Views on commodities and energy
Grain traders eye Gustav near-miss, weaker oil may weigh on CBOT screens
The impact of Hurricane Gustav will be the key to Chicago Board of Trade grain markets when they reopen on Monday night for screen trading following the three-day Labor Day holiday weekend, with traders keying off crude oil prices for direction.
“We’re watching Gustav. The energies will be trading on Monday and could influence the overnight Chicago markets if the energies are doing anything wild. We’re going to see if it pushes any rain into the Midwest or not,” one Chicago grains analyst said.
By midday on Monday, the New York crude oil market was down more than $4 a barrel to around $111 — and falling — after Hurricane Gustav was downgraded to a Category 2 before its landfall on U.S. Gulf Coast 70 miles west of New Orleans on Monday. Energy traders were heaving a sigh of relief on optimism that the storm will not be making a Katrina-like slam on Gulf of Mexico energy operations.
With New Orleans levees holding — for now — grain traders will also be more optimistic that the storm will not swamp the grain export terminals there. New Orleans, Mobile and Texas ports handle more than 70 percent of U.S. grain exports, the world’s largest.
So for Monday night’s CBOT opening, grains are likely to follow the sharp pullback in oil.
But despite what looks like a near-miss with Gustav, grain traders note that as of Monday weather forecasters still point to five storms brewing over the Atlantic that have the chance to develop into tropical systems. No doubt Mother Nature will keep traders on their toes this week.
One benefit of the storm could be more rains moving north this week into dry areas of the Midwest where maturing corn and soybeans could really use a drink. That would be bearish.
On the other hand, heavy rains in Louisiana or Arkansas will put the rice harvest, already delayed, at further risk.
The rain and wind from Gustav and possible damage to Gulf export terminals could also stall grain and soybean shipments out the U.S., another bearish factor. Broken levees would cause wake restrictions and other limits of river vessels, slow or close lock operations, and so on.
Traders are expecting the U.S. government to cut its ratings of corn and soybeans 1-2 percentage points in this week’s crop report that will be issued on Tuesday after the CBOT market closes. The focus will be on the eastern belt — Ohio, Indiana and Illinois — which has been hotter and drier than the western Corn Belt, traders said.
Analysts also will be updating their forecasts of the 2008 U.S. corn and soybean crops this week, ahead of USDA’s September 12 report. Brokerage FC Stone will be the first, scheduled for release on Tuesday afternoon. Memphis-based Informa Economics will be out later.
Last but not least, the direction of the dollar has had a big impact on Chicago grain markets. That trend is expected to continue.
As the dollar on Friday ended its best month in over a decade, corn, wheat and soybean prices deflated — along with speculative open interest. The rally in commodities over the past 18 months or so has largely been linked to the weakness in the dollar, which makes U.S. commodities cheaper for overseas buyers.
“If the bottom is in for the dollar, it’s going to hard for commodities to gain,” one Chicago floor broker said.