After a record-setting 2007, Chicago Board of Trade grain traders had no chance to catch their breath in the first week of 2008. Last week soybeans and soyoil soared to new all-time highs — over $13 a bushel and 52 cents a lb, respectively — while corn jumped to an 11-year high and wheat continued hovering near all-time highs and jumped the 30-cent limit on some days. Veteran CBOT floor traders ask themselves: what next?Traders cited factors affecting the booming grains market: crude oil at $100 a barrel, throwing fuel on the already raging biofuels fire; corn stealing acres from soy, wheat and other crops; the dollar looking even weaker, feeding exports and draining US grain stocks; shaken Wall Street investors flooding into commodities; vague fears of climate shifts feeding crop disasters and magnifying weather scares. What next, you ask? They had one answer: more of the same.

For the upcoming week starting Sunday Jan 6 CBOT grain traders spotlighted factors on their watch list:

Wall Street funds “rebalancing”: 2008 rebalancing of portfolios by commodity index funds, ie. those that take on long positions in basket of commodities and hold the positions for an extended time. CBOT traders late Friday said they were bracing for a bigger chunk of money moving into corn versus wheat and corn versus soybeans as some index funds — the Dow Jones-AIG Commodity Index Fund, for example — were being weighted heavier to corn in 2008 compared to 2007, given the US energy bill’s now-official blessing for the corn-based ethanol boom to continue for years and also on expectations that China, in recent years a corn exporter, will possibly become a net importer in 2008. Index funds hold representative chunks of futures contracts to reflect index computations. However, CBOT traders noted that other commodity indexes are different. The Standard & Poor’s Goldman Sachs Commodity Index is upping its weightings in all three CBOT grains, for example.

Standard and Poor’s also announced back in November that its investment in all commodity indexes this coming year will be increased to $150 billion from $100 billion, effective January 2008. So hold onto your hats as these adjustments add to volatility but also generally bullish sentiment toward of commodities as Wall Street money moves into commodities during 2008 as a hedge against inflation and financial uncertainty.

Southern hemisphere weather: the weather in Argentina — the world’s No. 2 corn exporter, No. 3 soybean producer and No. 1 soymeal and soyoil exporter — is being watched by CBOT traders throughout each session. It’s been dry there and on Friday forecasters were pushing the expected rains back until later this coming week, feeding bullishness. Dryness raises worries about maximizing corn and soy yields. The corn crop is also just starting to pollinate in Argentina, the key growth period for yields. Corn likes hot days and cool nights. But rains this month will be critical for corn yields. The critical month for soybeans is February. 

USDA data tsunami: The coming week will be capped off on Friday Jan 11 (at 7:30 CST/1330 GMT) when the U.S. Agriculture Department issues its largest one-day flood of data for the entire year. USDA will release its final 2007 U.S. corn and soybean production numbers; report the amount of wheat, corn and soybean stocks on hand as of Dec. 1; forecast U.S. winter wheat planted acreage; and update its world and U.S. 2007/08 estimates for season-ending stocks, always the “bottom line” numbers for the CBOT traders in terms of future supply-demand.

Early rumblings among CBOT traders and analysts on Friday held that USDA will cut its estimates of last fall’s U.S. 2006/07 corn and soybean harvest and forecast 2007/08 U.S. winter wheat plantings up considerably given record high prices for autumn planting. Reuters reporters will issue average analysts estimates and comments early in the coming week, setting the stage for “fundamental” expectations. 

But for daily trading, “fundamentals” of supply and demand remain only one part of the “reality check” powering the brave new world of CBOT grain markets in 2008. The other two are both wild cards, one old and one new: Weather and Wall Street fund investors, with the latter especially adding a lot more leverage in grain markets from non-grain factors (ie. the dollar, the credit crunch, interest rates) than in the simple, bygone days of, say, 2005.