No Place for the Faint of Heart:Chicago grains

June 7, 2009

gilman-il-fieldGiven the roller-coaster ride in Chicago grains last week as the dollar fell and rose, more volatility is likely in the coming week as investors weigh the health of the economy with the weather outside. Added to the mix will be the U.S. Department of Agriculture’s updated forecasts for the amount of grain and oilseeds left in storage bins this fall and a year from now. 
“Last week has shown us the dramatic impact the dollar and crude has had on our markets. We’ll continue to watch those markets very carefully,” said Rich Feltes, senior vice president at MF Global Research. 
As the dollar sank to its lowest level in 2009 on optimism the global economy is on the road to recovery, managed money flowed back into commodities, including the grains, rallying corn, soybeans and wheat to eight-month highs.  Demand for dollar-denominated commodities usually rises as the dollar falls. On the flip side, when the dollar rebounded on Friday, grain prices sank back on profit-taking. 
In the days ahead, aside from the dollar and other “outside” markets like Wall Street equities that will reflect sentiment about overall economic demand, grain traders will be focused on USDA’s monthly supply-and-demand report to be issued on Wednesday morning at 8:30 a.m. EDT. 
Analysts polled by Reuters expected the government to trim its key numbers: projected end-season stockpiles for soybeans and corn. Given strong export demand over the past month, U.S. soy stocks could slip near 100 million bushels, the lowest supply seen since August 1977, before the new harvest. 
Dryness in the northwestern Corn Belt — Minnesota, South Dakota, northern Nebraska — coupled with constant rains in the southeastern Corn Belt remain supportive to Chicago Board of Trade grains as farmers struggle to get their new crop seeded and established. 
The biggest worry is the shrinking window to plant corn in two key states — Illinois and Indiana — putting at least a million acres of expected corn production into a possible last-minute switch to soybeans, a faster maturing crop. 
Those two states, which produce a quarter of the American corn crop, had some 3.4 million acres of corn yet to plant last week at a time when all seedings are usually complete. Southern areas of the states were the furthest behind. USDA will issue its next crop progress report Monday afternoon.
“Agronomically, farmers can plant corn in the southern part of the state until the end of the month. But we know that corn planted that late simply has a lower yield potential,” said Bob Nielsen, extension agronomist at Purdue University in Indiana.
Farmers are now also bumping up against crop insurance deadlines, raising the stakes to make a firm decision. In Illinois and Indiana, June 5 was the deadline for farmers to decide whether to cash in full value on their insurance, plant corn, or switch to soybeans. Soybean farmers have until June 20.
The northern Plains is another worry, plagued not only by saturated fields after spring floods but chilly temperatures, dipping to below freezing in recent days. That could mean replanting as well as lost acreage for the year.
Photo: Newly emerged corn in field near Gilman, Illlinois.

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