U.S. grain traders look to Wall Street for direction

February 22, 2009

As the Dow Industrials ended Friday at 7,365 — its lowest close since October 2002 – amid mounting fears about the economy and speculation that the White House might nationalize banks — commodity markets were not immune to the downfall. 

The Reuters-Jefferies index of 19 commodity futures slid to a 6-1/2 year low of 200 this week, led down by the energy sector. Chicago Board of Trade corn, soybeans and wheat are at two-month lows, with March corn closing at $3.50-1/4 a bushel, soy at $8.62-1/2 and wheat at $5.19-1/4.
    
As one looks ahead, CBOT grain markets will likely follow the equities as grain traders try to gauge future commodity demand given the grim economic forecasts. Traders will wait for more news from the Obama administration as it tries to shore up the U.S. economy. 
    
Beyond the influence of the stock markets, grain traders will watch for several reports next week, including: 

U.S. Agriculture Department’s annual outlook conference in Washington, DC on Thursday and Friday. The government will unveil its 2009 U.S. corn and planting guesstimates on Friday, Feb 27. It’s always questionable how much impact those numbers will have on CBOT prices. But they promise to provide lots of fodder for traders.
    
This year, more than previous years, farmers are up in the air about how many corn and soybean acres they will plant given the high cost of fertilizer, a factor that can deter seeding of corn — a crop that needs more nutrients than beans to meet its maximum yield potential. Final decisions will be based on fertilizer costs and revenue guarantees crop insurance in March.
    
The data traders are really waiting for is USDA’s planting intentions report on March 31. Those numbers are based on an actual survey of farmers’ planting intentions conducted during the first week of March. 
    
Crop weather in Argentina and southern U.S. Plains. Argentina crops, especially soybeans which are in their key growth phase, continue to benefit from February rains. More showers were expected through the weekend, a bearish input for CBOT soy.
    
In contrast, areas of the southern U.S. plains hard red winter wheat belt — Texas and southwest Kansas — are dry. The southern Plains grows about half the total U.S. wheat crop. Last week the government rated 64 percent of Texas wheat poor to very poor. That remains a concern as the southwest is forecast to be hot and dry next week. Texas will issue its next crop update on Monday. 

Delivery period for March CBOT grain and soy contracts starts Thursday. This will be the first delivery period under the CBOT’s new rule to limit cash grain delivery instruments held by hedge funds and other non-grain firms. The move is designed to cool criticism about the performance of CBOT grain contracts, wheat in particular, and stop a “cash-and-carry” strategy in which investors hold grain futures to capture higher interest rates reflected in CBOT spreads, versus today’s low interest rates. The new rule should have the biggest impact on soybean oil as 13,000 receipts are registered with the exchange.  
    
U.S. Census Bureau issues January crush data on Thursday, Feb. 26. 

March corn options exercised over the weekend. Roughly 7,200 March $3.50 corn options — split pretty evenly between calls and puts — were exercised following expiration last Friday.
    
As one corn options trader said late Friday: “There are a lot of nervous traders this weekend” after March futures closed at $3.50-1/4, basically at the $3.50 strike. As traders offset those positions it could play into corn price moves on Sunday night and again early Monday.

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