CBOT Grains Bide Time with Eye on Argentina, Exports

January 31, 2009

illinois-winter-corn-field1Corn, wheat and soybeans on the Chicago Board of Trade will likely keep within recent ranges in the week starting Feb. 2.
A deepening global recession which is easing demand for commodities, plus fewer investors in commodity markets, will continue to limit price volatility and, thus, trading.
The slide in the Dow industrials on Friday (down 148 points at psychological support at 8000.86) came after government data showed U.S. GDP for the fourth quarter fell at its fastest pace in nearly 27 years. That just underscored the economic crisis, since the U.S. economy is still the key engine for the world.
The mood on the CBOT trading floor has taken an 180-degree turn in the past year. As 2008 began, traders could not believe how volatile grains had become. They watched prices soar day after day on huge world demand for food and feed and biofuels, and hot Wall Street money flooded into commodities.
Today, the mood is subdued. Veteran traders are back to worrying about seasonal fundamentals, notably South American weather. Hot, dry weather in Argentina, the world’s third largest soy exporter and No. 2 in corn, roasted crops this month with yields likely down significantly from a year ago.
Traders now say Argentine soybean output could fall as much as 25 percent from last season and corn production could fall as much as 40 percent. The wheat harvest was already estimated to be the smallest in 20 years. 
But the jury is still out, hence the CBOT trading ranges.
Argentina also turned a little wetter this week with some expectations that crop conditions have stabilized. Soybeans have the greatest chance to benefit if the weather is milder in February, when the plants fill bean pods. So CBOT soybeans closed below $10 a bushel this week.
“We will be watching the weekend weather and the forecast for direction. But beans are also at the bottom end of the range, so a bounce is not out of the question,” one floor broker for soybean merchants said on Friday afternoon.
Up to 60 percent of the main corn and soybean region in central Argentina is expected to see light to moderate rains on Monday and into Tuesday. Then, it looks dry again, according to the late weather forecasts on Friday. So the on-again, off-again forecasts for Argentine rains will keep trade in soybeans a little more jumpy next week.
In contrast, “corn and wheat will continue to focus on demand, in particular into the export sector,” said grains analyst Shawn McCambridge.
U.S. wheat and corn prices are getting a more competitive in the world market — a switch from the recent trend. The U.S. Agriculture Department reported strong weekly corn export sales the last two weeks, with this past week a marketing-year high over 1.1 million tonnes. 
“Corn will also be looking at what takes place with the soybeans on acreage consideration for this spring,” McCambridge added. “While corn might not have the same fundamental support that soybeans would have on the South American concerns, we still can’t let soybeans get to far away from corn as we still need to secure enough acreage.”
Grain analysts have been tracking the price ratio between new-crop November soybeans and December corn in recent weeks. The rule of thumb is a ratio below 2.2-to-1 favors corn acres.
Another market factor that will get a little more play as spring approaches is the condition of the U.S. hard red winter wheat crop. The southern plains where the crop is grown is suffering from another dry winter. Last week the Texas state crop report rated 62 percent of the HRW wheat in poor to very poor condition. Texas will issue its next crop update on Monday afternoon and other key states, including top producer Kansas, will release monthly reports.

Photo: Winter field in northern Illinois taken by Christine Stebbins.


Farmers should be drastically cutting production when markets tell them that the products they produce are not wanted. Prices adjusted for inflation are the lowest in history and over production is only making things worse. Input companies will inherit the bad debt, in the form of land and thus the control. If you want to eat then, just make sure you are really really rich.

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