Views on commodities and energy
Once again, the soy complex — in particular soybeans and soybean oil — dominated the moves in Chicago ag markets this week, moving in line with soaring Asian vegetable oil markets.
“The world markets have come to forefront this week. We are going to be very nervous with the tight stocks and particularly the inflation situation in China, Europe and the United States,” said Gordon Linn, president of The Linn Group in Chicago.
Many Chicago traders expected a correction in soy prices this week. But the Asian vegetable oil markets were red hot as demand for edible oils to meet food and fuel demand is escalating. Malaysian palm oil futures hit a nine-year high and the spot Chicago soyoil price pushed to near a 23-year top this week.
Asia’s appetites tend to dazzle CBOT trading pits. There was talk among traders that China, India and Bangladesh bought huge amounts of soybean oil, roughly 150,000 tonnes, mainly out of Argentina, and that China also bought canola and rapeseed.
Traders also continue watching U.S. Midwest weather as this is the time of year when any change in a forecast can move prices. One of Chicago traders’ favorite forecasters to watch is WGN’s Tom Skilling, a respected weather wonk whose noon updates are on TV’s all over the grain floor.
Skilling on Friday had rain moving into the eastern U.S. Midwest which has been dry. If good rains move through, it should spell selling early next week, especially in corn.
CBOT corn prices have been range-bound the past month as current estimates are projecting U.S. farmers to harvest their biggest crop in history — 13 billion bushels — if all goes well this summer.
The government gave the corn crop high marks in its first ratings report of the year, grading 78 percent in good to excellent condition last Monday. USDA will update its ratings on Tuesday after the Memorial Day holiday, with traders expecting corn ratings to stay steady or drop slightly.
But there’s a lot of time until October harvest so volatility is sure to pick up during what is expected to be the long hot summer.
Wheat was on roll this week as worries about a tight global stockpile rallied prices. A combination of dryness in Europe and excessively wet weather in the key U.S. wheat state of Kansas has analysts shaving the world’s crop output.
The same inputs will be watched next week: Asian vegetable oil markets, U.S. Midwest weather, crop condition ratings and European weather. It seemed that veteran grain traders had more on their minds that price volatility. They watched their shares of CBOT climb over $200 this month as the Chicago Mercantile Exchange and the IntercontinentalExchange Inc. wrangle over who will buy them. Next week should be telling as ICE’s CEO Jeffrey Sprecher will meet with CBOT members on May 31.
(Photo: U.S. Department of Agriculture, Scott Bauer)
Prospects for increased soybean oil demand due to the biodiesel boom along with a rally in gasoline and crude oil prices on supply worries sent Chicago Board of Trade soybean and soyoil markets to multi-year highs this week.
Given the rally some traders expected soy prices to set back a little early next week, especially after trade data from the Commodity Futures Trading Commission confirmed that commodity funds expanded their net long positions in both.
“The market had a little bit of stall out. We’re going to have to watch that next week,” Don Roose, analyst with U.S. Commodities, said of beans and oil. “You could see a break if we get rain in the eastern Corn Belt.”
Rain in the Midwest could keep farmers from wrapping up corn planting, which could cause some intended corn acres to be switched over to soybeans, which have a shorter growing season than corn.
CBOT traders are also watching the CBOT July/September corn spread, an old-crop/new-crop bet that turned volatile this week. July corn is now trading at a 2-cent premium to September — spooking many to exit their July positions. The strength in the July/Sept spread coincided with strong cash markets.
Ethanol manufacturers, feedlots, processors and other end-users are fighting for corn, having problems originating supplies as farmers have stopped selling with the focus on planting.
“Because of that, it is sucking corn away from the river and making the Gulf hard to originate too” for export obligations, Roy Huckabay, analyst with The Linn Group, said of barge loading elevators on the Illinois and Mississippi rivers.
All that said, weather will continue to be a prime daily mover for the markets. Traders are turning their focus to growing conditions and less on planting progress. But parts of the western Corn Belt are still well behind on seedings due to all the rain they’ve had this spring.
On the wheat front, traders were watching world weather: welcome rains fell in Australia this week but dryness in China is still a worry, with outlooks for tight world stocks into next year. Talks with India this week have renewed hopes for U.S. wheat sales this year but there’s also the coming U.S. hard red winter wheat harvest next month, which tends to be a seasonal downer for prices.
There’s nothing like perceived changes in the weather to stir a little buying interest in corn.
Even though the week ended May 4 was pretty clear in the Corn Belt for planting corn, calls for rain next week sent shivers through the market — sparking fresh buying.
To assure maturity before the autumn frost, Midwest farmers try to get all their corn planted by May 15. This year’s seedings are projected as the most in 60 years, fed by the rampage toward biofuels like corn-based ethanol.
Cold, rainy weather has kept farmers in the Midwest far behind on corn, however. Even with clear weather and 32-row planters, farmers still lag.
CBOT floor traders on Friday said they expect only 50 percent of the corn crop will be planted by the weekend, down from the usual 64 percent for the first week in May. The government will provide its weekly number on Monday afternoon.
Fewer corn acres usually means more soybeans, which are planted after corn with a shorter growing season. So, as one would expect, the corn scenario fed CBOT soybean sales.
It bears repeating: the weather is pretty much the only factor CBOT traders are looking at until mid-May. So if corn prices spike around midday, it will tell you that updated weather outlooks are still wet for the Midwest.
“There are still fears that if we don’t plant the corn, then we’ll plant more beans. We’re in that time of year when we’re trying to sort out a big issue — and that’s acres,” said Don Roose, president of Iowa brokerage U.S. Commodities.
The wheat market took a big hit this week as this year’s winter wheat crop seemed to jump out of its coffin.
Scouts on their annual field inspections of Kansas, the top wheat state, said that overall this year’s crop looked better than expected despite a hard spring freeze. They projected a bigger crop than last year’s annual tour.
Traders on Friday will be watching for the government’s first first crop projection for 2007 U.S. winter wheat. So far, analysts expect gains — about 300 million bushels more than last year’s crop.
An interesting detail to watch will be what effect all the rain in the central and southern Plains may have on the hard red winter wheat grown there. Warm, wet weather raises the risk of fungal diseases that can potentially ruin quality.
–Commodity Futures Trading Commission commitments of traders data on May 4 showed that funds remained net short in CBOT wheat futures but expanded their longs in corn, soybeans, soyoil and soymeal. All that was as expected. Some said the corn fund long might be a little bigger than expected. If weekend weather forecasts for next week get drier, that fund long could add corn selling pressure on electronic screens on Sunday night or in the pit on Monday morning.
April 27th, 2007, filed by Christine Stebbins
Rain is usually bearish for corn prices. “Rain makes grain,” runs an old adage on LaSalle Street — but not at planting time.
Rain, and forecasts for more, had the bulls running in the CBOT corn market at mid-week as worries mounted that farmers would not be able to plant all the record-breaking acreage of corn they have planned for this spring.
Midwestern farmers typically plant corn from mid-April to mid-May. But a wet, cold spring has really put them behind. The damper Mother Nature is putting on fieldwork this spring is especially critical this year with mushrooming demand for corn from ethanol plants projecting monthly records stretching years out into the future.
However, with outlooks for drier weather heard on Thursday and Friday, corn prices fell back and closed the week only 3-1/2 cents per bushel higher.
Weather and volatility should continue to go hand in hand, with volatility building as the season progresses. As one grain analyst said on Friday: “It’s going to be weird all summer.”
All eyes will be on the government’s weekly crop progress report due on Monday afternoon. Traders expect USDA to report that about 24 percent of the corn crop is planted, behind the five-year average near 40 percent by the end of April.
Wheat got a lift from concerns that dryness in Europe and a spring freeze across the U.S. winter wheat belt cut yields. The final answer will come at harvest which starts early June.
In the meantime, doubts fed price volatility with Chicago wheat prices trading above $5 a bushel, and at premium to Kansas City — something that rarely happens since KCBT prices reflect a higher quality wheat than Chicago.
The annual U.S. wheat quality crop tour begins next week. So millers, exporters, government officials, farmers and others will be walking wheat fields in the top wheat state of Kansas to see just how bad the crop was hurt by a hard spring freeze.
They’ll also be checking for diseases as rains over the last couple weeks could be causing problems like fungus.
Soybeans still just follow wheat and corn along. Bottom line for beans: if farmers can’t get all their corn acres in or they plow up damaged wheat fields to plant another crop, the result will surely be more soybeans planted than originally forecast. Soy planting starts after corn seeding ends.
These same factors will play into the markets next week. Watch the latest weather forecast as it will dictate how the market moves. Most forecasters Friday were pointing toward a dry weekend. But there’s some question about next weekend.
–First day deliveries against the May contract are Monday.
–Weekly trade data issued Friday from the Commodity Futures Trading Commission showed that commodity funds remained net short by a small margin in CBOT wheat futures, increased their longs in corn, and cut their longs in soybeans. Fund trading positions were close to expectations, but they were a little longer in corn and cut their net long soybean position more than analysts estimated. That could lend some support to soy in Sunday night electronic trade. But the weather forecast will be the main driver of all Chicago markets.
It is only mid-April and it’s already a full-blown weather market in grains. Prices of corn, wheat and soybeans gyrated all week based on the latest weather forecast — a trend sure to continue that will feed market volatility.
Warmer, drier weather in the U.S. Midwest weighed on corn prices as the week progressed. The weather change gave farmers the break they needed to complete spring field work and start planting corn, which has lagged due to a wet spring.
Rain is forecast for next week which could stir fresh buying in corn, where a 60-year high in seedings is predicted this year to meet unprecedented demand for ethanol for fuel.
The wheat market also moved on the latest weather stories. Reports continued to float in about how much wheat was damaged from a Easter-weekend freeze — maybe 200 million bushels, or about 10 percent of the entire U.S. wheat crop.
The southern Plains hard red winter wheat belt could get hit by a severe storm, raising more worries about crop damage. Central and western Kansas, northwestern Oklahoma and southwestern Nebraska are the key areas seeded to HRW, which makes up 45 percent of the total U.S. wheat crop.
So weekend weather will likely be the main driver for CBOT prices on Sunday night and Monday morning.
The other factor that will have a big impact on Sunday night prices will be any fall-out from expiration of CBOT May options on Friday.
Most floor talk centered on the $3.60 strike in May corn options, with traders on edge if they were vulnerable to delivering futures positions on options they had written. May corn closed down 10-3/4 cents at $3.60-1/2 on Friday.
Traders on Monday will also be keying on guesses about the U.S. Agricultural Department’s weekly crop progress report due on Monday afternoon at 3:00 p.m. (2100 GMT).
Traders expect another drop in wheat condition — down about 3 to 5 percentage points after falling 9 points in good-to-excellent category last week. Corn seeding was expected to behind, with only 13 to 17 percent planted versus the average around 22 percent by the third week in April.
–Trade data from the Commodity Futures Trading Commission released on Friday afternoon showed that managed funds cut their net long positions in corn, soybean oil and soybeans in the week that ended on Tuesday, April 17. Funds continued to liquidate their longs in all three markets after Tuesday, traders said. Commodity funds continued to hold a net short position in CBOT wheat as of April 17 but were likely net long now after this week’s weather-related rally, they added.
–The U.S. Census Bureau issue its March crush data on Thursday.
April 13th, 2007 filed by Christine Stebbins
Chicago Board of Trade grain and oilseed markets reacted to weather conditions in another volatile week. The jitters started with the opening bell on Monday after a weekend freeze clamped down on the U.S. winter wheat crop. Analysts and traders batted around ideas that 100 million to 200 million bushels of U.S. winter wheat could have been lost. But by week’s end wheat specialists were still assessing the damage.
Corn was also driven higher by delayed Midwest planting due to the cold, wet spring. Muddy, cold soils have a lot of drying out and warming up to do before even basic fieldwork in Illinois and Iowa, which together produce a third of U.S. corn and soybeans.
If U.S. farmers plant less corn than forecast and spoiled wheat acres are plowed under to seed other crops this spring, the result will undoubtedly be more soybean acres. That factor overhung soybean prices all week.
Given Friday’s weather forecasts, there’s no reason to believe the market won’t see more of the same in the week ahead. Price action will depend on the latest forecast.
How much will traders be watching the weather this season? Fabled Chicago meteorologist Tom Skilling — who many Chicago traders swear by — has decided to add an additional weather broadcast on WGN television news starting Monday at 5:55 p.m. Chicago time (2355 GMT) — just before the CBOT agricultural markets open for electronic trading at 6:30 p.m. (0030 GMT)
Another pointer next week will be the U.S. Agricultural Department’s crop progress report on Monday afternoon at 3:00 p.m. (2100 GMT).
Traders are expecting the government to report that the condition of the wheat crop as fallen by 5 to 10 percentage points from its 64 percent in good-to-excellent rating the week before. Corn plantings are also expected to lag, with only 5 to 7 percent of the crop seeded compared to an average of 10-11 percent by mid-April.
The heart of the Corn Belt is soggy and cold. Soil temperatures need to be 50 to 55 degrees Fahrenheit for corn to germinate. So far, the ground is only warm enough to germinate corn in Missouri and next week’s cool weather will not be raising soil temperatures much, said forecaster Mike Palmerino with DTN Meteorlogix this week.
Bottom line: “It’s the weather,” said analyst Mario Balletto with Citigroup. So stay tuned.
–Friday’s weekly trade data from the Commodity Futures Trading Commission showed that managed funds expanded their net long positions in corn and soybean oil but cut their longs in soybeans and soymeal in the week ended April 10. Funds also cut their net short wheat position. Most of the numbers were close to what traders expected. The exception was soybeans which showed a bigger reduction in longs than expected.
April 5th, 2007 filed by Christine Stebbins
The name of the game in Chicago Board of Trade grain and oilseed markets this week was volatility. Corn, soybeans and wheat saw wide price swings, continuing to react to last week’s government report forecast of the highest U.S. corn plantings in 60 years. But a forecast is one thing, reality is another, traders calculated this week.
Farmers need to see a drastic improvement in cold rainy Corn Belt weather to get all those intended corn acres planted in this spring. Iowa and Illinois alone account for a third of all U.S. corn and soybeans, and both saw sub-freezing temps far below normal for fieldwork, let alone putting seed in the ground.
That reality check should keep market volatility high and lead to some dramatic price swings in the weeks ahead. If they had a choice between planting corn vs. soybeans, farmers would still turn to corn hands-down due to its profitability. But as a rule of thumb, farmers who haven’t planted corn by mid-May lose about a bushel and acre on yield for evert day thereafter of delay. Beans can go in the soil in June or even later.
So weather reports will have a rising daily impact on price direction — a trend that will only heighten as the growing season progresses. So far, forecasters are calling for unseasonably cold weather in the Midwest through the Easter weekend then rain is supposed to move back into the region again next week. Both are bad for planting, keeping traders edgy.
“It’s a weather market in April — its a little early to be trading weather, but it is cold,” one CBOT trader said late Thursday.
There were also worries about cold weather damaging the soft red winter and hard red winter wheat crops, both now coming out of winter dormancy and trying to kick start the normal spring growth spurt for early summer harvest. The return of wintry cold helped wheat rally on Thursday ahead of the three-day weekend. The markets are closed on Good Friday.
The weekend weather and Monday’s forecasts will likely be the driver in CBOT markets on Sunday night and Monday morning.
Other than weather there’s little to get traders excited.
–The Commodity Futures Trading Commission will release its weekly trade data on Friday afternoon. Traders expecting commodity funds to cut their longs in CBOT corn futures/options and increasing their shorts in wheat after the recent dive in prices. The soy complex is hard call as the net position could be close to unchanged.
–USDA issues its monthly supply-and-demand report on Tuesday. Traders aren’t expecting many changes, if anything wheat stocks could shrink and corn stocks grow a little to reflect more wheat being fed to livestock. High corn prices during the first quarter of 2007 was encouraging livestock producers to cut back on feeding corn.
The long-awaited government acreage report was finally released on Friday. Traders have been talking about it for months — anticipating bigger corn acres and smaller soy plantings.
But they were quite surprised to see USDA’s forecast for 90 million corn acres — the most land planted to corn since 1944. Soy projected plantings fell 8.4 million acres from a year ago.
It appears that farmers really liked the price of corn, which hit a 10-year high this winter boosted by demand for corn by ethanol producers.
As soon as the Chicago Board of Trade markets opened Friday, corn dived the 20-cent trading limit and sat their the rest of the day. The implied futures closing price based on options was $3.60 per bushel — 14-1/2 cents below Friday’s settlement for May corn. Given that, traders expect a weak open in corn on Sunday night which could spillover to the other CBOT grain/soy markets.
From now through the rest of the growing season, weather will be key. It’s the only thing that matters as Mother Nature will need to cooperate if farmers are really going to plant 90 million corn acres. Any delays will mean less corn and more soy.
“Every week, every weather report will play a very important role. Anything other than warm, dry weather will not be greeted kindly,” said analyst Gavin Maguire with Iowa Grain.
The U.S. Midwest is trying to dry out after a wet winter. So field work is already delayed and farmers are getting anxious.
Traders will also keep an eye on the South American harvest. But big crops are expected and export business is shifting to Brazil.
Friday’s trade data from the Commodity Futures Trading Commission confirmed that large speculators trimmed their long positions in CBOT markets over the past week. Additional long liquidation occurred on Friday as the markets tanked.
Chicago Board of Trade corn, wheat, soybean prices seesawed this week as traders seemed disinterested in the markets, waiting for the government to issue an annual bellwether — its annual planting intentions report — on March 30.
The biggest feature this week was buying of the distant deliveries, especially in soybeans. The November 2008 contract — “red” November, not this year’s but next year’s crop — rose nearly 50 cents this week.
“We officially started … the acreage fight for next year,” said analyst Roy Huckabay, noting farmers haven’t started planting the 2007 crop. Ideas of increased corn demand and shrinking soybean acreage are keeping everyone on the trading floor a little edgy, especially as we approach the most volatile time of the year as weather concerns take the upper hand.
Everyone is expecting the government to confirm next Friday a massive, ethanol-fueled hike in U.S. corn acres — up to 10 million more than in 2006 — with a significant drop in soybeans. Final trade estimates will run by Wednesday.
Most traders expect prices to keep within recent ranges in the days leading up to Friday’s report.
The other fundamental factor starting to creep into prices is the worry about planting delays. U.S. soils in the heart of the crop belt are saturated, which is slowing spring fieldwork.
“They’re already behind with fieldwork in the eastern Corn Belt,” one analyst said late Friday, noting that up to 1.5 inches of rain is forecast for that area over the next three days.
The biggest change in trade data issued by the Commodity Futures Trading Commission late Friday was a build up of short positions by managed funds in CBOT wheat. That could offer some support to wheat prices Sunday night or Monday morning.
Part of the reason behind the disinterest in trading this week was CBOT trader-members distracted by a potential bidding war by the Chicago Mercantile Exchange and the IntercontinentalExchange over the CBOT. The ICE offer came out of left field last week and raised the value of a full CBOT membership by roughly $1 million overnight.
If there was any feature this week it was long liquidation in corn and wheat. In corn, open interest fell nearly 30,000 contracts during the week.
The general consensus among traders is that the markets are oversold after this week’s slide and seem to be finding a bottom on weekly charts. Most expect the uncertainty about USDA’s March 30 planting intentions report to keep traders from getting too aggressive until then.