Sunday Night Grain Outlook, 5-3-09

Sunday Night Grain Outlook
By Duane Lowry
Sunday, May 3, 2009

OPENING CALL:
Corn= 5-7 lower,     Wheat= 5-7 lower,     Soybeans= 7-10 lower.

Weather was slightly drier than expected during the weekend. All segments of the forecasts through the next two weeks offer some aspect of a “drier” tone than Friday’s forecasts. However, we still have multiple weather systems during the next 10 days that will keep planting progress slow, especially in southern and eastern areas. The initial weather spin will be “bearish”, but this is not the type of forecast that encourages active selling, only causes buying interest that has other reasons motivating them to view weakness as a buying opportunity, to be a bit more cautious.   

News> A group of Canadian hogs have been found to be infected with the H1N1 flu virus. Officials say no swine have left the farm and they have been successfully quarantined. Mexico’s Health Minister says the A/H1N1 flu spread seems to be stabilizing and in fact is in decline. He cited low transmission rates among families with an infected member as encouraging. US officials say H1N1 may be no more serious than seasonal flu. WHO scientists say that while the A/H1N1 flu is likely to spread to more global cities, the virus may have little staying power and suggest it lacks the genetic fortitude of past killer bugs. All officials continue to point out that eating pork offers no risk to flu viruses. 

Wheat will start lower on ideas Friday’s gains may have been a bit overdone and expected weather-related weakness. Spring wheat planting condition expectations are not as emotional as last week’s fears. Technical conditions should provide buying encouragement on any notable setback during the next few days. Traders perceive we have a lot of shorts now trapped under the market, limiting ability to generate downside momentum.              

Corn will start lower on easing weather concerns and continued fears about pork demand due to possible irrational reactions by the consumer. The flu fears are elevated by weekend news of a herd of Canadian hogs possibly testing positive for the H1N1 flu, but final tests are still awaited. Even if true, this news isn’t warranted to be an impact on the consumers or the industry, but as we found early last week, fear always trumps facts initially. Almost all of the flu rhetoric actually now paints a situation that certainly does not warrant an influence to any market any more than seasonal flu concerns impact the grains, stocks, livestock or financial markets. To that extent, any bearish knee-jerk reactions tonight to flu fears should be rejected. As for weather, we will still experience challenges to the eastern and southern Midwest, but in relationship to Friday the fears are eased. It is important to remember that the corn market has awakened to balance sheet expectations that now can’t afford much reduction in either acreage or yields. Money-flow is also beginning to move into commodities in general and we are only beginning the seasonal timeframe when “what if” premiums are added, not subtracted. Temperature expectations will also keep development relatively slow even in areas that have already planted. It appears we will have enough acres planted beyond the optimum planting dates for analyst to ratchet down national yield potential, or at least reduce the odds of exceptional yields. Expect technical considerations to provide support to July corn above $4.00. A probe above Friday’s high early this week is not an unreasonable expectation. Maybe we need to spend a little time in the $4.00-4.20 zone?

Soybeans will start lower on weather spin. Fundamental support and buying interest will continue to be found on minor 1-2 day price setbacks, at the market looks to the May USDA S&D report and expects generally bullish data to both old and new-crop marketing seasons. Technical conditions appear to offer more upside potential, but short-term indicators could warrant a little time for the market to catch its breath with maybe some back and fill activity for a few days.                       

In summary, we don’t have the type of weather forecasts needed to generate new/elevated fears, but we will experience enough challenges to planting that too many acres will be planted past their optimum planting dates, which will tend to create more cautious working yield calculations during the early part of the growing season. China’s soybean demand appetite and generally favorable long-term commodity demand expectations has helped to create a building level of buying interest in the speculative community, which will provide support this week to limit any early week weakness. As for flu rhetoric, the fear level is declining and nearly all government officials have greatly toned down concerns, as well as appearing to make special efforts to get the message out to consumers that port consumption is completely safe. We have weather, technical and momentum reasons to start the week lower, but we most likely will find far more trader interest in buying breaks than selling weakness, thus limiting ability to build downside momentum this week.              

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.