Sunday Night Grain Outlook, 3-15-09

Sunday Night Grain Outlook
By Duane Lowry
Sunday, March 15, 2009

OPENING CALL:
Corn= mixed,     Wheat= mixed,     Soybeans= mixed.

Weather offers limited precip in much of the US Plains hrw wheat belt during the next two weeks, with maybe some moisture prospects late in the period. Expect trader interest/embrace in this storyline of concern to increase this week.     

News> OPEC indicated they will leave production quotas at unchanged levels; however, they will increase pressure on OPEC members currently exceeding their production quotas, which represents approximately 800,000 barrels per day. Russia also announced their plans to reduce crude oil exports to help support world prices, welcome news to OPEC. Monday President Obama plans to announce plans to increase credit availability and guarantees to small businesses. The Wall Street Journal quoted an Iowan farmer who says his 2009 corn acreage will decline by 26% to the smallest corn acreage ever for the 35-year-old producer, saying high fertilizer costs have caused the decision, despite recent history suggesting corn has been his most profitable crop. The G-20 officials agreed to a number of measure, including implementing expansionary fiscal and monetary policies “until growth is restored”, but didn’t offer specifics.   

Wheat will find support from dry weather concerns for the US Plains, especially southwestern areas. Weaker crude oil values will cause some to expect weaker grain prices as the initial direction tonight. Technical conditions are poised to encourage buying interest on any weakness, limiting any ability to build upon Friday’s lower close. Trade above Friday’s highs, approximately a dime above Friday’s close, could begin a more aggressive short-covering process. A developing trader sense that corn may have trouble achieving needed 2009 acreage will also limit any enthusiasm for a bearish wheat stance. Commitment-of-Traders data suggest this market is saturated with too many bears—overall, we seem poised for an aggressive short-covering phase to unfold, which seems probable to also trigger new speculative buying interest as well.            

Corn will find increasing technical buying interest building under the market, after Friday’s trade posted the highest settlement price since January 27th, despite widespread bearish discouragement and short-building activity during the last several days/few weeks. Yet, for tonight’s opening direction, some will point to OPEC’s decision to leave crude oil production quotas unchanged as a likely bearish influence on crude and therefore may warrant corn’s initial direction to be lower. Fundamental support is building on growing respect for concerns producers will cut back corn acreage in 2009 due to poor profit opportunities and a general disdain of the increased borrowed capital requirements input-intensive corn production will require. Corn appears poised to find increasing buying interest from multiple sectors of the trade, as well as more intense short-covering activity as the week unfolds. Any weakness tonight should be viewed as a buying opportunity.         

Soybeans may see trade on both sides on some traders desire to focus on bearish longer-term possibilities and initial weakness in crude oil futures. However, this “large 2009 acreage” argument has found widespread endorsement during the past several weeks and Friday’s late recovery off the pressure created by Informa’s latest large acreage figure suggests this storyline may be getting a bit mature. South American production ideas continue to have a “boots on the ground” sense that total production will eventually be ratcheted lower. Technical conditions are mixed, but you can sense overall trader bearishness beginning to become a bit less comfortable, which may set the stage for buying interest to build under the market at a minimum. If corn and wheat begin to show any ability to build upside momentum, soybeans are not likely to be far behind.                      

In summary, wheat appears to have an elevating weather concern to digest. Corn price action is outperforming most industry expectations and the acreage concern storyline is gaining traction. All this sets the stage for a more aggressive short-covering phase to unfold. Stabilizing/firming stock market values have the investment community willing to consider more risk for their portfolios, with agricultural markets a likely part of many of these new investment desires. The US $ Index shows signs of “topping process”, further adding to investor interest to consider commodity ownership as an important part of any new investment portfolio. While OPEC’s weekend decision may produce a negative knee-jerk reaction to crude oil futures, expect it to be a short-lived price response, with investors looking to establish bullish commodity positions on weakness. But tonight’s weakness in crude may encourage grain prices to experience negative territory early, but the overall attitude in the grain trade is shifting towards a growing interest to view such weakness as new buying opportunities.          

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.