Economic Storm Clouds Shadow Outlook for CBOT Grains

February 16, 2009

winterwoods20002U.S. financial markets take a breather on Monday Feb 16 for the Presidents Day national holiday. Most traders are likely thinking it’s just as well they can stay home.
    
President Obama, two weeks into his tenure, is off to a fast start with a record-setting $787 billion stimulus package he could sign as early as Monday. Next, he plans aggressive measures to address the foreclosure crisis and credit crunch and get money moving again in the financial world.
    
But an air of grim uncertainty still seems to hang over world financial markets — an air which looks set to restrain any enthusiasm for rallies next week, given the continuing fog in many quarters about counter-party risk and liquidity.
    
Wall Street on Friday edged close to its November lows. Markets are awash with caution on worries about plummeting consumer confidence, soaring unemployment and slumping demand for goods and services, which may include basic food staples.
    
So Chicago Board of Trade grain and soybeans are trading at the bottom end of their recent ranges, with volume, liquidity and volatility all off from a year ago. Worries about drought effects in Argentina were also pushed to the back burner.
    
“Barring any recovery in the equities, we’ll keep some pressure on the commodities sector,” said one corn floor broker after the CBOT closed on Friday.
    
The Dow industrials slipped below the 8,000 level on charts last week, down 82 points on Friday to 7,850. 
   
Still, it was notable that Chicago grains seemed to draw more psychological support than the Dow last week. Some of the world’s big grain importers stocked up, taking advantage of lower corn and soy prices to book positions especially after they saw ocean freight costs tick higher.
    
The U.S. Agriculture Department reported weekly U.S. corn export sales at more than 1.5 million tonnes, the most since the marketing year began on September 1. That was also the fourth straight week of corn sales of over million tonnes, even though year-to-date exports are still running 45 percent behind last season.
    
Chinese interest in U.S. soybeans also remains strong. But there were signs that the world’s top soy buyer is starting to book South American supplies, especially Brazilian beans and soy products. Cash basis values firmed there last week.
    
Traders will continue to monitor demand, as it could be the one major fundamental that will underpin CBOT markets.
    
South American crop worries — the catalyst to the CBOT grains rally in late January and early February — waned after Argentina received beneficial rains the past week. The moisture came just in time for Argentine soybeans, now in the midst of filling out pods for final yields.
    
“There is a continued trend of improving weather, with the forecasting models underestimating the rains,” meteorologist Mike Palmerino with DTN Meteorlogix said.
    
More showers are now expected through Tuesday in Argentina, the third largest soy exporter and No. 2 in corn exports. Seventy five percent of its major crop areas should benefit from the moisture, Palmerino said. Extended outlooks for the six to 10-day period were also calling for additional rains.
    
As the rains came, March soybeans slid 4.5 percent last week to close at $9.55-1/2 a bushel on Friday. Corn and wheat followed, both ending more than 3 percent lower on the week — March corn at $3.63-1/4 and March wheat at $5.35-1/2.
    
But beyond the usual basic variables that drive CBOT ag markets when trading resumes on electronic screens at 6 p.m. (2400 GMT) on Monday night, traders will keep a close eye on the Dow next week for signs of confidence about the economic rescues the Obama Administration is putting in place. 
     
Photo: Winter fields in northern Illinois. U.S. farmers are in the midst of making spring planting decisions with CBOT prices a key to final intentions.

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