U.S. grain traders eye Wall Street for direction

March 8, 2009

Chicago Board of Trade grain markets will likely continue to track Wall Street stocks as a barometer of likely demand in 2009. The cratering Dow Jones Industrial Average as been the predominant factor for financial market confidence all winter.
So far this year the dollar has rallied, tight credit market indicators have loosened up a bit, Chinese grain buying has not dried up. But for grain traders, as for investors in general, the free fall in the Dow which slid to a 12-year low last week has been a negative that has been impossible to shake off.  
Commodities were able to diverge from the negativity of the financial markets on Friday. But it’s been rare for CBOT grains to move in the opposite direction of the Dow. 
Wall Street’s panic over financial time bombs has pulled hundreds of billions of dollars in cash out of all markets, including grains. The spectacle of iconic corporate titans from AIG to Citibank to General Motors on the brink of insolvency has shaken the business world to its roots. Even the rock solid edifice of General Electric — the very embodiment of American know-how and strength — is showing cracks.
This “waiting for the end” mood will continue to hang over all markets next week as investors eye the fate of General Motors and major banks. A focal point will be a meeting between the U.S. auto task force and GM, Chrysler and officials from the UAW in Detroit next week after an auditor report last week raised doubts about GM’s ability to remain “a going concern.” 
CBOT grain traders will also be watching: 
* USDA’s monthly supply and demand report to be issued on Wednesday. Initial estimates from analysts point toward the government raising its forecast of the amount of corn left at the end of the marketing year on Aug. 31. It could be up roughly 25 million bushels to 1.815 billion bushels, reflecting a slower-than-expected export pace. The U.S. soybean end stocks forecast could fall by 10 million bushels, given the continued strong export pace. Most analysts are not expecting USDA to make much of a change on its wheat estimate. 
* Last trading day and expiration for March grain and oilseed contracts is Friday, March 13. Traders will be watching for open interest to decline in all the contracts this week, which would limit potential volatility at Friday noon expiration. 
* New-crop November soybean to December corn ratio. It closed at 2.09:1 on Friday, a level that tends to favor corn plantings over soybeans. As a general rule of thumb, a ratio of 2.2:1 is an indifference point — plantings could go either way. The ratio peaked at 2.36:1 in mid-January when soybeans rallied amid Argentine soybean drought worries. 
U.S. southern Plains weather. With South American harvest getting under way, the next potential weather market centers around the U.S. hard red winter wheat crop. Soil moisture is very short in Texas, Oklahoma and southwestern Kansas. Wheat is breaking dormancy which means moisture needs will increase. Hot and dry weather continues, with not much relief in sight. The Texas state crop report to be issued Monday afternoon will update traders on wheat conditions and soil moisture. 
* Argentine farmer/government conflict. Worries that differing opinions between farmers and the government about export taxes and grain marketing buoys CBOT soy. Reports of China buying three to four cargoes of U.S. soybeans for April shipment and strong Brazilian basis levels are signs that the top world soy buyer is leery of sourcing Argentine soy.

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