Harvest Mostly Made, U.S. Grain Traders Look for Demand

November 16, 2008

With the U.S. Agriculture Department’s last production report of the year now out of the way and the North American harvest nearing completion, grain traders are turning their attention to the demand for grains and oilseeds as the key driver for Chicago Board of Trade prices.
    Given the still uncertain scope of the global credit meltdown and with bullish news in short supply, CBOT grains will likely feel the weight of limited demand, traders say. The inconclusive G20 “summit” over the weekend which featured promises but few specifics typifies the uncertain mood.
    Money — specifically, credit — makes the world go round for grain traders, as with all other market makers. But the giant credit freeze seems nowhere close to thawing out.
    A long-time CBOT grain broker told a reporter on Friday that one of his clients sold a couple of barges of grain late in the week. But he added that while there was more interest for U.S. grains, the seller was hesitant to extend additional credit until he had been paid for the other barges.
    “There is just the underlying concern about counter-party risk,” he said, “and it’s happening everywhere.”
    However, there was also a sense as the CBOT grain markets closed on Friday that they were finally beginning to “de-link” themselves a bit from roiling, outside financial markets.
    Soybean futures ended lower for the week but both corn and wheat ended higher even as Wall Street street stocks posted another week of losses, with the Dow falling 5 percent.
    The week ahead could be another struggle for the stock market as hopes for bailout of the auto industry fade before President George W. Bush leaves office.
    The low expectations for the G20 world leaders meeting in Washington this weekend were also confirmed amid the worst financial crisis in 80 years.
    So CBOT grain traders will look for some carry-over effects for at least corn and wheat starting on Sunday night and into day trading on Monday to see if fundamental grain demand will start showing its hand and underpinning the board.
    One thing for certain: Chicago Board of Trade corn options trade will be interesting in the coming week and potentially volatile given the huge open interest in December options.
    “There are over 1.2 million Dec options open that are going to expire on November 21,” Patrick Quaid, a corn options floor trader, noted on Friday.
    USDA will issue its weekly crop progress after Monday’s close, with traders expecting corn harvest at least 80 percent done, trailing the average pace of 90 percent by mid-November.
    Time is running out for harvest with the week ahead one of the last clear windows to wrap it up. North Dakota’s crop report last week said some farmers do not expect to get back into fields to harvest until spring as recent snows pretty much put an end to their efforts.
    Sunday saw some scattered light snow in the Chicago area.
    The lateness of harvest continues to feed some talk that USDA will cut its final 2008 U.S. corn production total in January. This past week, USDA trimmed both its U.S. corn and soybean output estimates to reflect smaller expected yields.
    A sidelines event last week in Chicago also gave traders another wild card to worry about in the coming year.
    At the annual Futures Industry Association meeting, the tone of the discussions was more sobering than in past years as “derivatives” has become a term of derision during the world financial crisis — even if OTC and other unregulated private markets rather than exchanged-cleared contracts have been in the cross-hairs of critics.
    But one fact FIA attendees agreed on: more regulation and oversight is coming, a message underscored by comments from the outgoing CFTC chairman at the start of the FIA’s meeting:
    “The United States should scrap the current outdated … framework,” said Walter Lukken, acting chairman of the Commodity Futures Trading Commission.
    “If any opportunity and time would allow us to do this, this is the time,” Lukken said. “We should think boldly.”

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