WEEKLY GRAIN UPDATE
For week ending February 8, 2008
by
LYNN SMITH
Senior Futures Broker
ZANER GROUP
800-470-1406
SOYBEANS
March Beans opened sharply higher on Monday, Feb. 4th, on speculative fund buying and strong technical momentum, closing at 13.26, up 38 ¾ cents for the day. The closing price represented the highest closing for any Soybean contract. Concerns over harvest delays in Northern Brazil coupled with dryness issues for southern Brazil provided positive momentum along with spillover support from another limit up move in MGE March Wheat. Ideas that the USDA may increase our Soybean exports therefore reducing our Bean carryover in Friday's supply/demand report, also contributed to the bullish atmosphere. Funds bought an estimated 4,000 contracts during the session. March Beans opened lower on turnaround Tuesday, but after making an early low of 13.10, bargain hunters came in to push the market to a close of 13.23, down only 3 cents for the day. Early weakness was influenced by a sharply higher US dollar along with plunging equity, metal and energy markets. However, a limit up move in Wheat along with continued weather concerns for South American crops produced some light buying which pushed the Beans to a small gain before dropping a bit at the close. Forecasters were calling for hot and dry weather in central Argentina for the next couple of days, with longer range outlooks calling for dry and above-normal temperatures through the middle of next week. Forecasters see continued heavy rain in northern Brazil to continue off and on for most of next week, delaying harvest and increasing the risk of Soybean rust. Funds sold approximately 1,000 contracts during the session. On Wednesday, March Beans gapped higher, ran up the 50 cent limit to 13.73, before profit taking and hedge pressure pressed the market lower to close at 13.18 ½, down 4 ½ cents for the session. Speculative buying characterized the early run-up with spillover support from another limit up move in Wheat, but as the synthetic option price for Wheat began to fall, profit takers moved in to lock in gains with very little fresh supportive news to justify the limit up move. Technically the late sell off could lead to further erosion of prices in the overnight market, however with the acreage issue still to be resolved along with lower ending stocks and weather uncertainties in South America, there should be good support to prevent any further downdraft in prices. Heavy rains continue in the northern area of Brazil, furthering concern for delayed harvesting, however southern Brazil and 
Argentina look to have generally favorable weather during the next week. The USDA will announce Bean exports for last week prior to the open on Thursday. Analysts estimate a range of 500,000 to 900,000 metric tons. On Thursday, March Beans ended higher on short covering and position squaring ahead of the USDA report to be released before the open on Friday. March Beans closed at 13.31 ½, up 13 cents, after trading on both sides of even in consolidation following the limit up move on Wednesday. Prior to the open, the USDA reported export sales for last week totaled 1,068,000 metric tons vs. 488,000 metric tons last week and over double the four week average. It was a bullish number, but somewhat expected, since the Asian markets are now closed for the lunar holiday and they needed to book product prior to the holiday. Most traders are expecting a reduction in Bean carryover in the USDA report Friday, with the average analyst's estimate at 167 million bushels. March Beans gapped sharply higher on Friday, hitting a new contract high at 13.74 ½, before pre-weekend profit taking trimmed the gains going into the close, with March settling at 13.39, up 7 ½ cents for the day. Prior to the open, the USDA reduced our Bean carryout to 160 million bushels, down 15 m.b. from their January estimate of 175 m.b., and well under last year's comparable figure at 574 m.b. They also increased our exports by 10 million bushels to 1.005 billion bushels and raised the crush by 5 m.b. to 1.835 b.b. They left the production estimates for Argentina and Brazil unchanged from last months report. Analysts had predicted a drop of 8 m.b. to 167 m.b. for our Bean carryout, so the report was bullish and led to a flurry of buying activity at the open. But with little follow-through at the highs, the market traded sideways for most of the session, until sell stops were uncovered a little over an hour from the close, driving the market sharply lower to unchanged on the day. Some late short covering allowed March Beans to close with modest gains for the session. Spillover support from another limit up move in Wheat also added to the bullish psychology, but traders remained cautious after March Beans sharp sell off on Wednesday from a limit up move to negative on the day. Funds bought an estimated 3,000 contracts during the session. In last week's report, I suggested buying March Beans at 12.80 if given the opportunity, however 12.88 ½ was the low for March Beans for the week. I would recommend buying March beans at 13.10 this week with a protective sell stop at 12.95, looking for 13.73 or higher. Although the fundamentals remain very bullish, we remain very vulnerable to sharp corrections at any time, which could be sparked by weakness in outside markets such as the equities, metals or crude oil, or by a reversal in the Wheat market.
CORN
On Monday, Feb. 4th, March Corn closed at 5 10 ½, up 10 cents for the day, on spillover strength from the Soybean and Wheat pits and heavy speculative fund buying. Corn needs to keep pace with the Beans and MGE Wheat so as to retain acres going into the spring planting season. Technically March Corn closed at its highest level since Jan.14th, and also remained above all its moving averages. Ideas that the USDA may increase Corn exports and thereby reduce our Corn carryout in their supply/demand report on Friday also contributed to the bullish sentiment. Funds bought an estimated 15,000 contracts during the session. March Corn opened lower on Tuesday on spillover weakness from Beans and outside markets, but steady buying off the lows allowed a recovery to close at 5.09 ¼, off only 1 ¼ cents for the session. March Corn's recovery was aided by another limit up move in the Wheat pits along with ideas the USDA will be increasing exports and decreasing Corn carryover in their supply demand report to be released Friday prior to the open. Technically, March Corn stayed above their major moving averages with relative strength in a moderate range. Fund activity was mostly absent during the session. On Wednesday, March Corn gapped higher on the open and ran up to a new contract high at 5.28 ¾, only ½ cent off the 20 cent limit. However, with little fresh fundamental news to justify the sharp move higher, March Corn sold off as profit takers locked in gains and the sell off in Beans pressed the market into negative territory at the close. March Corn closed at 5.01 ½, down 7 ¾ cents for the session. The early climb was supported by limit up moves in both Wheat and Beans, but as Beans turned lower, Corn followed suit and the move 
accelerated as support levels were breached. March Corn traded an outside day, but held key support levels at 5.00 and also its 10-day moving average. The USDA will report Corn exports for last week prior to the open on Thursday. Analysts expect a range of 900,000 to 1.450 million metric tons. March Corn closed at 4.99 ½, down 2 cents, on Thursday after follow through weakness from Wednesday's weak close gave way to pre-report short covering just prior to the close. Technical weakness from Wednesday's key reversal pushed March Corn down close to 4.90 support early, but when 4.91 held as the low, short covering and light technical buying allowed the market to rebound into the close. The average analyst's estimate for Corn ending stocks in Friday's USDA supply/demand report is 1.411 billion bushels vs. the USDA January report at 1.438 b.b. On Friday, March Corn gapped higher on the open and hit a high of 5.19, which was only ½ cent off the 20 cent limit up restriction, before profit taking and spillover weakness from Beans pushed the market lower to close at 5.08, up 8 ½ cents for the session. Prior to the open, the USDA left our Corn carryout unchanged from last month's 1.438 bullion bushels in their monthly supply/demand report. Most analysts had predicted a slight drop in our ending stocks to 1.411 b.b. due to our strong exports, however the slightly bearish report had little impact on the market because of strong spillover support from a limit up move in Wheat and a sharply higher Bean market early on. Funds bought an estimated 6,000 contracts during the session. In last week's report, I recommended taking profit at 5.20 on longs from 4.90, which would have been filled on Wednesday when March Corn hit a high of 5.28 ¾. The approximate profit from my recommendation was 30 cents ($1500.) less trade costs. I also recommended fresh buys at 5.00 on March Corn, with a 4.95 protective stop, with both orders filled on Thursday for a 5 cent loss ($250.) plus trade costs. For next week I would look to buy March Corn at 4.95 with a protective sell stop at 4.88, targeting 5.20 or higher to take profits.
WHEAT
March Wheat gapped higher on Monday, Feb. 4th and closed up the 30 cent limit at 9.73, on spillover support from MGE March Wheat, which set another all time high with a limit up move to 14.33. Ideas that the USDA will drop Wheat stocks and increase exports in their supply/demand report on Friday also contributed to the positive momentum, with sellers reluctant to step in from of the "bull freight train". Until prices rise to the point of curtailing demand, we will likely see higher prices as we need to ration our dwindling supplies. During the session, the USDA reported Wheat export inspections totaled 16.552 million bushels last week vs. 24.371 m.b. the week prior, which brought our cumulative market year to date export inspections to 886.024 m.b. vs. 580.225 m.b. at this same time last year. The report was slightly bearish since it was under the analyst's pre-report estimates of 18 to 27 m.b., but the market shrugged off the report and chose to focus on the positive. Funds bought an estimated 2,000 contracts during the session. March Chicago Wheat gapped higher on Tuesday and closed up the 30 cent limit at 10.03, on spillover strength in MGE March Wheat, which opened up the daily 30 cent limit at 14.63. At the close, MGE March Wheat was trading synthetically around 16.40. The MGE exchange will raise their daily limit to 40 cents as of Feb. 11th, 2008. Even at these high prices, commercial demand for MGE Wheat remains steady and supplies are dwindling. Japan announced overnight that they were seeking 172,000 metric tons of Wheat, including 81,000 m.t. of Hard spring Wheat and 45,000 m.t. of semi-hard Wheat. Statistics Canada also announced all-Wheat ending stocks at 15.147 million tons, well below analyst's pre-report estimate of 16 to 16.9 million tons. Funds bought an estimated 2,000 contracts on the CBOT. March Wheat gapped higher on Wednesday and closed up the 30 cent limit at 10.33, establishing a new closing contract high in the process. MGE March Wheat opened and closed up their 30 cent limit at 14.93, but synthetic options were trading around 17.20. MGE March Wheat is still the leader of the Wheat markets, driven by strong demand for the high-quality high-protein Wheat, resulting in a squeeze on short position holders. 
Competition for spring acreage remains a driving force sparking the speculative fund interest. Funds bought an estimated 3,000 contracts during the session. On Thursday, before the open, the USDA will announce Wheat export sales for last week. Analysts expect a range of 250,000 to 600,000 tons. On Thursday, March Wheat (CBOT) closed up the 30 cent limit at 10.63, which represented a new contract high. MGE March Wheat opened and closed at limit up at 15.23, but was synthetically trading between 18.00 and 18.50. Prior to the open, the USDA reported export sales totaled 468,200 metric tons vs. 588,800 m.t. last week. Our cumulative marketing year to date Wheat export sales are already 97 percent of the USDA target for the year, with 17 weeks left in the marketing year. It was near the high end of analyst's estimates and showed strong Wheat demand continues even as prices move higher. Brazil also announced they have suspended their Wheat import tax until June 30th, which is good for one million metric tons of Wheat. However, high U.S. Wheat prices may preclude any rush by Brazilian Wheat millers to book product according to market analysts. Funds bought an estimated 2,000 contracts during the session. On Friday, March Chicago Wheat charged up the 30 cent limit from the open and remained at lock limit up at 10.93 at the close. MGE March Wheat also settled up it's 30 cent limit at 15.53, although it traded between $20 and $21 synthetically at the close. Prior to the open, the USDA lowered their carryover estimate for Wheat to 272 million bushels from 292 m.b. last month, and they also raised their export estimate by 25 m.b. The USDA also reduced their estimate for hard spring Wheat (MGE) carryover to 73 million bushels from 88 m.b. last month. They also increased their estimate for hard spring Wheat exports to 295 m.b. from 275 m.b. the month prior. Analysts had predicted an average drop to 272 m.b., so the report was just slightly under their estimate. The CME Group announced they would be increasing margins by 50 percent effective at the close of business on Friday. Funds bought an estimated 2,000 contracts during the session. In last week's report I recommended taking profit from our long Chicago March Wheat from 9.15, at 9.75, which would have been filled at the open on Tuesday of 9.83, for an approximate profit of 68 cents ($3400.) less trade costs. March Wheat (Chicago) closed at limit up every day this week, or up $1.50 for the week. With the 50 percent increase in margins, I expect continued volatility in next week's trade with possible large inter day ranges. I do not recommend Wheat futures contracts unless well capitalized accounts. For smaller accounts wanting to trade Wheat, I would suggest buying options to limit risk, and because of the daily volatility, I would ask my readers to call me for trade suggestions.
Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Opinions are subject to change at any time, and are not a solicitation or recommendation to buy or sell commodity futures or commodity options. The information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness.
