Runaway U.S. grain markets; USDA to update demand forecasts

February 3, 2008

    What a difference a year makes. Last year, Chicago traders were focused on watching their home-town favorite play in the Super Bowl. This year it’s runaway U.S. grain markets.

    For starters, all eyes are on the soaring Minneapolis wheat market — surging to an all-time top of over $14 a bushel on Friday, Feb. 1. The Minneapolis wheat market will continue to monopolize price direction for all food commodities given the huge demand for high-protein wheat — both from exporters and domestic flour millers, they said.

    U.S. export sales of hard red spring wheat, the variety traded on the Minneapolis Grain Exchange, have exceeded USDA’s forecast of 275 million bushels. Traders are waiting to see if the government makes any upward adjustment to its U.S. wheat export forecast to reflect the big demand when it issues its monthly supply-and-demand report on Friday, Feb. 8.

    Demand for U.S. corn and soybeans also have been strong and “is still an underlying supportive feature,” one CBOT trader said. “We’re in a demand period so we are going to have to watch it and see if that continues to drive the market.”

    The weakness in the dollar, largely tied to the Fed’s move to lower interest rates has been a big input in stirring export demand this season, traders said.

    The other key fundamental factor that CBOT traders will be watching is how much more rain Brazil’s No.1 soy state of Mato Grosso gets. The heavy rains were seen delaying harvest and increasing the chances of an outbreak of the yield-cutting soy rust disease.

    More talk will begin circulating among the Chicago grain crowd as to how many acres of corn, soybeans and spring wheat U.S. farmers will plant this spring. The general ideas are that corn acres should be down from 2007 while soy and spring wheat will be up. But nothing is written in stone as the battle for acres is real — giving CBOT traders lots of uncertainty to trade. USDA’s first planting intentions report will be issued at the end of March.

    That’s it for the fundamental inputs.

    Macro economics will also drive prices. Everyone keeps asking whether CBOT grains and oilseed markets will be insulated from a possible recession. Some say that people have to eat so regardless of what happens to the Dow, demand for commodities will stay hot. Others disagree citing financial market worries could easily spill over to commodities, triggering speculators to pull money out of Chicago grains and oilseeds as well.

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