Views on commodities and energy
The correlation between oil prices and the dollar seen since the third quarter of 2007 has weakened. Investors had sold the dollar as U.S. economic prospects dimmed and bought oil as a hedge against inflation and uncertainties in the supply of raw materials. The relationship eased late last year as fundamental pressure from slumping demand and the slowdown of the overall economy pushed oil lower independent of the actions of the dollar, and analysts said the link might not return in the near term.
The drop in U.S. oil demand against year-ago levels has begun to slow as data is compared with weak levels from 2008, when consumption slowed due to the slumping economy and the high fuel prices seen during the first half of the year.
The graph shows the change in U.S. demand over the four-week period from levels from the previous year.
Corn, wheat and soybeans on the Chicago Board of Trade will likely keep within recent ranges in the week starting Feb. 2.
A deepening global recession which is easing demand for commodities, plus fewer investors in commodity markets, will continue to limit price volatility and, thus, trading.
The slide in the Dow industrials on Friday (down 148 points at psychological support at 8000.86) came after government data showed U.S. GDP for the fourth quarter fell at its fastest pace in nearly 27 years. That just underscored the economic crisis, since the U.S. economy is still the key engine for the world.
The mood on the CBOT trading floor has taken an 180-degree turn in the past year. As 2008 began, traders could not believe how volatile grains had become. They watched prices soar day after day on huge world demand for food and feed and biofuels, and hot Wall Street money flooded into commodities.
Today, the mood is subdued. Veteran traders are back to worrying about seasonal fundamentals, notably South American weather. Hot, dry weather in Argentina, the world’s third largest soy exporter and No. 2 in corn, roasted crops this month with yields likely down significantly from a year ago.
Traders now say Argentine soybean output could fall as much as 25 percent from last season and corn production could fall as much as 40 percent. The wheat harvest was already estimated to be the smallest in 20 years.
But the jury is still out, hence the CBOT trading ranges.
Argentina also turned a little wetter this week with some expectations that crop conditions have stabilized. Soybeans have the greatest chance to benefit if the weather is milder in February, when the plants fill bean pods. So CBOT soybeans closed below $10 a bushel this week.
“We will be watching the weekend weather and the forecast for direction. But beans are also at the bottom end of the range, so a bounce is not out of the question,” one floor broker for soybean merchants said on Friday afternoon.
Up to 60 percent of the main corn and soybean region in central Argentina is expected to see light to moderate rains on Monday and into Tuesday. Then, it looks dry again, according to the late weather forecasts on Friday. So the on-again, off-again forecasts for Argentine rains will keep trade in soybeans a little more jumpy next week.
In contrast, “corn and wheat will continue to focus on demand, in particular into the export sector,” said grains analyst Shawn McCambridge.
U.S. wheat and corn prices are getting a more competitive in the world market — a switch from the recent trend. The U.S. Agriculture Department reported strong weekly corn export sales the last two weeks, with this past week a marketing-year high over 1.1 million tonnes.
“Corn will also be looking at what takes place with the soybeans on acreage consideration for this spring,” McCambridge added. “While corn might not have the same fundamental support that soybeans would have on the South American concerns, we still can’t let soybeans get to far away from corn as we still need to secure enough acreage.”
Grain analysts have been tracking the price ratio between new-crop November soybeans and December corn in recent weeks. The rule of thumb is a ratio below 2.2-to-1 favors corn acres.
Another market factor that will get a little more play as spring approaches is the condition of the U.S. hard red winter wheat crop. The southern plains where the crop is grown is suffering from another dry winter. Last week the Texas state crop report rated 62 percent of the HRW wheat in poor to very poor condition. Texas will issue its next crop update on Monday afternoon and other key states, including top producer Kansas, will release monthly reports.
Photo: Winter field in northern Illinois taken by Christine Stebbins.
During his first week on the job, Agriculture Secretary Tom Vilsack said no one knows for sure how many people work at the Agriculture Department. Speaking to USDA employees and later to reporters, he used that startling anomaly as an argument to update USDA’s computer equipment.
Like the admonition against saying “never” or “always” during an argument, there could be a corollary: Never say “no one knows” in a bureaucracy.
from Environment Forum:
President Barack Obama set in motion a process on Monday that may eventually allow California and other states to set tougher greenhouse gas pollution and efficiency standards on cars than those mandated by the federal government.
Obama's move sends a signal to the world that the United States is beginning to join the rest of the developed countries to act on emissions blamed for warming the planet.
The trigger point for Chicago Board of Trade grain and soy markets in the week beginning Sunday night, Jan 25, will remain the dry weather persisting in Argentina, the world’s third largest soybean grower and No. 2 corn exporter.
Argentina’s beef industry and its wheat and corn production are being slammed by the country’s most severe drought since 1961, which has also affected agriculture in neighboring Uruguay, Paraguay and southern Brazil.
Drought continues to slash corn and soy yields in Argentina and the country’s grain exchange on Friday said soy output could fall by as much as 25 percent and corn by 40 percent from last year.
End-week profit-taking trimmed early gains on Friday as some weather forecasts shifted late in the session to begin showing chances of a bit more rain.
“The movement of a cold front is slower than it was yesterday which could increase the amount of rain and it will likely increase the coverage,” Mike Palmerino, a DTN Meteorlogix forecaster, said.
On Friday, CBOT March corn could not break through $4.01 and March soybeans failed to penetrate $10.34-1/4 — key resistance areas.
“There is just too much uncertainty about the weather. No one wants to go home with a position this weekend,” one CBOT veteran trader said on Friday.
This was one of the most stressful weeks for Argentine crops as temperatures climbed into the low 100s degrees F.
Crop watchers know corn and soy yields have been cut but it is a question of how short output will be, especially if the weekend rains disappoint.
The most recent crop estimates were issued by the Buenos Aires Grains Exchange on Friday. The exchange forecast Argentine soybean output to fall 17-25 percent from 48.02 million tonnes last season. Argentine corn output could fall 33 to 40 percent, from 21.06 million tonnes the previous season.
The outside markets, in particular Wall Street, will also play into the grain markets.
Wall Street is in the midst of an earnings free fall and will be eyeing any moves from the White House to revive banks and craft an economic recovery plan. Of particular interest will be the Federal Open Market Committee’s statement from meetings on Tuesday and Wednesday for clues on how the Federal Reserve will address the situation.
Photo: Northern Illinois field taken by Chris Stebbins
from Environment Forum:
New York state gave Big Sue, LLC, which has about 3,500 square feet of solar panels on its roof, the OK to sell any extra power it generates from the panels back to the grid.
The United States and the world on Tuesday will be focused on the inauguration of President Barack Obama, with his messages of change and hope amid war, recession and financial crisis — which sounds like music to the ears of battered traders everywhere.
But at least one corner of world markets — the Chicago grain trade — will be keeping just as close an eye on South American weather, which as usual at this time of year will set the tone for the week and for the coming year’s world grain supplies.
CBOT markets will open a day later than usual on Monday night at 1800 Chicago time (2400 GMT) after the three-day U.S. holiday weekend including Martin Luther King Day on Jan 19.
“Monday night we’re definitely going to watch the South American weather. All eyes will be on that,” said grain market analyst Don Roose at U.S. Commodities in West Des Moines, Iowa. The world’s grain industry is counting on Argentina and Brazil to pick up the slack this year from a small supply of U.S. soybeans. U.S. soy stocks are projected to reach a five-year low of 225 million bushels by August 2009.
The two South American giants combined to finally pass the United States as the number one origin for soybean production a couple of years ago. Both are just now in the middle of their southern hemisphere growing season when heat and moisture are key for final yields.
Last week, worries about stress on the Argentine soy crop helped CBOT soybeans and grains recover some of the ground lost after the U.S. Agriculture Department surprised the markets on Monday reporting larger-than-expected domestic Dec. 1 U.S. grain stocks. USDA also raised its forecasts for the amount of grain to be left at the end of this current marketing season. CBOT soybeans, corn and wheat all ended lower for the week, with soy seeing the smallest decline and wheat the largest.
Questions will continue to hang over 2009 demand for US grain exports and for biofuels, given sagging global economies. But this week the seasonal close watch on southern hemisphere supplies should come back to the fore, with Australia and South Africa weather also watched. The main focus as always, however, will be on South America.
Argentina in particular is suffering from drought, with the country’s output already seen being cut due to a lack of rain over the past month. While the now-pollinating corn crop is more vulnerable to the heat and dryness, the weather stress is giving soybeans an even bigger punch. Temperatures are expected daily in the range of 90 to 100 degrees Fahrenheit with no rain in sight. That spells more problems for the world’s number 2 corn exporter and number 3 soybean grower. Markets will factor it in daily, dependent on the latest weather news.
Over the weekend central Argentina, the main crop region, only received light, scattered rains of 0.10 to 0.75 inch.
The other big factor feeding into CBOT price movement will be the ongoing tug of war between corn and soybeans for acreage — as the strongest will entice more U.S. plantings of that commodity.
“When the soy/corn ratio gets to a certain point it’s like a rubber band — snapping back in the other direction,” one CBOT floor trader said after Friday’s close as corn futures gained on soybeans for the first time all week.
The key spread traders watch in this tug of war are the main harvest months. The new-crop November soy/December corn price ratio closed on Friday at 2.23, after climbing to 2.34 on Thursday.
“The trade is really, really uncertain which way it’s going to go with the acres,” Roose said. “The farmer isn’t so sure either. The banker might have something to do with that.”
As always these days, the final wild card for grain markets will be from outside — namely, Wall Street. If Obama can inject more confidence into the markets, that can only be positive. The financial markets remain full of fear, still perceiving a creaky banking system and an economy of rising unemployment, bankruptcies and knock-on effects overseas.
PHOTO: Winter field in northern Illinois taken by Chris Stebbins. U.S. farmers now making spring planting decisions, with CBOT price action key to their final choice.
A Reuters straw poll of more than 800 farmers at the American Farm Bureau Federation’s annual meeting in San Antonio found 72 percent of the respondents did not believe Obama would have the best interest of the farmer in mind.
Monday will present a raft of eagerly awaited statistics from the U.S. Agriculture Department, making the day one the biggest benchmarks of the winter for the markets.
USDA’s blockbuster crop numbers to be released at 8:30 a.m. CST (1330 GMT) on Monday will set the stage for price direction in Chicago Board of Trade grain and soy markets this week.
Traders will be eager to see the government’s final 2008 U.S. corn and soybean crop numbers; its updated 2008/09 corn, soy, and wheat ending stock estimates; its Dec. 1 U.S. grain stocks data; and its first U.S. winter wheat seedings report of the season.
Winter wheat seedings will be the first number that will gain attention, with all analysts expecting a drop from last year’s 46.2 million planted acres.
But it’s a roll of the dice on how big of a drop.
Analysts polled by Reuters on average expect 4 percent fewer seedings, or a total 44.3 million acres.
Final U.S. production numbers are typically pretty well known going into the January report. USDA as of November, the most recent report, had estimates for a 12.02 billion bushel corn crop, the second largest in history, with soybeans at 2.921 billion bushels.
In normal years, the U.S. harvest is mostly wrapped up by November. But this year was anything but normal.
The heart of the U.S. crop belt saw its worst flooding in 15 years during June — stalling planting and forcing farmers to replant many fields washed out by the floods in key states like Iowa, Illinois and Indiana.
Then a wet autumn stalled harvest. By December, farmers were still struggling to get the last of their corn out of snow covered fields. At the end of December there was still up to 7 percent of the corn crop yet to be harvested, analysts say.
“That’s 500 to 700 million bushels of uncertainty — that’s huge,” said Randy Mittelstaedt, analyst with Chicago brokerage RJ O’Brien. “Drive around anywhere out in the country, you still see plenty of corn fields still standing.”
But corn has seen disappointing demand this season. Exports are about half what they were a year ago and a struggling domestic ethanol market has meant less corn turned into the biofuel.
Soybeans will likely offer the fewest surprises. But traders will be watching to see if the crop size was also hurt by a late harvest.
After USDA’s numbers, the market will return to South American weather. Both central Argentina and southern Brazil are parched but were expected to receive rain this weekend and early in the coming week.
However, the forecast took an about-face on Friday, with central Argentina expected to stay dry through Thursday — news that sent CBOT soybeans to a three-month peak.
“It’s all Argentina, that’s the whole ballgame,” said analyst Vic Lespinasse for GrainAnalyst.com on Friday.
While the dryness would be more detrimental to Argentine corn which is now pollinating, traders are most worried about the country’s soybean output.
The world grain trade is counting on Argentina, the world’s third largest soy exporter, to pick up the slack from a smaller supply of U.S. soybeans. U.S. soy stocks are projected to reach a five-year low of 205 million bushels by the end of this marketing season in August.
PHOTO: Grain elevator in Ridgefield, Illinois. U.S. grain stocks are tucked away for the winter. USDA to report on Monday the amount of grain held by commercial firms and farmers on Dec. 1, 2008.