Sunday Night Grain Outlook, 9-13-09

Sunday Night Grain Outlook
By Duane Lowry
Sunday, September 13, 2009

OPENING CALL:
Corn= 1-2 lower,     Wheat= 1-2 lower,     Soybeans= steady-easier.

Weather offered limited weekend precip and the Midwest will be in a dry pattern during the next two weeks. Approximately 25% of the belt may experience slightly less than adequate moisture for finishing soybeans to maturity. Some minor potential for frost will need to be watched for the 24th, 25th and again on the 29th for MI, MN, WI and the Dakotas. Frost is certainly not certain and most likely won't occur, but these events need to be monitored.     

News> The US has imposed import tariffs on Chinese tires, due to US claims that China has violated international trade rules. The initial tariff will be 35%, with a declining scale in years to come. China has voiced aggressive complaints. They have also coincidentally begun looking into US "dumping" of products into China, including poultry and automotive industry products. China has a reputation of not taking such actions without some level of retaliation, even if it is disguised behind a veil that can be said is "not connected".      

Wheat will find mixed expectations, with some encouraged by Friday's late recovery and hopes this will lead to technical short-covering activity. Fundament support seems lacking. Others will point to the overall downtrend and a fundamental backdrop that argues for still weakening price trends. The wheat market has mixed textbook opportunities for short-covering to unfold and I see no reason to believe we won't again reject any attempt to find follow-through buying activity.                  

Corn will also find some encouraged by Friday's ability to reject initial bearish reactions to the USDA data and to actually close higher on Friday. Technical indicators offer mixed signals and it is not difficult to understand why some will want to be bullish this market. However, the overriding bearish fundamental profile from a supply perspective and the lack of producer forward sales argues this market will find it very difficult to stage any meaningful multi-day rally event. This is the time of year and we have the type of fundamental backdrop to argue that Friday's late rally is the type of bounce event that falls in the category of an "as good as it will get" selling opportunity. Crops are quickly moving to maturity now and most weather is conducive to a pick-up in pace towards maturity. We have ample signs that suggest the US corn crop will continue to grow in future reports. We may still have much more downside to experience before we can say that the marketplace has fully absorbed the bearish supply situation.      

Soybeans will find mixed sentiment. Friday's price action was quite demoralizing and some will expect additional tech-related weakness. Dryness and weather worthy of "watching" for Midwest frosts will be a talking point in some circles. Technical conditions offer mixed signals.                                 

In summary, while all of the above may be worth discussing, I am concerned the more important storyline will be found in the US decision to impose a 35% tariff on Chinese tire imports. China is vigorously opposed to such actions and history says they will be quick to punish US exporters for the US decision. In the fragile global economic condition, trade actions can lead to nervousness and fears of expanding trade retaliations and moves towards protectionism. None of this is good for US commodities and possibly not good for some outside markets. Thus tonight's stock market reactions, US $ reaction etc will be watched closely and could influence grain trade as the night evolves. I realize there is a strong desire/hope that grain prices will soon establish a seasonal bottom and stage some corrective strength. Friday's price action will help elevate those hopes. However, we have all witnessed times where we find that too many people have missed selling opportunities and then we hope for a rally, only to find the price erosion has an ability to extend, extend and extend. I am afraid we must respect wheat and corn's ability to do just that during the next few months. Soybeans may be a different matter and may be the first market to have an ability to build a multi-week rally phase, but even so, we could still have 30 days or more before this market bottoms. The overall outlook appears to me to be capable of being weak for a while longer.                    

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.