U.S. weather key driver for Chicago grain prices

April 20, 2008

Outside market factors like the value of the dollar, the U.S. credit crunch, the price of gold and crude oil will continue to be big contributors to price direction for Chicago Board of Trade commodities this spring. But fundamental inputs — export demand, shrinking grain supplies, weather — are getting more play — with the biggest influence being weather in the United States, the world’s largest food producer and exporter. 

    We saw what happened to CBOT rice prices last week when fears about tight world rice supplies led governments to hoard and ignited food riots in places like Haiti.  CBOT rice made a series of all-time highs, four straight days during the week ended April 18, climbing to over $24 a hundredweight by Friday. That was more than double its value a year ago.  

 STAY TUNE TO WEATHER FORECASTS

Daily weather forecasts and intraday updates will be key to price direction. Grain traders are growing increasingly worried about planting delays as the U.S. Midwest doesn’t seem to be able to shake out of a cool, wet pattern. 

    Corn seeding is already behind and if farmers can’t get their corn seeded by mid-May, yields can drop drastically — 1.5 bushels per acre per day for every day fields are not planted by May 15, crop specialists say. 

    Planting delay jitters helped Chicago corn prices rise to all-time highs this week, with nearly all contracts well above $6 a bushel — triple historical prices. 

    Southern farmers are also having problems planting rice in Arkansas, the top U.S. rice state. 

    So all eyes will be on the USDA weekly crop progress report to be issued Monday afternoon which will give the latest planting update. 

Other factors to watch: 

Any developments regarding talks between Argentine farmers and the government over a soy export tax. CBOT traders are awaiting for some resolution. The lack of any agreement underpins soy prices. Exports out of Argentina, the world’s top soymeal and soyoil exporter and No. 3 soybean exporter, are slowed after a three-week farmer protest over the export tax. The strike was called off for 30 days to give farmers and the government time to work out a resolution. 

Option expiration of May contracts is Friday. Given the huge amount of volume traded via CBOT options, big open interest in any strike near the May futures price level will influence price direction in the coming week. Prices tend to be attracted to the levels with big open interest.

U.S. Census Bureau will issue its monthly April crush data on Thursday. 

Commodity Futures Trading Commission meeting with U.S. grain leaders. Last but not least will be the aftermath of the CFTC meeting with the U.S. grain industry in Washington DC on Tuesday to iron out concerns about the hedging viability of CBOT agricultural contracts. 

    There promises to be lots of fireworks given the non-convergence issues (cash and futures prices not coming together at delivery locations at contract expiration) surrounding Chicago contracts. Also on the table will be the dominance of commodity funds in CBOT ag futures given the expansion of speculative position limits and more likely ahead. Insiders are doubtful of any resolutions between the grain industry and the industry’s regulator.

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