Sunday Night Grain Outlook, 9-7-08

Sunday Night Grain Outlook
By Duane Lowry
Sunday, September 7, 2008

OPENING CALL:
Corn= 1-3 higher,     Wheat= 1-3 higher,     Soybeans= 3-5 higher.

Weather focus will be mainly on hurricane Ike, as it is expected to enter the gulf later this week and will be seen as a potential threat to the energy industry. It may also raise concerns again about excessive moisture in the US Delta. Cold temps during the next two mornings could create isolated frosts in North Dakota, eastern SD and parts of MN.  

News> The US Treasury Department announced today a bailout of Fannie Mae and Freddie Mac, the two largest financial companies in the world. They will be placed into a government run conservatorship. It is believed this move will quickly restore confidence to the system, which could help to lower interest rate costs on mortgages and which could thereby help to lubricate the housing industry and support the stock market. Those investors holding common and outstanding preferred stock, whose values have already plummeted, will likely find there value near worthless, but could theoretically regain some value at a distant point in the future. It is possible that some of these holders will be banks, but the FDIC will work with these banks to develop capital plans to assist their recovery. Placing Fannie and Freddie into conservatorship will also immediately suspend any funding of the two firms’ political activities, such as lobbying. OPEC meets this week.

Wheat may see trade on both sides, with some expecting follow-through weakness to last week’s poor performance. However, I am inclined to believe any probe into negative territory early this week, if it occurs, will be minimal and final little selling enthusiasm. Dryness concerns continue in Argentina and parts of Australia. The Fannie and Freddie story should encourage the financial/stock markets and provide more stabilizing views of the economy in general, which could temper recent concerns about overall commodity demand. The fundamental outlook remains very bearish for wheat, but technical conditions are poised for a rally phase and we have reached a point where now most have turned bearish.      

Corn will also find mixed expectations, with many expecting weakness due to Friday’s poor performance, as well as a weak week in general. However, crude oil prices should find a firm tone on Ike concerns and corn has definitely been influenced by weak crude oil trends of late. Technical conditions are very oversold and key support should be found at current values. Expect price firming trends to develop this week. Expect active end-user pricing activity this week before Friday’s USDA production estimate.     

Soybeans will also find mixed calls. However, I don’t see much weakness potential tonight at all. Concerns about another round of excessive moisture in the Delta later this week and cool temperature trends in the Midwest will limit selling enthusiasm. Technical conditions suggest Friday’s probe into new lows can easily prove to be a false breakout and conditions don’t seem conducive to building downside momentum.              

In summary, many will want to expect weakness tonight/this week due to last week’s poor performance and Friday’s weak close. However, I find it interesting that some that were the most bullish several weeks ago are now the ones talking about bearish aspects of the commodity storyline. It will be interesting to see how the Fannie and Freddie developments are received by the financial markets and how that may impact overall commodity trade mentality. Short-term technical conditions do not appear conducive to fueling additional downside momentum. It is possible that several commodity markets could be poised for a multi-week rally phase, including crude oil. While there may be a longer-term troubling picture for commodities and some price ceilings may exist, current prices have some notable room to rally before encountering those ceilings. I believe we have good potential for some upward price correction during the next few weeks that will provide producers with a desired and warranted hedging opportunity, both 2008 and 2009 production.       

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.