In a history-making race this autumn between wheat and soybeans to reach $10 a bushel, the traders who bet on beans won in the week ended September 28. But by Friday’s close, wheat was getting a second wind.
The spot, or front-month, Chicago Board of Trade November soybeans rose as high as $10.17-3/4, the highest price for a spot futures contract in three years, before ending the week at $9.91-1/4 on profit-taking on Friday after USDA data.
Soybeans bounced on the strength in all commodities, including wheat. Worries about grain supplies, strong export demand for all U.S. grains amid the record lows in the dollar and China easing grain import rules, and rising domestic prices sent all CBOT grain commodities flying.
Meanwhile, CBOT spot wheat — the grains leader most of the summer — resumed its march toward $10 with a series of all-time highs, peaking on Friday when it reached $9.61-3/4. It closed at $9.39, up 6 cents on the day.
Before this summer, the CBOT record wheat price in more than a century of trading was $7.50 a bushel.
Wheat was firm all week but got a finishing boost on Friday from the the U.S. Agriculture Department.
In its annual report on small grains production issued early on Friday morning, USDA shaved another 47 million bushels from its U.S. 2007 wheat production estimate, putting it at 2.067 billion bushels.
At the same time, wheat stocks are shrinking. USDA said in its quarterly grain stocks report that U.S. wheat stocks fell 806 million bushels since June 1, more than 25 percent faster usage than in the same period a year earlier.
Wheat eked out a gain but corn and beans weren’t so lucky in the face of active end-week and end-quarter profit-taking by hedge funds and other hot money. USDA stocks data for corn and soy was also bigger than expected, triggering the selling.
But next week volatility should continue with wheat the focus and once again the expected market leader, traders said.
The biggest factor wheat traders will be watching is Australian crop weather. Australia — usually number 2 behind the U.S. in wheat exports — has seen its crop once more shrink with drought and little rain in sight. CBOT traders are now talking a 10-12 million tonne crop, down from the Australian government’s last number of 15.5 million tonnes of Sept. 18 — and from the 22.5 million tonnes once predicted.
In the soybean pit, the area of concern is Mato Grosso, Brazil, the top soy state in that huge producer.
Hot, dry conditions have been delaying early soybean planting with no significant rainfall expected until Oct. 7.
Any fresh export demand will likely spur additional buying in the Chicago markets. Supply worries, and the weak dollar, have fed voracious foreign buying of U.S. grain stocks.
There does not yet appear to be any sign of rationing as the world’s biggest importers of food and feed continue to book huge amounts of corn and wheat even at historically high prices. Week after week export sales have been at well over 1.0 million tonnes in both.
The U.S. corn harvest is advancing rapidly with the Midwest weekend expected to be active given clear, warm conditions. Truck dumps will be open at hundreds of elevators.
That added to some commercial prehedging on Friday. But the hot fund speculative money in corn and soybeans was a ready absorber of such selling pressure most of the week.
Traders have also been especially interested in hearing the latest on soybean yields. Early yields were disappointing and later reports have been mixed.
Soybeans are usually harvested before corn to prevent crop losses and allow corn to bring moisture levels down “on the husk.” Stronger stalks allow wind-drying in fields, saving farmers money on drying or on paying penalties to merchandisers for delivering corn above 15.5 percent moisture.
But this year the push has been to harvest corn first, especially in the drought-plagued South and mid-South.
A last weather factor will be the interest in U.S. winter wheat planting progress. Concern is already there because seeding lags on dryness in the central Plains — Kansas is the top wheat state. But concerns were also cited about the southern Midwest and northern Delta where soils are parched.
The assumption has been that farmers will chase $10 wheat prices and create an orgy of wheat planting that could cost both corn and soybeans acreage next spring, notably in regions where winter wheat cannot be harvested by June, preventing any “double-cropping” of soybeans.
USDA will issue its next crop progress update on Monday afternoon after 1600 ET/2000 GMT.

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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.
    
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    Chicago Board of Trade wheat prices rocketed to an all-time top of $9.11-1/4 per bushel in the week ended Sept. 14 as export business remained strong despite record prices. But soybeans, soybean meal and soyoil also hit multi-year highs. 
    The leader was soyoil, which like corn for ethanol has been buoyed in part by the craze for renewable fuels. Soyoil is the feedstock to produce biodiesel.
    Soyoil set a 23-year high of 39.45 cents on Friday, grabbing a bit of the glaring spotlight on wheat that fund investors have been mesmerized with since late summer.
    The oil rally took off on Wednesday after the U.S. Agriculture Department’s monthly supply/demand report. USDA issued shocking drop in projected end-season soyoil stocks.
    Then, on Friday, the threat for a surprise weekend frost in the upper Midwest — potentially freezing late-maturing bean yields or killing off plants — spurred even more worried speculator and commercial buying in soybeans and soyoil.
    But the shocker was the USDA number, which reduced the estimate for end-season U.S. soyoil stockpiles by October 1, 2008 by a whopping 490 million pounds from last month. That was directly tied to projected higher amounts of soyoil sought by the green fuels industry to produce biodiesel.
    Wheat, on the other hand, started acting “toppy.”
    Wheat prices slid more than 70 cents on profit-taking over two days despite bullish USDA data. USDA on Wednesday cut its forecast of world wheat stocks by another 2 percent to a 30-year low and on Thursday reported weekly export sales at 2.13 million tonnes, the biggest in 11 years.
    “When you react that way to what should have been a fairly friendly report — that’s usually a sign,” said Jack Scoville, analyst with The Price Futures Group.
    But Chicago analyst Roy Huckabay said it was too soon to say the high is in because if everyone really believed the market had peaked, the sell-off would be even more severe.
    Analysts noted that, with harvest, we are now moving into the season when U.S. corn and soybean prices slide as supplies move from fields to bins and hedge selling of futures by commercial grain firms taking ownership pressures the markets.
    This should be especially true of corn with farmers due to harvest a record crop of more than 13 billion bushels after plantings rose to the highest level in 63 years.
    Buoyed by wheat and soy, corn futures stayed in their recent range during the week. But a key cash market bellwether — CIF barge corn prices for the New Orleans Gulf export terminal - fell 16-18 cents per bushel between Tuesday and Thursday afternoon. Southern harvest gained momentum and yields remain strong, with many farmers reporting 5 to 15 bushels more per acre than they expected.
    Soybeans — with potential supplies already reduced this season by all the acreage switched to corn for ethanol — are being buoyed at harvest by a little different scenario.
    The futures market continues to try to entice farmers to plant beans — including South American farmers now readying their planters — at a time of record high wheat prices and red-hot demand for corn. The fight for acres is on.
    Over the next week Chicago traders will be watching:
    –Midwest weather reports for potential frost.
    –The latest South American acreage estimates.
    –Whether the parched Australian wheat crop gets rain.
    –Export business buoyed further by the weak dollar.
    –Chart-related signals that could trigger long liquidation in soycomplex futures markets technically overbought after the week’s rally in Chicago.
    
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There doesn’t appear to be anything stopping wheat these days. Demand from hungry nations worried about once-and-future crop losses seems insatiable despite wheat prices well over $8 per bushel — levels never seen in history and more than double the average historical price in the United States.
    In the week ended Sept. 7 the dizzying strength in wheat continued to spill over to other grains. It now looks like U.S. farmers are gearing up to plant much higher acreage of winter wheat this fall — which will take acres away from soybeans and corn when it’s time to plant those crops in the Spring of 2008.
    Bottom line: all eyes will remain on wheat next week, despite the advancing U.S. corn harvest that is certain to yield a bin-busting record crop this year. Nearby CBOT corn prices closed 7-8 cents higher on Friday and soybeans rose 11-12 as CBOT spot wheat rose 24 cents to $8.40.
    For wheat traders, the biggest concern is now the Australian wheat crop which needs rain. The forecast is calling for weekend rains, so that will be a key market indicator traders will be monitoring. Rains were short or absent down under a week ago, spiking CBOT wheat higher.
    The U.S. is the single largest wheat exporter with 29 million tonnes to be shipped in the 2007/08 season. Australia ranks second at 15.5 million tonnes and Canada third at 15 million. But the latter estimates (from USDA) appeared before recent weather-related losses in wheat in those countries.
    “I just don’t think anybody wants to be short Monday morning if they come in and it doesn’t rain in Australia, or Egypt buys some more wheat or India tenders for some more wheat. There’s a lot of little things going on here that is triggering a rally,” Steve Freed, analyst with ADM Investor Services.
    Algeria’s surprise purchase of 500,000 tonnes of wheat, mostly from the U.S. and reported on Sept 6, was the latest demand jolt to buoy wheat prices this week. 
    Traders will gear up for downgrades to production or exports of wheat from overseas producers in next Wednesday’s (Sept 12) monthly U.S. Agriculture Department supply/demand report. The USDA’s latest corn and soybean production estimates will also be released that morning at 0830 EDT (1230 GMT).
    Most are expecting the government to bump up its current corn estimate of 13.054 billion bushels — already an all-time high — as well as its soybean forecast of 2.625 billion bushels. Early harvest reports point to strong corn yields while soybean crop conditions have improved over the past two weeks, which has likely enhanced final yields.
    
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There’s nothing like a little volatility before a holiday. A week after touching $7.50 a bushel for only the second time in history, Chicago wheat prices on Friday morning vaulted past $8 — to an all-time high of $8.07-3/4 basis the December contract. Then came the profit-taking to a close of $7.75-1/2.
    Wheat was on the run again all week — all summer for that matter. So cashing in on the rally only made sense to Chicago traders and the hot-money hedge funds before the 3-day summer-ending Labor Day U.S. holiday weekend.
    End-month profit-taking added in some incentives for the big managed funds that have helped power the rally.
    Corn and soybeans in the last week of August again seemed to be hiding behind the glare of wheat’s push to uncharted highs. Advancing corn harvest in the mid-South and reports of big yields — 175 to 200 bushels per acre — in the southern Midwest worked to keep corn prices delinked from wheat gains.
    Soybeans, on the other hand, appeared to be caught between the two grains, looking for a reason to move.
    Beans managed to puncture some technical chart resistance during the week, as benchmark CBOT November prices rose above the 50-day moving average. But traders said the market will need more incentive next week to penetrate key resistance at $9 basis the November, the key harvest hedge contract.
    Reminders of what the CBOT soybean strength will mean for coming South American planting and forward pricing also hung in the background, a restraint on gains.
    The bulls, on the other hand, still seem to be in love with wheat.
    On the fundamental side, tight global wheat stocks and worries that extreme weather conditions in Europe, Argentina, Canada and Australia will cut world wheat supplies further still retain potential to fuel more upside breaks, traders said. Chart-based shortcovering has added to the wildness of such technical breakouts.
    Traders will be watching to see if Australia’s wheat country gets a much-needed weekend drink before CBOT screen trading reopens on Monday night.
    “There was some speculation that there was some improved rain chances for Australia, but there’s still a question about coverage,” one CBOT trader said of wheat acreage moisture.
    Heavy rains could stir some more profit taking in CBOT wheat. But if it’s dry in Australia over the weekend, there’s no reason to believe that wheat couldn’t jump past $8 again and move higher, traders said.
    “Today’s close wasn’t anything more than end-of-the-month, end-of-the-quarter, rebalancing-type positioning,” said the CBOT trader on Friday afternoon. “I don’t think people are getting too worked up and saying the high is in.”
    One clear trend seen as wheat rallied the past week is a decline in open interest.
    Many believed that drop could be attributed to big speculators and professional grain traders being blown out of “contrarian” wheat/corn spreads they had put on as the price difference between the two grains — $4 to $5 in the nearby contract months — defied historical trends of $1-2 a bushel. 
    Those speculators that had sold wheat and bought corn in a counter to that differential, betting that the spread would narrow — and exiting the market to stop losses in the face of wheat’s continued push into uncharted heights.