Views on commodities and energy
Dollar, weather to steer U.S. corn, soy prices
Veteran traders say U.S. grains feel “toppy” after last week’s rally to multimonth highs, but many remained hesitant to pick a direction for the coming week given the outside storms rattling the markets. What they would agree on is that the two main factors which have directed the markets for the past month — U.S. harvest weather and the dollar — will remain center stage this week.
Typically, Chicago Board of Trade corn and soybean prices slump during October, the traditional prime time for harvesting U.S. grains, as more supplies flood into country elevators, grain processors and other marketing channels. But Mother Nature has not cooperated this autumn. Persistent rains and cool temperatures have put the 2009 harvest off to the slowest start in more than two decades.
Corn, the biggest row crop, was only 17 percent harvested on Oct. 18, versus the usual 46 percent. Soybeans were 30 percent harvested, versus the usual 72 percent. The delays increase the chances of quality problems for both jumbo crops this year, and boost costs for drying and grain handling. It also makes it tough for U.S. exporters to meet their sales commitments, especially in soybeans given the record sales for the start of the 2009/2010 marketing season.
“This spring you couldn’t get the crop in and now you can’t get it out. So you’re seeing a lot of premium built into the market,” said Dax Wedemeyer, an analyst at brokerage U.S. Commodities in Iowa. “Everybody knows it’s wet — eventually it will dry out and you will be able to harvest this crop.”
The question is when, analysts say. Forecasters on Monday are calling for more rain this week across the Midwest but it will be warmer and slightly drier than last week. So the U.S. Department of Agriculture’s harvest progress report at 2 p.m. EDT (1800 GMT) on Monday will keep the attention of traders.
CBOT traders are guessing USDA would report the soy harvest about half done. Corn harvest was seen at only 25 percent as farmers focus on soybeans, which are seen as more vulnerable to damage from rain and cold temps.
EYES ALSO ON THE WEAK DOLLAR
“There is definitely macro money coming into grains because of the dollar,” said analyst Charlie Sernatinger with brokerage Fortis Clearing Americas.
A weak dollar is a buy signal for dollar-based commodities, making U.S. grains more attractive to overseas buyers. Last week was a classic example. The Reuters-Jefferies CRB index <.CRB> of 19 commodity futures hit a one-year peak of 285 as the dollar fell to a 14-month low against a basket of key currencies. The dollar has been under pressure as the global growth outlook improves more than that of the battered U.S. economy and with financial markets anticipating record low U.S. interest rates staying in place well into next year.
“The money that is flowing in here is not flowing in based on any kind of expectation of return. It’s flowing into commodities because of fear the basement of the currency,” Sernatinger said. “That makes it awfully difficult to predict — what the next flow is going to be.”
Weekly commitments of trader data issued late on Friday by the U.S. regulator, the Commodity Futures Trading Commission, confirmed a big flow of speculative money into CBOT grains last week, traders and analysts noted. The end result was a surprise buoyancy in grains last week. CBOT corn for December delivery <CZ9> rose 7 percent to $3.97-3/4 a bushel for the week. Chicago December wheat <WZ9> climbed 10 percent to $5.47-3/4 and November soybeans <SX9> rose 3 percent to $10.06.
Photo: Iowa corn field taken in late September by Christine Stebbins.