Dollar, exports and weather to dominate CBOT grains, oilseeds

August 3, 2009

corn-field-roadGrain traders will be gearing up this week for the biggest crop report of the summer on Aug. 12, leaving the door open for plenty of volatility in Chicago Board of Trade grain and oilseed markets. 
  
That will be the first time the U.S. Department of Agriculture forecasts the size of the 2009 U.S. corn and soybean crops based on actual field surveys, rather than historical yields.
    
“The markets take on a life of their own in advance of these crop reports,” said Rich Feltes, senior vice president of MF Global Research. “I think we would be able to hold the value of soybeans fairly well going into the crop report. 
    
“But I would think the corn market … is going to struggle unless the weather looks adverse. Wheat is going to be tailing around with corn.” 
    
Soybeans continue to be buoyed by USDA’s outlook for U.S. soy stocks to slip to a 32-year low of 110 million bushels by the end of August, when the 2008/09 marketing season closes, given brisk export demand. Some analysts say soy stocks could get even tighter given China’s voracious demand. USDA last week said China booked another 1.9 million tonnes of U.S. soybeans, including 120,000 tonnes from rapidly dwindling 2008 harvest supplies.
    
For corn, the story remains perfect growing conditions in July, when most of the crop was pollinating. That spells big yields. Wheat still looks pressured by poor export demand and prospects for USDA to raise its 2009 U.S. output estimate. 
    
Given last spring’s delayed corn planting, many analysts expect USDA to trim its corn harvested acreage figure on Aug. 12. But given the excellent recent growing weather, that cut is not likely to translate into an overall smaller corn crop. 
    
“An increase in yield could more than offset a decline in acreage,” said Brian Basting with Advance Trading, a Bloomington, Illinois, brokerage and farm adviser.
    
In July, USDA said it expects U.S. farmers will harvest the second-largest corn crop on record at 12.29 billion bushels, at an average yield of 153.4 bushels per acre. Soybean output is forecast at a record-large 3.260 billion bushels. 
   
DOLLAR FALLS, GRAINS RISE 
Positioning before the crop report “along with the outside markets, the U.S. dollar in particular, will continue to drive our views,” said Dan Basse, president of AgResource, a  consultant in Chicago.
     
The dollar slid to its lowest levels of 2009 on Friday as an unexpectedly small contraction in the U.S. economy fed some economic optimism and curbed safe-haven demand for the dollar. Not surprisingly, the Reuters-Jefferies CRB index <.CRB> of 19 commodities rose to a six-week high during the week. 
    
If the dollar sinks further in the coming week it will remain a buy signal for commodities. A weak dollar makes U.S. exports such as grains cheaper for overseas buyers. 
    
A yellow flag for speculators, however, will remain the rising chances for government regulation in the free-wheeling commodity markets. The Commodity Futures Trading Commission will resume hearings on Wednesday, keeping markets on edge.
    
Another factor: commodity index funds, sizable “long-only” traders from their mandated index holdings, will on Friday begin rolling forward their September futures positions.
    
Last week, CBOT August soybeans rose 11 percent to close at $11.34 a bushel, powered by export demand. Corn and wheat were lifted by the strength in soy and by the falling dollar. September corn closed up 7 percent for the week at $3.39-1/2 while September wheat finished 2 percent higher at $5.28-1/4.

PHOTO:Northern Illinois corn field taken August 2 by Christine Stebbins

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