moment, it is the weather. That factor will remain in play as a possible brake on CBOT price weakness the coming week. The Midwest harvest is already running a couple of weeks behind given crop immaturity. But recent rains and forecasts are not likely to to give farmers a bigger harvest window in the coming week.

"It's pretty much a supply watch," Basse said. "When will Mother Nature allow for a combine to roll freely and for the cash markets to be resupplied?"

Most traders expect export announcements to be limited, notably for soybeans with top buyer China on vacation until late in the week. China markets reopen on Oct. 9,following National Day holidays.

WHEAT STRUGGLES
Wheat continues to struggle with large U.S. and global stocks and slid to new life-of-contract lows on Friday. But the biggest shake-up in wheat came in the spreads, the price differences between futures of various contract months.

These differentials jumped and fell violently -- and expensively -- for speculators as the grain industry, the CBOT and its regulator the Commodity Futures Trading Commission traded ideas back and forth about the best way to improve the hedging performance of the troubled CBOT wheat market. The trigger to the violent moves were competing proposals on the timing of when to adjust storage fees for wheat at CBOT- approved grain elevators. Some shell-shocked spread traders were threatening to file lawsuits by the end of the week.

For the week, the CBOT December wheat fell nearly 2 percent to $4.41-1/4. Benchmark November soybeans fell 4 percent to $8.85 a bushel. December corn was near unchanged at $3.33-1/2.

PHOTO: Soybean field near Ames, Iowa, taken Sept. 26 by Christine Stebbins. High pod counts have many expecting a huge U.S. harvest.

All eyes on U.S. harvest weather

Christine Stebbins — Sun, 27 Sep 2009 19:49:44 +0000

U.S. grain markets look to be headed for another week of sideways moves with a lower bias as world grain buyers watch harvest progress of a likely record large American soybean crop and second-largest corn crop. So barring any unusual harvest-time surprises, grain traders will be taking their cue from U.S. weather forecasts.

"Outside of that there isn't much," Randy Mittelstaedt, an analyst with R.J. O'Brien, said. "We're just keeping within ranges until there is more clarity. The new production report next month will help."

The U.S. Department of Agriculture will update U.S. crop yield estimates, production and supply-demand outlooks Oct. 9. USDA already forecast record corn yields and record soybean output in its monthly report issued on Sept. 11. But meeting those lofty targets is still a question of weather over the next few weeks as crops finish maturing and combines roll.

Delayed planting this year put crops behind from the start, and crop-watchers are not yet ready to bless the bin-busting forecasts on concerns about a possible sudden "killing" frost that could cut off final growth of corn and soybeans.

"The latest National Agricultural Statistics Service Crop Progress report released Sept. 21 showed that 60 percent of the U.S. soybean crop was still vulnerable to freeze damage and only 21 percent of the corn crop was mature," Mike Woolverton, a Kansas State University economist, said in his weekly newsletter on Friday. "The greatest lags are in the states most likely to experience frost."

So frost fears will remain a daily factor. But for some traders the main weather story is shifting focus to harvest conditions, with rain clouds threatening speedy progress. Rains, especially in the far southern edge of the Midwestern Corn Belt where crops are the ripest, have stalled an aggressive early start to harvesting. Further north the crops are still behind. A balmy September has helped speed up maturation, but crops are still lagging.

For the coming week, agricultural meteorologist Mike Palmerino at DTN Meteorlogix, said on Friday that the first half looks dry, but storms may move in by the weekend.

"I'll be looking to see if there is rain causing harvest delays, which I think is going to be important for the basis levels," Anne Frick, an oilseed analyst with Prudential Bache Commodities said, referring to cash market bids by processors and exporters struggling with a 32-year low in U.S. soy stocks. "The question now is getting the crop into usage channels," Frick said. "Rainfall is the key factor to watch for (this) week."

U.S. cash markets -- always volatile before the harvest replenishes stockpiles -- reacted violently to harvest delays on Friday, as cash basis bids shot up as much as 55 cents at key Midwest soybean processing plants.

The corn market, which has nothing like the current supply tightness in soybeans, is still on a hair-trigger due to fears of a killing frost and weather delays or damage at harvest.   Last week, corn looked set for a test of contract lows near $3 a bushel as price charts appeared weak. But prices shot up on Tuesday with a frost threat and that nervousness remains.

Also in the spotlight this week will be USDA's quarterly grain stocks report and annual small-grains summary on Wednesday, which will include USDA's 2009 wheat harvest data. On average, analysts expect the Sept. 1 stocks report to show bigger corn and wheat supplies than a year go amid a slowdown in demand while soy stocks remain extremely tight.

"Typically the stocks report isn't a big mover or shaker," said Don Roose, an analyst with U.S. Commodities in West Des Moines, Iowa. "More important is going to be that October report because we usually have an adjustment on acres for corn and beans."

Last week, the benchmark CBOT November soybean contract fell 1.5 percent to $9.26 a bushel. December CBOT corn ended 5 percent higher at $3.34 while December CBOT wheat fell 1.5 percent to $4.49-3/4.
Photo: Northern Illinois soybean field taken Sept. 19 by Christine Stebbins

Chicago Board of Trade corn to test lows on easing frost threat

Christine Stebbins — Mon, 21 Sep 2009 13:02:21 +0000

U.S. grain markets look poised for a week of consolidation with a bias toward moving lower in corn and wheat after a weak futures close last Friday and a decent crop weather forecast for the Midwest.

Prices could get a bump if a near-term threat of a crop-killing frost materializes.

"Despite the volatility in the weather forecast, the evidence seems to be building that we are going to get frost-free growing weather into early October," said Rich Feltes, senior vice president of MF Global Research.

That view fed selling on Friday in corn, the biggest U.S. grain crop, with confidence growing that corn yields could be unprecedented. The U.S. Department of Agriculture on Sept. 11, forecast U.S. corn yields would average a record 161.9 bushels per acre. That equates to a 12.954-billion-bushel corn crop, nearing the record high of 13.1 billion harvested in 2007.

Since the USDA forecast, warm, sunny days have given late-maturing crops time to ripen and build yields. Based on the USDA's last weekly crop update on Sept. 14, up to 20 percent of U.S. row crops were seen still at risk of being damaged by a freeze. Chicago grain prices surged after that update and when a freeze was also forecast for last week.

But by Friday, the markets had calmed as the weather forecasting models backed off the freeze threat and sentiment on the Chicago Board of Trade floor returned to ideas of an average U.S. corn yield as high as 165 bushels per acre.

If some of the lagging states like Illinois, Indiana and North Dakota make it without a frost over the next two weeks, analysts said, yields could grow another two to three bushels an acre. That would relieve any remaining worries about shortages of corn for ethanol producers, livestock producers or exporters for the next year or so.

CBOT corn futures for December delivery fell below a key chart support level of $3.20 late Friday, setting a bearish tone for the week ahead.

"We really thought it was going to hold $3.20. The market has factored in absolutely zero freeze," one CBOT broker said.

Traders were now eyeing $3 as key support in December corn. The life-of-contract low is $3.02 and that level could be breached if the heartland has another week of warm weather.

CORN, WHEAT MORE VULNERABLE THAN SOY
"My mode is to still sell rallies in corn and wheat, whereas soybeans ... the big unknown here is whether or not the U.S. farmer is going to give us the quantity of beans that we need to meet this record fall export demand program," Feltes said.

A weak dollar, which hit the lowest level in a year versus the euro on Friday, kept export demand for U.S. soybeans strong. U.S. export bookings for the marketing year that began Sept. 1, reached 17.6 million tonnes as of Sept. 10 -- almost double last year's pace of 9.6 million. China, the top U.S. customer, has bought 10.8 million tonnes, more than double its total for the same period a year ago.   China remained active last week, booking another five cargoes of soybeans, or 303,000 tonnes.

As if to underscore China's needs -- and muscle -- that interest came despite a trade dispute between China and the United States that erupted this month after U.S. President Barack Obama slapped a tariff on tire imports from China.

Additionally, traders cited supply concerns with U.S. stockpiles at a 32-year low before harvest. There were rising concerns about delays to soy harvest in the Mississippi Delta area. Rains have been relentless over the past 10 days. Greenville, Mississippi, received nearly 7 inches of rain since Sept. 8, more than 5 inches more than normal for the period, said Mike Palmerino, an agricultural meteorologist with DTN Meteorlogix said Friday.

For the week, the benchmark CBOT November soybean contract rose 4 percent to $9.41 a bushel. December corn was basically unchanged, ending at $3.18, while December wheat fell 2 percent to $4.57-1/4 per bushel.
PHOTO: Active U.S. harvest nears as soybeans turn golden. Illnois soybean field near the Wisconsin border taken Sept. 19 by Christine Stebbins

U.S. harvest moves toward jumbo crops

Christine Stebbins — Sun, 13 Sep 2009 21:37:10 +0000

The trend in U.S. grain markets in coming days will be dominated by the advancing harvests of what the government estimated on Friday will be a record-large soybean crop and a near-record corn crop. Those billions of bushels will keep a restraining weight on any strong rallies for now, analysts say.

But prices have also already factored in a lot of the new supplies -- grain that comes as a relief for world consumers -- and markets may keep largely within recent ranges unless there is a big change in the weather for the Midwest crop belt. So far, September in the U.S. Corn Belt has featured warm, sunny days -- perfect for ripening corn and soy. But both are still about two to three weeks behind normal due to a cool, wet spring and summer and remain vulnerable to a September freeze.

"Any indication that the longer-term maps are clear of any freezing temperatures or show a switch to freezing temperatures" will drive prices down or up this month, said Brian Basting with Advance Trading, a Bloomington, Illinois, brokerage and farm advisory service.

The latest forecasts look mostly clear for the belt through midweek with balmy temperatures with highs from the mid 70s to low 80s-degrees Fahrenheit -- ideal "finishing" weather for row crops from Ohio to Nebraska.

"The threat of any damaging cold weather continues to be pushed further and further away. It looks less and less likely for any damaging freeze in September," DTN Meteorlogix agricultural meteorologist Mike Palmerino said on Friday.

Good weather usually makes big crops bigger, traders say. In its latest crop report on Friday, the U.S. Department of Agriculture agreed. It raised its forecast for the American corn crop to 12.954 billion bushels, the second-largest in history, and with an average yield of 161.9 bu/acre -- a record high. USDA also put the soybean crop at a record high 3.245 billion bushels, reflecting an average yield of 42.3 bu/acre. But after those numbers the grain trade is now thinking the yield could get even bigger -- corn to 165 bu/acre and beans perhaps to 44 bu/acre -- provided there is no early frost.

SPREADS TO ADJUST? As much as the bin-busting harvests in the offing weigh on prices, the market structure of the Chicago Board of Trade grains will also play into coming price moves. September futures contracts expire at midday on Monday, Sept. 14. Over the summer months, commodity funds built up a hefty net long position in soybeans given demand for U.S. soybeans by China that has shrunk supplies to the lowest level in 32 years. By contrast, funds sold wheat and corn during the summer on the outlook for ample U.S. and global supplies for both.

On Friday, U.S. soybean futures fell nearly 3 percent and the benchmark November contract -- the main harvest delivery -- at the Chicago Board of Trade dipped below $9 a bushel for the first time since July as USDA confirmed the record crop. The benchmark November soybean contract settled down 23-1/2 cents at $9.03 per bushel.

"The crop size does look good. It's a record high and we're looking at an increasing carry-over," said Anne Frick, an oilseed analyst with Prudential Bache Commodities. "I still think there are a few things around the edges though that are bullish in addition to the obviously very strong exports. USDA is pretty much estimating that South America will use up all of its soybeans ... and they dropped their crop estimate for China."

CBOT corn turned higher late Friday, rebounding from an oversold condition. A drop in USDA's forecasts for China's corn crop and end-season stocks next year spurred speculators. Corn for December delivery ended up 4-1/2 cents at $3.19-3/4.

Wheat prices bounced on Friday after the front CBOT wheat contract fell to its lowest level since April 2007 -- pressured by a global supply glut. September wheat settled up 9 cents at $4.41-3/4 after touching a contract low at $4.25-1/4.

PHOTO: Iowa soybean field taken in late August by Christine Stebbins. Active soy harvest in the heart of the U.S. crop belt is still weeks away, crop specialists say.

Big U.S. corn, soy harvest in the wings

Christine Stebbins — Mon, 07 Sep 2009 15:28:13 +0000

Confidence in an approaching record harvest for both U.S. corn and soybeans and the sudden drop in the cash soybean market late last week will cast a bearish cloud over grain prices in coming days. Given the latest weather and crop conditions, most analysts have upgraded their forecasts to record highs ahead of the government's next U.S. crop production update on Friday.

"It's kind of a bearish time period," said Bill Nelson, an economist at Doane Advisory Services, an agricultural consultant. "Short of a big surprise on Friday that would reverse the trend, there's more downside risk than upside."

After weeks of nervousness about tight soy supplies before harvest and the chances for an early frost to cut final yields, traders last week seemed to come to a general view that the danger is over and the bigger crops are now "made." An old saying on LaSalle Street -- home to CBOT markets -- is that "big crops get bigger." That reality hit last week. So the markets began transitioning to supplies and away from demand, a normal psychology at harvest.

Traders will still try to out-guess each other on crop size and keep a sidelong glance every day at any sudden changes in the weather outlook for the Corn Belt, where most of the 165 million or so acres of U.S. corn and soybean are planted. But as of Friday, traders were expecting the U.S. Department of Agriculture to raise its corn output next Friday above the record 13.074 billion bushels U.S. farmers harvested in 2007.

"Everyone I talk to is pushing this big increase in plant populations" for corn, said Roy Huckabay, an analyst with The Linn Group. "If NASS follows through, you're talking about six bushels per acre just from plant populations above August."

NASS -- the National Agricultural Statistics Service -- is the USDA's official crop counter for its monthly reports. Last month, USDA forecast corn yields at 159.5 bpa while the market is currently trading a minimum 163 bpa yield, traders said. For soybeans, based on a jump in plantings, USDA has all season been projecting a record harvest, now pegged at 3.199 billion bushels. But after a cool July, good August rains and steady-to- better crop ratings last month, the grain trade sentiment is that USDA will come out with an even bigger number.

CROPS GO UP, PRICES GO DOWN
Soybeans on the Chicago Board of Trade last week fell to a five-month low on those prospects, losing 15 percent on the week to end at $9.61 a bushel in the September futures contract. September corn closed at a contract low of $3.00-1/2, its lowest in eight months and a key chart support point to watch when the CBOT reopens on Monday night after the long Labor Day holiday weekend. If corn slides, wheat will tag along given ample U.S. and world stocks and reports of strong hard red spring wheat yields now coming out of the Northern Plains.

"On Monday night, if the weather is nonthreatening then we'll see if we can take out the contract lows on corn," said analyst Don Roose at Iowa based brokerage U.S. Commodities.

Wheat last week fell to its lowest point in more than two years, losing 5 percent overall and ending at $4.44 in the CBOT September futures.

One word alone could turn the market around -- frost.

Analysts still estimate that some 15 million acres of corn in the northern Midwestern states will not be ripe by Oct 1, the usual first frost date for the region, given the immaturity of the crop after a cool, wet summer. Soybeans, planted after corn, also remain at some risk. But the accelerated growth in recent weeks may well temper any jolt that forecasts for a "killing" frost -- in other words, one that halts plant growth -- might deliver to speculators. For now, the weather is ideal for early harvest.

Soybeans were already trickling into grain terminals and processors in Nebraska, southern Illinois and some areas of Iowa last week as farmers took advantage of historically high cash prices. That pressured cash soybean bids, even where harvest pressure on supplies had not yet shown itself.

Exporters at New Orleans, the leading gateway for U.S. grain exports, backed off their spot soybean bids as much as $1.15 per bushel over CBOT November and were bidding 95 cents over November on Friday. At Decatur, Illinois, home to the leading processor Archer Daniels Midland as well as other crushers, the spot bid for soybeans on Wednesday night had been $2.00 a bushel over CBOT November futures. On Friday night, it had sunk to $1.20 over.

As more soybeans moved into the hands of processors and exporters late in the week, front-month futures spreads deflated on profit-taking. Traders said, barring a frost scare, that trend looks likely to continue through at least expiration of September soybean futures on Sept. 14.
PHOTO: Iowa corn field with high plant populations taken by Christine Stebbins.

Scarce soybeans stay in CBOT spotlight

Christine Stebbins — Mon, 31 Aug 2009 15:29:37 +0000

It's crunch time for soybeans -- if only processors could find any to crunch.

The protein-rich bean, in huge demand around the world for foods from edible oil and tofu to feedstocks for both animals and biodiesel plants, is in the grip of a supply scare.

The United States, the single-largest grower and exporter of soy, is forecast to produce a record-large crop of 3.2 billion bushels this year. Harvest starts in the Midwest grain belt in a few weeks.

So why did Chicago Board of Trade soybeans of September delivery reached a two-week high of $11.64-3/4 a bushel on Friday? Because while supply will be big, demand -- nervous demand -- will be bigger, at least for a while.

"If soybeans are ever going to be tight, it's right now -- it's this week, it's next week, into the new crop," said Dan Cekander, a grain market analyst at brokerage Newedge USA.

The U.S. soybean marketing year ends on Aug. 31, with the opening of the traditional harvest month of September. On that date, U.S. soybean stocks-on-hand are expected to have fallen to a 32-year low -- with more declines seen before harvest can replenish supplies for processors and exporters.

"The other problem you have exacerbating the situation is the new-crop maturity is delayed, so the harvest is going to be delayed. So it's not like you can all of a sudden turn on a lot of new-crop supplies -- just because the old-crop marketing year ended," Cekander told Reuters TV on Friday.

Active soy harvest in the central Midwest -- Illinois and Iowa alone produce a third of all U.S. soybeans -- is not expected until the third or fourth week in September.

So U.S. cash soybean prices soared last week as exporters and processors kept battling over dwindling old-crop supplies. Exporters at New Orleans were bidding as much as $2.10 per bushel over CBOT November futures prices to draw in soybeans on Friday, up from a premium of $1.35 over a week earlier.

Processors tried to compete but many continued to be forced to take extended "down time" for lack of bean supplies to crush into soybean meal, a popular high-protein livestock feed, and oil. Some Midwest brokers were quoting prices of up to $100 per ton above CBOT September futures for loaded railcars.

"What that tells you is that there are end users right now paying prices as high as they paid at the very height of the bull market a year ago in 2008" for soymeal, Cekander said.

Driving the strength in prices continues to be China's torrid buying. But a drop in temperatures this week in the Midwest also sent a shiver through traders fearing an early frost that might cut yields in soybeans.

CBOT prices fell on Monday amid outlooks for milder U.S. crop weather through the middle of September. Also weighing on prices were worries that China may unilaterally terminate derivative contracts with some foreign banks that provide over-the-counter commodity hedgers services.
PHOTO: Northwestern Illinois fields after an August shower taken by Christine Stebbins