Australian weather forecasters, the Federal Reserve and big U.S. grain exporters make strange bedfellows — but together they made for another roller-coaster week in Chicago Board of Trade grain markets.
    Wheat rose to a record high above $9 a bushel the prior week, awaiting confirmation that Australia’s important wheat crop — which has been baking for two months — has been hurt yet again by drought.
    On Tuesday, Australia confirmed a third of its expected crop had been lost — and CBOT wheat promptly tanked on profit-taking. By the end of the week, though, booming exports and fresh “hot” money from Wall Street had bounced wheat back up to near where it began the week.
    That was thanks largely to the Fed. The Fed’s surprise 50 basis point cut in both the Fed funds and discount rate on Wednesday had coursed through the grain markets like two shots of caffeine by Thursday.
    One boost came from the weaker dollar. The Fed’s cuts made the dollar even weaker, and the U.S. currency set record lows against the euro and Canadian dollar on successive days.
    Both those currency zones, along with many Asian grain buyers, instantly saw U.S. grains get cheaper as the dollar fell. The result was a fresh wave of bookings by grain buyers on Thursday and Friday, heating up an already sizzling export picture for wheat, corn and soybeans.
    The second Fed effect from its cuts was a “boomerang.” By cutting more than most expected, and doing so as gold and oil were already near record levels — to say nothing of CBOT grains — the Fed injected tremors in the financial system about inflation. Those expectation merely fed a fresh wave of speculative money into commodities, including grains.
    After the Fed cut rates, CBOT grain traders said speculative funds had added at least another 30,000 contracts in their long positions in grains by the close on Friday.
    The same themes should continue next week — inflationary fears, the weak dollar, the export boom — attracting even more fresh speculative money into commodities.
    Traders said any more sharp spikes in in beans, corn or wheat prices could prompt commercial grain firms — now hedged on the short side — into short-covering if prices get away from them. Commercially, and contractually, lifting hedges can be tricky. But no grain firm wants to stand in front of a freight train, any more than a “local” alone in the pits.
    But many traders also warned that the spikes might not be long-lived. The reason? The markets are technically overbought and both corn and soybeans are defying the usual seasonal trends ie. to trend lower during the Midwest harvest.
    What’s surprising many veteran traders is also the strength in corn: U.S. farmers are still poised to harvest a record 13-billion-bushel crop. But they noted that 2006 also defied historical trends as corn rallied from September to December.
    The key points to watch in the coming week will be:
    –South American weather. Both Argentina and Brazil are in the midst of planting their corn, wheat and soybean crops. Conditions in Mato Grosso, Brazil — prime soybean country –will be monitored. It has been hot and dry, delaying early soy planting. Long-term forecasts looked a little wetter.
    –Australian weather. Maps will also be watched as the country’s wheat crop needs a big drink during the key stages of forming and filling heads on the plants. This week the Australian Bureau of Agricultural and Resource Economics (ABARE) slashed its country’s wheat crop estimate by 31 percent due to 15.5 million tonnes. CBOT trade talk at end week circulated that could shrink to 12 million if it stays dry.
    –The U.S. Agriculture Department on Sept 28 will issue its U.S. small grains summary and quarterly stocks reports, showing how much grain was held by farmers and commercials on Sept. 1.
    –U.S. Census Bureau August soybean crush on Sept 27. Traders are particularly interested in the soyoil stocks number after USDA last week cut its end-season U.S. soyoil stockpiles for the year ending October 2008 by 490 million pounds. The drop was directly linked to huge and growing amounts of soyoil to be consumed by the biofuels industry for biodiesel.
    
    rtr chi cds