Sunday Night Grain Outlook, 10-12-08
Sunday Night Grain Outlook
By Duane Lowry
Sunday, October 12, 2008
OPENING CALL:
Corn= something higher, Wheat= something higher, Soybeans= something higher.
Weather will create some temporary harvest disruptions, especially in the west during the next several days.
News> Fannie and Freddie have been told to each purchase $20 bil per month of underperforming mortgage bonds. These purchases would not be part of the $700 bil US Treasury’s TARP (Troubled Asset Relief Program). It appears to me that this will leave more of the $700 bil to be used by the Treasury in their new plan—the direct investment in banks. Germany will unveil their financial sector bailout plan Sunday, It is expected to be far-reaching, more than half the size of the US’s plan, and far more significant than Germany indicated likely just a few days ago. Taiwan is changing its stock market daily fall limit to 3.5%, down from 7%. The daily rise limit will remain at 7%. Taiwan will also ban short selling to year’s end. France is expected to propose a law Monday designed to offer a state guarantee for banks. The UK says it is set to take a controlling stake in two of the country’s high-street banks Monday—Royal Bank of Scotland and HBOS PLC. The Fed approves the Wells Fargo acquisition of Wachovia. Europe appears to have done enough in the eyes of investors to have confidence in a coordinated effort to shore up the banks. The bottom-line to news this afternoon, it appears to me, is that we have seen enough action/talk to restore some confidence and remove some panic. Reuters is reporting that some off-exchange trading of German stocks rose as much as 20%, signaling a notable improvement of investor confidence. The US Congress is talking about another stimulus package.
Wheat will key primarily off of global financial market reactions to weekend developments. I see the developments as constructive, at least to the extent of removing panic, and hopefully to the level where we actually increase confidence. Egypt bought US and Russian wheat. I see current prices as artificially cheap due to panic/fear. Some will expect weakness tonight because of the USDA report and sharp weakness Friday. My read is that if the financial market tone improves, it will be a tide that floats all boats. I also see the US $ as weakening by a notable degree if fear eases and confidence in the global credit situation improves. I see this as a longer-term firming force for grain prices.
Corn will start higher in my opinion because of an improved tone in the financial world. Any bearish implications from USDA and Friday’s price action seems overdone and unsustainable without continued/worsening credit fears that would cause world trade to largely come to a standstill. I believe we are moving down a path that will prevent that type of collapse in the global credit situation. Thus, I don’t see negative trade implications. As stated in the wheat comments above and stated for the past several days, a successful conclusion to the global credit crisis should lead to a weak US $ and ultimately a supportive inflationary tone to US $-based commodities. To expect cheaper prices to continue/extend, you must embrace the idea that the entire global economy will crash and burn. I do not see that happening…I see the powers-at-be already moving down a path that will be successful restoring confidence to the credit industry. Now, the long-term stock market outlook may be a different animal and may suffer for multiple months/years, but it is the credit situation that will have more of an impact on commodity prices. I am bullish corn.
Soybeans will start higher for the same general reasons as I stated above in the wheat/corn sections.
In summary, there will be many who will expect lower trade tonight. I believe we have the ingredients to actually open higher. However, even if we open lower, I don’t believe we have the ingredients necessary to sustain or build upon that weakness, if it were to occur.
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.
