Sunday Night Outlook, 1-13-08

Sunday Night Grain Outlook
By Duane Lowry
Sunday, January 13, 2008

OPENING CALL:
Corn= 8-10 higher,     Wheat= steady-easier old-crop, steady-better new-crop,     Soybeans= steady-better, but expecting trade on both sides, with old-crop weaker than new-crop.

Weather was rather quiet over Argentina during the weekend. The next 5 days will see ¼-1 ¼, locally 2 ¼ inch rains produce 55% coverage of the soybeans and 50% coverage of the corn. This is a wetter forecast than seen Friday. Some of this moisture will reach drier areas to create improvement. Their 6-10 day window appears mostly dry, except in NW Cordoba. Brazil received 40% coverage of ¼-1 ¼, locally 2 ½ inch rains. The next 5 days will produce 65% coverage of ¼-1 ½, locally 3 inch rains, favoring central and southern regions. Their 6-10 day forecast calls for normal-above precip in all areas except for the far north.

News> Japan says they will consider expanding the list of countries from which it buys wheat, currently utilizing only US Australian and Canadian supplies. 

Wheat will lean higher in the July, but possibly lower in the March and May contracts. Strength should be rather limited on ideas Friday’s strength may have been a bit overdone late on spillover influences from sharply higher corn and soybeans. World wheat values may be a drag on overall further upside potential. It may be that after the dust settles from Friday’s reports inter-market spreads and old-new spreads may handle much of the new-crop bullish aspects of the data, with old-crop wheat values possibly finding current values difficult to build upon and possibly difficult to sustain, as the overall tone of the global wheat profile was not changed very much by Friday’s reports and new-crop US srw wheat stocks can build quite dramatically next year under normal weather conditions.  

Corn will start higher on Friday’s locked limit values and relatively low volume, which strongly suggests that we have not yet seen the full reaction to Friday’s bullish reports. At the same time, there was little trader enthusiasm for short positions before Friday’s reports, which may limit how long it takes to fully digest the bullish surprises. Cash basis values remain weak, as country elevators have seen their margin exposure escalate beyond levels many are prepared to handle, forcing them to push supplies into the pipeline to end the margin exposure. In some respects, the overall situation in the country, in regards to margin exposure for country elevators, is reminiscent to the H-T-A days in 95/96. Fortunately, it is not quite as severe as producers have not embraced the multi-year hedging strategies as they did in the mid-90s. Friday’s reports will encourage some sidelined traders to return to establish bullish positions. The trade believes the corn market now has a job to do that goes beyond acreage battles. Corn needs to find a way to ration demand for an extended period of time, believing it won’t be possible to plant enough acres of all crops to satisfy all demand. Whether this is true or not will depend on many future variables, but for now that is the growing trader sentiment.

Soybeans may start higher, led again by the November contract. However, South American weather seems improved and we may not see the same level of urgency in buying interest today as was seen in front of a weekend and amid the excitement/emotion of a USDA report. As in wheat, it may be that bullish expressions may unfold in a manner that supports primarily new-crop and not necessarily old-crop flat prices from current levels. Expect old-crop months to continue losing to new-crop values. We should see trade on both sides tonight/tomorrow. It may be that the soy-complex could be rather quickly ready to unfold a technical correction from current levels.

In summary, South American weather shouldn’t add new fuel to Friday’s gains and may offer a tempering element tonight. Corn has not yet fully absorbed post-report buying enthusiasm/necessities, which implies it remains firm, but maybe doesn’t extend too far beyond Friday’s implied closes, which was approximately 10 cents above Friday’s settlements. Soybeans could quickly see a technical correction unfold, with old-crop cash values and buyer resistance limiting near-term rally potential. Wheat should continue to see most buying interest surface in the new-crop months, but all months seem capable of trading on both sides tonight/tomorrow.