Market volatility seen heating up in Chicago grains

May 3, 2009

Chicago Board of Trade grain markets probably will run into more volatility this week as traders stay on edge about Chinese soy demand, U.S. Midwest weather and new capital flowing into commodities.
    
CBOT grains surged the past week as key chart points were breached, sparking an inflow of managed money that has been looking for a home into ag commodities. 
    
“We’ve had some fairly big trading ranges this week — and we are not really into the battle in terms of the growing season,” Rich Feltes, senior vice president at MF Global Research said on Friday. “I think it’s a precursor that we are going to have a very active and volatile trading summer this year.” 
    
Soybeans were the biggest gainer, rising to a seven-month peak of $11.03-1/2 a bushel in the May delivery <SK9> on Friday, and up 6 percent for the week. Corn rose nearly 8 percent from the previous week, ending at $4.06-1/4 in the May contract <CK9>. The biggest surprise was wheat — hitting a three-week top — closing 4.7 percent higher on the week at $5.57-1/4 in May <WK9> — despite poor demand for pricey U.S. wheat. 
   
China’s appetite for U.S. soybeans is drawing down stocks to a projected five-year low of 165 million bushels by the end of marketing season on Aug. 31. Any sign that China is an active soy buyer in the coming week could ignite the market. 
    
“They (exporters) only need to sell about 62,000 tonnes of beans a week to meet the U.S. export goal,” Feltes said, referring to the government’s current forecast of 32.9 million tonnes. 
    
By comparison, export sales over the past four weeks averaged about 673,000 tonnes per week. 
    
The talk among analysts is that USDA this month will trim its end-season stocks forecast to as low as 110 million bushels, to reflect the hot export demand. That speculation will step up this week ahead of USDA’s May 12 crop report. 
    
The shrinking supply drove the price of old-crop July soybeans <SN9> to $1.20 premium over new-crop November beans <SX9> by Friday’s close — snapping back that spread from 83 cents on Tuesday. 
   
Weather concerns also remain in the forefront. Corn planting in the United States, the world’s largest grain exporter, is running about a week behind normal as Midwest rains have saturated fields, delaying farmer progress. 
    
The U.S. Department of Agriculture will issue its crop progress report late Monday, with traders expecting the agency to report corn seedings about 35 percent complete, versus the 55 percent to 60 percent average by early May. 
   
“The dominant issue is going to be the weather. You have to bank that the weather clears out sometime (this) week,” said Don Roose, an analyst with U.S. Commodities. 
   
Friday’s forecasts looked drier for the upper Midwest for the next four to five days, but little relief was expected for the southern areas of Illinois, Indiana and Ohio. The northern Plains spring wheat is also turning drier — an area that has had much difficulty getting started planting. 
   
Farmers like to get spring wheat and corn seeded by mid-May so crops reach their maximum yield potential. After that farmers could switch their intended-corn or wheat acres to soybeans, a later planted crop. 
   
Aside from Midwest weather and soy export news, movements in the equities, dollar and crude oil will be monitored as a sign of the health of the global economy. 
   
The latest wild card is the global flu outbreak that may impact demand for commodities. Over the weekend H1N1 flu was found in a Canadian pig herd.
 
“If it intensifies, we’ll have to react … right now we are watching it but there’s not a panic attitude,” one CBOT trader said on Friday.

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