Sunday Night Grain Outlook, 2-8-09
Sunday Night Grain Outlook
By Duane Lowry
Sunday, February 8, 2009
OPENING CALL:
Corn= 1-2 lower, Wheat= 1-2 lower, Soybeans= 3-5 lower.
Weather will provide multiple moisture opportunities for the US Midwest and Plains wheat acres during the next two weeks. Argentina was mostly dry during the weekend, largely in line with expectations. Light moisture will occur in approximately 50% of the region Tuesday, but much of the 10-day outlook looks dry. Since Friday’s forecast was already quite dry, tonight’s weather spin may find mixed reviews.
News> The Senate is expected to vote on its stimulus package Tuesday. Treasury Secretary Geithner has postponed the unveiling of the latest financial recovery package until Tuesday. Exact details aren’t know, but the plan is seen as having four main components: 1) fresh equity injections into banks, 2) new programs to help struggling homeowners, 3) an expansion of the Federal Reserve program designed to jump-start consumer lending, and 4) a mechanism to allow banks to dump their bad assets. Obama wants the completed legislation on his desk by February 16th. Russia says it hears very strong signals from the new US administration on improving relations between the two countries. China’s state media says 43% of the country’s winter wheat supplies are at risk due to the worst Chinese drought since the early 1950s. Some experts warn Beijing will soon face water shortages. Lumber futures rallied nearly 13% last week. Copper futures rose to their highest level since December 1st.
Wheat will lean lower on Friday’s late weakness and tonight’s favorable moisture outlook for the US Plains and Midwest wheat acreage. New news is limited. Overall technical conditions are favorable and should encourage buying interest on weakness, with 10-15 cents below Friday’s settlement seen as “too good to be true” buying opportunities. We may see weakness tonight, but fundamental-anything hasn’t been much of a driving force to wheat price action for some time and we certainly don’t have longs in this market that will suddenly feel vulnerable due to the current US weather forecast. But we do have elements of the trade that are beginning to build buying interest based on declining expectations for the US $ and assumptions that the Fed will desire to inflate their way out of the current financial mess and this will encourage buying interest in all grains on any weakness.
Corn will find mixed reactions to South American weather, arguing about how dry Friday’s expectations were in relationship to the mostly dry forecast of tonight, but I don’t believe anybody is honestly looking at weather/crop conditions and wanting to raise South American production estimates. From that perspective, weather isn’t bearish. Traders may be reluctant to establish new long positions tonight/tomorrow due to fear/respect of Tuesday’s USDA data, which is near universally seen as likely to be bearish corn. Yet, traders with that viewpoint certainly didn’t expect to see prices rally 25 cents in the last two trading sessions either. It is this last fact and the positive influence such action has had on short-term technical indicators that will cause many shorts to hope for sideways action into Tuesday morning’s USDA report and hope for an initial bearish reaction to hopefully exit short positions—that means there is a lot of hope coming from the bear camp and I don’t think it is hopeful hope at this point, just nervous hope. We have long-term speculative buying interest building in many agricultural markets, we have talk of possible gov’t action to push ethanol blend to 12%, we have technical conditions that don’t require much strength to trigger additional buying, we have carried a bearish-biased market mentality for what seems like a long time and the recent price correction wasn’t able to build much sustainable downside momentum despite the near universal bearish trade rhetoric…we have a situation where we likely have too many corn shorts. Don’t expect all of them to wait until after Tuesday’s USDA data to seek the exit door. We can trade lower tonight, but the mood is shifting in the grain trade and shorts are becoming uncomfortable.
Soybeans will find ideas that 75 cents in three days was enough of a rally to limit enthusiasm to buy strength tonight, setting the stage for some weakness. South American weather spin was so dry Friday that tonight’s forecast may receive an initial bearish spin, despite limited precip opportunities during the next 10 days and despite limited ideas overall production ideas will be on the rise, with most just hoping for consolidation and fearing we can still ratchet South American production ideas downward. Traders are fearful of bullish soybean data in Tuesday’s USDA reports, which will limit desires to establish and hold new short positions for very long. Expectations for relief/exuberance over this week’s stimulus plan activity and the expectations of a more comprehensive financial bailout package to spur bank lending and consumer spending will add to the ideas that we are building an increasing “buy breaks” trader sentiment.
In summary, it seems easy and somewhat logical to expect some degree of weakness tonight for the early direction. It is more difficult to see which sectors of the trade will be willing to embrace a confidently bearish stance early this week. Overall technical conditions have been and remain favorable. Short-term technical conditions will unearth buying interest on any early week weakness. The last couple days’ price action has trapped many shorts and we can imagine storylines unfolding this week that will make the shorts nervous. While we may trade lower tonight, I don’t think we will be able to build/sustain much downside momentum this week. While not something that routinely makes it into grain commentary, I am not so sure that the most important items I see are… 1) lumber rising 13% last week, 2) copper at the highest price level since December 1st, 3) global freight rates on the rise, and 4) the US $ appearing vulnerable to short-term weakness at a minimum. This is a “futures” market…maybe something/somebody is looking beyond the pessimism of today?
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.
