Sunday Night Grain Outlook, 11-16-08

Sunday Night Grain Outlook
By Duane Lowry
Sunday, November 16, 2008

OPENING CALL:
Corn= 3-5 higher,     Wheat= 1-2 higher,     Soybeans= steady-better.

Weather offers favorable conditions for the US harvest to advance during at least the next week. Argentine dryness theme continues and this storyline will begin to garner more market attention from here forward.   

News> UK leaders imply a yet to be announced stimulus package will be quick and decisive, including infrastructure investment in hospitals, schools, and transport projects. UK’s Darling said it was now “almost universally accepted” that it was right to use a fiscal stimulus to boost economies. China says the weekend G20 declaration was “comprehensive, positive and balanced.” French President Sarkozy said the G20 nations would forge ahead with economic stimulus efforts and are committed to public spending packages, tax cuts or interest rate reductions needed to restart their economies. Japan pledged to increase lending to the IMF by up to $100 bil, urging other cash-rich countries to do the same. President Bush expressed support for a proposal to create a clearinghouse for the $33 trillion credit default sway market. A clearinghouse approach would create greater market confidence and stability of the credit default system. President-elect Obama said in the Democratic Party’s weekly radio address that the Congress should take urgent steps to pass an immediate plan that gives the economy the boost it needs and if they don’t, he will make it his first order of business as president. Iran proposes OPEC cut production at their meeting later this month by 1-1.5 bil mil barrels per day. OPEC’s president implies the impact of the last cut has not yet fully been felt, suggesting further cuts may wait until December. Friday afternoon Informa announced their latest 2009 US corn and soybean acreage expectations, pegging corn at 86.8 mil, up less than 1 mil from last year and down nearly 4 mil from their last projection, likely reflecting declining profit opportunities amid high input costs and uneasy feelings towards the greater need for borrowed capital associated with corn decisions over soybeans. The corn acreage figure on its own will receive a bullish spin. Informa’s soybean acreage projection of 75.9 mil is up 2.8 mil from their last estimate and higher than most recent trade rhetoric. Informa also believes 2009 US wheat acreage will be down approximately 3 mil acres from 2008.

Wheat will find technical buying interest building under the market and limiting downside potential from Friday’s close no more than 10-20 cents at any time this week regardless of outside market influence. In fact, it is important to realize that wheat has been showing an increased independence the past few days and not much embrace to trade bearish outside market spin. New news is limited. The Informa wheat acreage estimate was not much different than their last estimate. The corn acreage projection was quite low in relationship to recent trade rhetoric and likely will provide some support to wheat. Wheat’s technical conditions are good and if we avoid bearish outside market tone we may be able to see wheat continue to push higher tonight/tomorrow. Interest in buying this market on weakness is definitely building…I am not sure if we see traders immediately seek to buy at current levels or not…it is possible. The C-O-T data released Friday afternoon shows the funds short and large price gains the past 3 sessions were accompanied with rising open interest, suggesting short-covering energy hasn’t fully been felt in the recent price strength. While some will argue the Dow broke hard late Friday and this may create nervousness early this week, I doubt if any nervousness will be very significant or gain much traction. The growing sense in the financial community is that we have discounted a lot of bearish expectations.          

Corn will of course look intently at outside market tone, but the Informa acreage numbers are quite supportive and will jolt traders to recognize the implications of sharp price declines amid still high retail input costs and its impact on producer sentiment towards 2009 acreage decisions. Current price relationships do not provide the incentives to maintain needed corn acreage. Translated, corn is too cheap. So unless the outside markets generate some downside panic, which I do not expect, corn will start higher tonight. Technical conditions are favorable and remain poised to generate increased buying interest from multiple sectors of the marketplace. The C-O-T data show the traditional funds increased their short positions, with Index traders produced another sharp weekly drop in longs. This set-up, amid Friday’s price action, looks conducive to promoting short-covering energy this week. The past several weeks of a “bottom-defining process” should prove to be a major bottom. It is not difficult to make a technical-based argument for recovery rally in March corn futures to enter the $5.20-50 zone. It is not difficult to imagine a fundamental-based argument for similar price strength. The 2009 US corn acreage is in question, producer selling interest is non-existent, Argentine dryness patterns are gaining market attention, and the US/global financial situation may be due for a period of “feeling better”, from the perspective of traders who may recognize major problems ahead, but feel these expected problems have now been discounted by the market. Corn has limited downside potential from current levels and notable upside potential during the next 3-4 months.

Soybeans will also first key on financial conditions at the time of our opening tonight. The Informa data will be seen as bearish. However, I am not so sure this bearishness associated with recognition of the potential for greater 2009 US soybean acreage may not be expressed by traders through spread activity—long old-crop months and short Nov 09. We have the entire South American growing season in front of us; we have optimistic views towards Chinese soybean import needs and US soybean exports, producing declining US soybean carryout ideas. Soybean technical conditions are not conducive to fueling downside price momentum and may in fact be not too far from generating short-covering energy. I can see reasons for mixed expectations for tonight’s opening, but we seem to have conditions developing where buying interest on weakness is building, not selling interest.                 

In summary, during the last few weeks I have highlighted multiple and increasing times where grain/soy price action reflected a loosening of its connection with bearish outside market trade sentiment. While tonight’s focus will first be on outside market tone and this initial focus will likely continue for some time, the intensity and sole purpose nature of this focus seems set to diminish in the days/weeks ahead. Overall technical conditions are improving and we are seeing buying interest building below the market and interest to sell the grain trade are diminishing. It is also important to remember than much ag trade equity has been sidelined during the past several weeks and seem likely to be encouraged to reenter with bullish posturing during the next several weeks. Any weakness potential from Friday’s closes during the next several days should be limited. Current levels should be seen as favorable buying opportunities for sectors that need/desire a place to establish bullish positions.       

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.