Eye on Wall Street, U.S. plantings

March 16, 2009

woodstock-illinois-fieldU.S. grain markets are unlikely to shake the influence of Wall Street in the coming week with equities remaining a bellwether gauge for commodity demand, as they have all winter.
    
The Dow Jones industrial average <.DJI> ended Friday on an up note at 7,223, up 9 percent for the week and the best weekly performance since November. Weary investors were enthused after beleaguered banks Citigroup <C.N> and Bank of America <BAC.N> seemed to show a pulse. 
     
“We are definitely going to be influenced by the big-picture market. It is hard to see corn and beans breaking away while there is such a concern about global demand,” said analyst Gavin Maguire with Chicago brokerage EHedger. 
   
“If we suddenly see some extended upturn in investor sentiment then that would lend support to food markets as well,” he added.
   
Chicago Board of Trade grains — last year among the darlings of the global commodity boom — have plummeted since the credit crisis last summer morphed into the global recession, with prices falling 40 percent or more. 
   
Large speculators now hold huge net short positions in CBOT grains and oilseeds, especially in corn and wheat. 
   
Profit-taking and capital preservation have been key as these “longs” covered losses elsewhere and ran from the bear market. 
But as Wall Street steadied this week, grain speculators followed suit. Commodity Futures Trading Commission data issued on Friday showed that large speculators’ net short position in corn, for example, shrank by 36,000 contracts. 
   
Grain traders are thinking like all investors: higher markets will bring confidence, both to consumers and financial markets. That can, in turn, revive credit and bring buyers of all goods and services, including grains, back to the table. 
   
So next week, grain traders will be watching for more news that the financial sector is coming out of its hole. 
   
Undoubtedly, the Federal Reserve’s announcements Wednesday afternoon 1415 EDT (1815 GMT) on interest rates following the two-day Federal Open Market Committee (FOMC) meeting will be key. 
   
But while financial markets remain a bellwether for grain and oilseeds in the week ahead, traders will also keep a sharp eye on more traditional fundamentals, namely plantings. 
   
In particular, grain traders eye the price spread between corn and soybeans, which together account for about 160 million planted acres each year in the U.S. Midwest. 
   
“Corn and bean plantings will be the conversation now until June,” Maguire said. 
   
Speculators are sensitive ahead of next month’s seeding. On Friday Informa Economics, a widely watched consultant, rocked CBOT markets with a surprisingly low corn plantings forecast that fed a rally in corn over soybeans. 
   
It pegged corn seedings at 81.4 million acres, down 5 percent from last spring, and soybeans at an all-time high of 81.5 million acres, nearly 8 percent higher than a year ago. 
   
But many traders and analysts doubted the corn figure. Others will start issuing their estimates next week ahead of the government’s official plantings estimate on March 31. 
   
Farmers and traders closely watch the spread between the two CBOT new-crop harvest months. They gauge projected costs of production — seed, fertilizer, land, fuel — with those forward prices that they can lock in for returns. 
   
Over the last month, the bias has moved to corn acres. 
On Friday, the CBOT November soybean <SX9>/December corn <CZ9> ratio fell below 2-to-1 — a key signal to farmers to plant more corn, analysts noted. 
   
As a rule of thumb, a ratio of 2.2-to-1 is an indifference point — plantings could go either way. A ratio below 2.2-to-1 favors corn acres, while above that level encourages soybeans. 
The ratio peaked at 2.36-to-1 in mid-January when soybeans rallied amid market worries about Argentine drought losses. But it closed at 1.97-to-1 on Friday afternoon. 
   
“Corn has broken out,” Linn Group analyst Roy Huckabay said of Friday’s close in May corn at $3.88-1/2.
   
But old-crop soybean supplies remain tight, with nearby deliveries on CBOT at a healthy premium to new-crop November. 
   
Informa’s numbers tightened that old-crop/new crop spread on Friday. But uncertainty about Argentina’s political woes will keep nearbys firm. Any new conflicts between farmers and government there could push more importers back to U.S. soy. 
   
On wheat, the biggest focus is weather for U.S. Plains hard red wheat, about half the total U.S. wheat crop. The Southwest belt — southwestern Texas all the way to southwestern Kansas — is suffering from drought. 
   
Soil temperatures have now warmed up to 40 degrees Fahrenheit all the way to northern Kansas, which means the crop is breaking winter dormancy and will need more moisture. 
   
“Monday morning we’re going to look at how much rain the northern Panhandle of Texas received. This is the last big chance of rain for the next 10 days. That will be an important bearing on what wheat does,” Huckabay said.

PHOTO: Illnois field taken in late February by Christine Stebbins

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