Sunday Night Grain Outlook, 2-21-10

Sunday Night Grain Outlook
By Duane Lowry
Sunday, February 21, 2010

OPENING CALL:
Corn= steady-better,     Wheat= steady-better,     Soybeans= steady-better.

Weather provides mostly favorable weather for Argentina. Some harvest slowing will occur in Brazil.             

News> Argentine officials say excessive rains caused flooding in some areas last week, with Roque Saenz Pena district in southern Cordoba reporting 74,000 acres completely ruined. India officials suggest they may export up to 2.5 mmt wheat from June forward.

Wheat will be supported on Friday's price action being better than most expected. Fundamental news is and will remain bearish, but is also fully known. Technical conditions will continue to encourage buying interest on weakness. The spec remains excessively short this market. We appear well poised for short-covering activities to increase into the end of the month. Friday's reversal-up action could be the triggering mechanism.                            

Corn has little news to focus upon. Trader sentiment remains mostly bearish, but the timing of this sentiment is changing. We also have sectors of the trade willing to add "what if" premium to current values as we address acreage mix ideas and a lot of Midwest snow and potential implications on spring fieldwork activity. February is always expected to be a weak month. Many bears could be found in January and early February preparing for just such an event. Yet, overall price action has not been as weak as bears expected. Friday's price action sets the stage for notable short-covering energy to unfold during the next several days.     

Soybeans will also find support from the general theme that short-covering energy may evolve into the end of the month. Traders will also ponder China's return from holiday and the potential this could mean buying activity. South American supplies usually seem to arrive onto the world stage slower than we all expect every year, and rain-related delays may help to produce the same situation again this year. Technical conditions seem favorable. Expect a probe above recent highs during the next several days. Longer-term bearish fundamental profiles will remain and strength during the next couple of weeks should be seen as selling opportunities for multiple sectors of the trade.                                     

In summary, Friday's action in many markets will encourage short-covering activity and technical conditions suggest this could create some "feed on itself" activity during the next several days. As people begin to more fully understand the proper evaluation of last week's move by the Fed, I wonder if the investment world may be more willing to embrace "inflation-based" investment strategies for a while, sensing the Fed will keep business/consumer interest rates low for quite some time and may in fact may have a desire for a little inflation to develop before raising rates. This sets the stage for a bit more extension to the recent gold price recovery and probably suggests it is time for the US Dollar to experience a price weakening correction of recent gains. Such an event could last a few weeks. All this coincides with a trade that may be guilty of holding a bearish sentiment for too long in expectation of a February break. With February nearing the end and overall price action better than most expected during the past few weeks, we have the right combination of factors to promote a price rally in corn, wheat and soybeans. Longer-term fundamental merit for a bearish stance strongly warns producers to view such a rally event as a pricing/hedging opportunity.                          

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.