Politics, dollar elbow into CBOT grain markets

March 22, 2009

Grain markets will keep an eye on spring planting intentions in the United States, the world’s largest exporter, in the coming week but the dollar and politics have also jumped back into the markets as a surprise.
Grains were led higher by soybeans this week, rebounding after corn gained the previous week on seeding expectations. But U.S. government moves to shore up debt markets and also Argentine politics came back into the mix, adding a lot of juice to bullish grain buyers. Chicago Board of Trade May soybeans ended 8.6 percent higher for the week at $9.52 a bushel, while May corn gained 2 percent ending at $3.96-1/2. CBOT May wheat closed at $5.50-1/4, up 6 percent on the week.
The weaker dollar was a big trigger, as a falling greenback makes all U.S. commodities cheaper to overseas buyers. The dollar notched its biggest weekly plunge against a basket of currencies since 1985 after the U.S. Federal Reserve announced on Wednesday it will spend more than $1 trillion to buy mortgage and U.S. Treasury securities to boost the economy. U.S. Treasury yields dove on the news and investors, also wary of inflation, dumped the dollar. 
One key to the 2008 commodities rally, which saw record grain prices into the summer, was the sliding dollar. As the currency began turning around in July 2008, as grains hit multi-year highs, commodities began a long descent.  
“This week has showed us the extent to which we are tied to the financial markets,” said Rich Feltes, director of MF Global Research in Chicago. “It’s not just the grain fundamentals. It is the political landscape — what’s going on in terms of Congressional and Fed actions, Argentine government policy — all of these things are impacting our markets right now.
“Whether or not the dollar adjustment has essentially run its course will be an important factor,” Feltes said.
Another outside factor last week was Argentina, the number 3 soybean exporter and number one shipper of soybean meal.
A squabble between Argentine farmers and their government over a soy export tax threatened to disrupt shipments there as farmers decided to halt sales of grains and livestock for seven days beginning Saturday, further dimming hopes for any quick resolution to the conflict.
“Seven days will not cause too much excitement but the uncertainty that it could become longer would be supportive for spreads,” said Mario Balletto, Citigroup analyst in Chicago.
China, the biggest soy buyer, has noticed. The U.S. Department of Agriculture on Friday said U.S. exporters sold a fresh 165,000 metric tons of soybeans to China on Thursday, of which 55,000 was for 2008/09 shipment.
If the dollar and politics in the U.S. and Argentina have been a powerful distraction, grain traders also remain tightly fixed on the basic supply fundamentals: spring planting.
A tussle between corn and soybeans continues for more than 160 million acres in the United States that will be seeded in the next two months — and end up supplying half of world corn exports and one-third of soybean export shipments.
The markets await the March 31 USDA annual planting intentions report, the first official word on what farmers intend to plant this spring based on actual farmer surveys.
As of Friday many grain analysts still thought U.S. farmers will seed a couple million fewer corn acres than the 86 million planted last spring, while soybean acres could be up as much as 5 million from the 75.7 million planted in 2008.
A wild card remains cost of fertilizer, which is much more essential to good corn yields than beans, a legume. Nitrogen fertilizer in the Midwest is running about $600 to $750 a ton, down sharply from $1,000 last fall. But phosphorus and potassium-type fertilizers, such as DAP, are still very pricey at $950 to $1,000 a ton, crop specialists say.
Bob Nielsen, extension agronomist at Purdue University, still thinks soybeans offer a better return, considering current prices and planting costs. But if USDA forecasts smaller-than-expected corn seeding intentions on March 31 report, he said, the corn market could rally and swing back more farmers to plant corn. Farmer hopes that corn demand to produce ethanol will rise this year are another wild card. 
“These guys have to make a decision pretty soon. The end of the month is their last opportunity to see a change in prices that would sway them one way or the other,” Nielsen said.
Wheat trading was a sideshow most of the week considering the fireworks in corn and beans. But traders continue to nervously eye the weather. Drought is pressuring the hard wheat crop in the southern Plains — about half U.S. wheat crop — while flooding may threaten the prime spring wheat area in the United States, the Red River region of North Dakota.

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