Sunday Night Outlook, 12-30-07

Sunday Night Grain Outlook
By Duane Lowry
Sunday, December 30, 2007

OPENING CALL:
Corn= 1-2 lower,     Wheat= steady-easier,     Soybeans= 5-7 lower

Weather during the weekend was largely as expected in South America. Brazil’s 2-week outlook continues to offer beneficial conditions and adequate moisture in nearly all regions. Argentina’s forecast this evening has a drier tone through the 2-week window than Friday’s forecast suggested.

News> Iran says it will be ready to begin operation of the country’s first nuclear power plant in the summer of 2008, initially utilizing 50% of its capacity. Pakistan’s key political parties say they will be ready to participate in elections January 8th. 

Wheat will start lower on expectations of some follow-through selling activity after Friday’s limit losses. The late dramatic losses in the electronic soybean trade will heighten sensitivity to an increase in floor-wide spec selling pressures, which may also provide some early weakness. However, March wheat futures are now $1.25 off their highs made just 9 trading sessions ago. Consequently, early week weakness may find it difficult to build much downside momentum, which could quickly spur some bottom-picking activity and stabilizing price action. 

Corn has little fundamental news that will provide direction. Friday’s reversal-down action seems poised to experience technical-based follow-through selling activity and we have the potential of seeing selling pressures quickly intensify due to it being the last day of the year. The late soybean price collapse will also create some initial panic/fear as well. The past few days have offered hints of increasing producer willingness to consider sales and sometimes the first sign of a “turn”, such as Friday’s price action, can be enough of a nudge to create a notable increase in actual producer sales.

Soybeans will start lower on the “spook” aspect of Friday’s dramatic 40-cent slide in the final seconds of trade on the electronic platform. While the pit trade didn’t have time to react and it is the pit trade that determines the day’s settlement price, which was down 8 ½ cents, tonight’s early trade activity will undoubtedly have to absorb an increase in selling associated with the fear and tone established by Friday’s late collapse. Argentine weather spin will be seen as concerning and may limit any wholesale enthusiastic embrace of Friday’s late dump and therefore may limit selling activity tonight after any initial flurry. Support will be found above Friday’s low, but that support may still be at least 20 cents below Friday’s official settlement price. 

In summary, most of tonight’s initial trade sentiment originates from the impact of knowing the soybean market was able to collapse more than 40 cents in a manner of seconds. Argentine weather concerns will help to prevent a complete embrace of Friday’s weakness. Yet, we do appear poised to find an increase in producer selling interest and an increased willingness of the speculator to consider lightening long positions after seeing Friday’s trade. It is interesting to ponder Friday’s price action in light of all the new and large spec money flows that have come into the agricultural futures market during the past year and the expectations that this money flow will continue to expand. Yet, it is quite clear that we may actually have less “resting paper” type of participation in these markets, which means we have less of the traditional participants. Instead, we are dominated by screen traders that have tens/hundreds of million dollars worth of leverage just a click away. Such an environment can be a great ride—but what will happen if/when these screen traders were to decide in unison to seek the exit door? This would be a good thing for producers to ponder. While it is difficult to determine just how much current prices are inflated beyond pure fundamental influences, there should be little argument that some level of inflated values does exist. Friday’s late soybean price flush should be evidence of such an existence.

This newsletter is prepared from information believed to be reliable. Early Market News, Inc. does not guarantee that such information is accurate or complete and it should not be relied upon as such. Opinions expressed are subject to change without notice.