Summer growing season adds volatility to Chicago grains, soy

June 8, 2007

The summer growing season is always volatile for Chicago grain markets but this one is keeping veteran grain traders on their toes. With the rising tide of speculative capital pushing into farm commodities, price swings have been more pronounced — even given a fairly benign weather outlook and strong crop condition ratings so far this season.
    Once again, soybean oil grabbed the spotlight this week. Prices rose to a 23-year high early in the week, then fell nearly 3 percent on Friday alone as traders cashed profits.
    Any time soyoil sees a sharp move, soybeans follow, with both tracking a volatile Malaysian palm oil market.
    Palm oil has been red hot on demand for edible oils led by Asia. But palm also saw its sharpest single day drop Friday on prospects that Indonesia would delay raising its veg oil export tax. The tax hike sent prices flying earlier this month on the outlook for tighter supplies.
    So the decks are clear for Monday’s monthly USDA reports. The government’s monthly world supply and demand estimates are due at 0730 Chicago time (1230 GMT) on Monday morning. USDA will also be updating U.S. winter wheat production.
    “The big things that people are going to be watching for are the wheat production numbers, for the intermarket spreads, and whether or not they raise the yield on new-crop corn,” said Charlie Sernatinger, analyst with Fortis Clearing America.
    Typically, USDA doesn’t touch its corn production guess in June. Yield estimates are based on historical trends and acreage until the first field surveys used in USDA’s August report. But traders say given the excellent crop ratings USDA has been reporting each week, the agency could lift its corn yield forecast.
    Most expected bearish corn numbers on Monday. But floor talk late on Friday was also that July corn prices could keep range-bound until July options expire June 22.
    “Based on what’s happening in options, it looks like corn will stay in the $3.60-$3.90 range until July options go off the board,” one options trader. Firms have been liquidating their July call and put options positions all week.
    On the wheat front, the consensus among analysts was for USDA to raise its U.S. winter wheat forecast by 25 million bushels after the crop saw plenty of rain this season. The USDA’s forecast will be based on June 1 wheat conditions.
    On the other hand, some traders said they had heard of disappointing early harvest yields out of Oklahoma. Winter wheat harvest is under way and will move north on the Plains and into the Midwest this month. 
    Additionally, wheat bulls noted, global wheat stocks on Monday were expected to remain tight — at a 26-year low.
    Soybean data should be ho-hum. Stocks may be a little smaller but no big change is expected.
    Once traders digest the USDA data early in Monday’s opening session, the focus should return to the weather. Soils are getting dry in eastern Illinois, Indiana and Ohio with traders watching for the possibility of a high pressure ridge to move in the Midwest that could produce more dryness. That kept markets jumpy this week and will continue next week.


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