WEEKLY GRAIN UPDATE
For week ending February 15, 2008
by
LYNN SMITH
Senior Futures Broker
ZANER GROUP
800-470-1406
SOYBEANS
On Monday, Feb. 11th, March Beans closed 13 cents lower at 13.26, pressured by a sharply lower Wheat market, however off the lows, with spillover support from Corn. During the session, the USDA reported export inspections totaled 37.804 million bushels vs. 29.843 m.b. the week prior, and 27 m.b. for the comparable week one year ago. It was a strong number in view of the ongoing Lunar Holiday for Asian countries and increased competition from early harvesting in Brazil. South American weather was mixed with continued rains in northern Brazil limiting harvest activity, however that was offset by weekend rains in southern Brazil which favored the pod-filling stage in that area. Some technicians expressed concern that the recent double-top reversing pattern with low range closes on those days may signal a further consolidation in the days ahead. Support for March Beans lies at 13.14 with near term resistance at 13.35. Funds sold an estimated 3,000 contracts during the session. March Beans closed down 5 cents on Tuesday at 13.21 on spillover weakness from a sharply lower Wheat market. The market started out higher, but was unable to trade above yesterday's high of 13.35, and as the Wheat market collapsed Beans traded below Monday's close for the remainder of the session. The USDA reported baseline predictions for Soybeans for next season including an increase of 7.4 million acres of planted area to 71 m.a. as producers shift seeded acreage from Corn in 2007/08. They pegged production at 2.95 billion bushels (with a yield of 42.1/acre) with usage at 2.947 b.b. If our current estimate for ending stocks remains at 160 million bushels, we would than have a 2007/08 carryout of 169 m.b. The USDA outlook conference numbers may be released sometime next week to provide further details on their demand and supply projections. In South America, weather forecasters called for a moderation of the showers in northern Brazil for the balance of the week, thus allowing a resumption of the early harvest. In southern Brazil scattered showers and moderation in temperatures were seen as a beneficial pattern for the pod filling stage of Beans. In Argentina temperatures were forecast to be near normal and the recent rains have brought favorable conditions for the crops. Funds sold an estimated 2,000 contracts during the session. On Wednesday, March Beans traded an inside day and closed at 3.28 ½, up7 ½ cents on the day, on ideas that China bought additional cargoes of Beans and soy oil on its return from the Lunar New Year. But that bullish demand rumor was countered by weakness in the CBOT Wheat & Corn pits, which kept a lid on prices and prevented a mini-breakout from the current range. Weather news from South America also was mostly bearish, as the rains in northern Brazil appear to be moderating, allowing for more rapid harvest going forward. Forecasts also called for temperature moderation in southern Brazil, along with another rain event moving in over the weekend. On Thursday, prior to the open, the USDA will report on weekly export sales of Beans, with analysts expecting a range of 350,000 to 800,000 metric tons. The National Oilseed Processors Association monthly soybean crush is also scheduled to be released prior to the open on 
Thursday with analysts calling for an average of 154.6 million bushels. Funds bought an estimated 1,000 to 2,000 contracts during the session. March Beans gapped higher on Thursday and closed at 13.68, up 39 ½ cents, on strong fund buying spurred by expectations of increased Asian demand. Up to 40 percent of China's rapeseed crop has been damaged by the severe winter storms leading to ideas that it will be replaced to some extent by U.S. Beans and Soy oil. Palm oil hit a new closing high in the Asian markets which sparked buying in Soy oil and led to a gain of 1.90, just under the 2.00 limit. Prior to the open, the USDA reported Soybean exports totaled 331,600 metric tons for last week vs. 1,068,000 m.t. for the week prior, and almost 58 percent under the four week average. Although less than analysts estimates, the reduction was expected since the Asian countries were off for the Lunar holiday. Traders expect a return of Asian demand for Beans now that the Lunar holiday has ended. The funds bought an estimated 6,000 contracts during the session. March Beans gapped higher on Friday and made a new contract high at 13.86 ½, before weekend profit taking and spillover weakness in Crude Oil and Wheat pushed the market briefly into negative territory. The markets will be closed on Monday in observation of "Presidents Day". A late rally in Soy oil sparked buying in the Beans along with short covering, and March Beans closed at 13.73 ¾, up 5 ¾ cents for the day. Expectations for renewed export demand has kept selling interest to a minimum and traders expect prices to hold except for profit taking corrections. In South America the northern section of Brazil looks to have a drier pattern through the middle of next week, which should support harvesting at an opportune time. March Soybean Oil closed at an all time high of 58.57, up 41 points on the day. In last week's report, I recommended buying March Beans at 13.10 or better, which should have been filled on Tuesday when March Beans traded as low as 13.07. I also targeted 13.73 as an area to take profits, which should have been filled on the open Friday as March Beans opened at 13.82. Total profit for the trade was approximately 72 cents ($3,600) less trade costs. My recommendation for next week will be in the May future which now has more open interest than March. May closed at 13.91 ¼ on Friday, so I would look to buy a dip down to 13.60, using a sell stop at 13.50, and target a new contract high of 14.30 or higher. For smaller accounts, I would look to buy the May $15.00 call for 30 cents or less ( it closed at 38 5/8 cents on Friday), risk to 20 cents, and target 55 cents or higher to take profits.
CORN
On Monday, Feb. 11th, March Corn closed at 5.13 ½, down 4 ½ cents, but well off the lows at 4.92 ½. Early technical selling from last week weak close and spillover weakness from Wheat pressed the market early, however reversing of the long Wheat/short Corn spread and late short covering paced a steady recovery into the close. During the session, the USDA reported export inspections for Corn totaled 40.66 million bushels, under the 45.4 m.b. / week number needed to meet the USDA export forecast for the 2007/08 season, and also under last weeks 51.9 m.b. The total was also under our 4 week average of 52.0 m.b. The report was below expectations which helped contribute to the negative sentiment in the early going. Spillover support from Crude Oil and late short covering provided a gradual recovery into the close. Technically March Corn was able to hold support just over 4.90, and although dipping below both the 10 and 20 day moving averages during the session, the late recovery allowed a settlement above both averages. Funds sold an estimated 6,000 contracts during the session. March Corn settled 5 ¾ cents lower on Tuesday, on spillover weakness from the sharply lower Wheat market as well as weaker outside markets including the metals and crude oil. The USDA released their baseline estimates for Corn for next season including a reduction of 5.6 million acres in planted area down to 88 million acres as producers shift acreage from Corn to Beans and Wheat. The pegged production at 12.515 billion bushels (on a yield of 155.3/acre as compared with this seasons 151.1/acre) and usage at 13.1 b.b. If ending stocks remain at 1.438 b.b., this would lower next years carryout to 868 million bushels. The details of the baseline estimates will be released sometime next week in the Outlook Forum. Corn had little reaction to the report, but pressure from the sharply lower 
Wheat pit generated technical selling with little fresh fundamental news to impact the market. Fund selling was estimated at 7,000 contracts during the session. On Wednesday, March Corn was on the defensive for most of the session before closing at 4.97, down ¾ cent, on spillover weakness from CBOT Wheat early which was countered by a relatively strong close in Beans. However, March Corn closed below both its 10-day and 20-day moving averages which is slightly negative from a technical perspective. On Thursday the USDA will report on weekly Corn export sales, with analysts expecting a range of 550,000 to 1.0 million tons. Funds sold an estimated 1,000 contracts during the session. On Thursday, march Corn gapped higher and closed at 5.11, up 14 cents, on spillover strength in the Wheat and Bean markets. Prior to the open, the USDA reported Corn exports totaled 980,400 metric tons vs. 1,029,000 the week prior. The report was slightly bullish since it was near the high of analyst's pre-report estimate of 1.0 million tons. Funds bought an estimated 7,000 contracts during the session. March Corn gapped higher on Friday and closed at 5.14 ¾, up 3 ¾ cents, on spillover support from Wheat and Soybeans early and short covering going into the three day weekend. (markets will be closed on Monday for Presidents Day) Prior to the open, the USDA announced export sales of 152,400 metric tons to Japan and 110,000 m.t. to South Korea for the 2007-08 marketing year. The sales contributed to the bullish psychology in Corn and sparked some short covering with traders not wanting to be short going into the weekend. The funds bought an estimated 3,000 contracts during the session. In last weeks report, I recommended buying March Corn at 4.95 which should have been filled on Monday when it traded as low as 4.92 ½, with a target of 5.20 to take profits. The high on March Corn for the week was 5.17 on Friday, so I would hold our long looking to take profits at 5.20 or higher. In options, I would look to buy the May Corn $5.50 call for 15 cents or less (it closed at 21 cents on Friday) risk to 10 cents, with a profit target of 30 cents or higher.
WHEAT
On Monday, Feb. 11th, March Wheat (CBOT) posted a contract high at 11.53, up the expanded 60 cent daily limit, before Index fund selling along with margin liquidation led to a sharp turnaround down to a low of 10.40, before late short covering allowed a partial recovery back to 10.48 at the close, down 45 cents for the day. On Friday, after the close, all three exchanges (CBOT, MGE & KCBT) announced sharply higher margin requirements beginning on Sunday night's session, along with expanded daily limits to 60 cents from 30 cents. Margins on CBOT Wheat jumped from $3,038 to $4,050 at the close of business on Monday and to $6,075 at the close of business on Tuesday. The increased margins typically force some of the smaller specs out of the market. During the session, the USDA reported export inspections for Wheat for last week came in at 17.7 million bushels vs. 16.9 m.b. the week prior and under the 4 week average of 20.0 m.b. However, the total was over last year's comparable week of 13.5 m.b. It was a decent report since the Asian markets are still on their Lunar holiday, and it shows that demand still remains strong even at the current higher price levels. Once the March & May Wheat contracts traded below their limit, the Index funds were able to roll out of the March into the May which was suppose to have begun last Thursday, but was 
delayed by the limit up moves until today. As a result, May Wheat closed at 10.85, down 24 ¾ cents, but well off the lows of 10.68. The roll is supposed to last a total of five days. MGE March Wheat opened and closed at 16.13, up the expanded 60 cents limit, but was trading at 17.30 synthetically at the close. March Wheat closed sharply lower on Tuesday, settling at 10.07, down 41 cents on the day, on long liquidation and spillover weakness in outside markets including the metals and crude oil. Egypt's cancellation of a 55,000 to 60,000 metric ton tender from Monday for shipment from March 11-March 31, added to the negative tone. MGE March Wheat closed up the 60 cents limit at 16.73, although MGE July Wheat and forward for 2008 closed down their respective 60 cent limits. On Wednesday, the limit will expand to 90 cents per the MGE exchange. On Wednesday, March CBOT Wheat closed at 9.91 ½, down 15 ½ cents, on a continuation of the correction which began on Monday. It appears that both CBOT & KCBT Wheat may have reached a temporary peak, although MGE March Wheat once again made a new all time high at 17.63, up the newly expanded limit of 90 cents for the session. Japan is tendering for 190,000 metric tons of Wheat, including 77,000 m.t. of U.S. dark northern spring Wheat, to be concluded on Thursday. After the close, Egypt said it is tendering to buy at least 55,000 to 60,000 metric tons of Wheat for shipment from March 15 to March 31, which had been announced on Monday and than cancelled on Tuesday when Wheat prices broke lower. March Wheat gapped higher on Thursday and closed at 10.32, up 40 ½ cents for the day, strongly influenced by another all time high in the MGE March Wheat at 18.53, up the newly expanded 90 cent limit. Egypt announced they bought 235,000 metric tons of Wheat, including 115,000 m.t. of U.S. soft red winter Wheat which is traded on the CBOT. Iraq also issued a new tender to buy at least 50,000 metric tons of Wheat, with a closing date of Feb 23rd. Tunisia also bought 42,000 m.t. of optional-origin Wheat in a spot tender. Prior to the open, the USDA reported our Wheat exports totaled 157,700 metric tons vs. 468,200 m.t. for the week prior. The total included heavy cancellations of 206,100 metric tons. The report was well below analysts estimates of 250,000 to 800,000 metric tons, but the bearish report was more than offset by the new export announcements. March Wheat opened higher on Friday, after MGE March Wheat posted another all time high, but closed at 10.27 ½, down 4 ½ cents for the session. Late profit taking going into the long three day weekend (markets will be closed Monday for Presidents Day) and rolling out of March into May contracts also pressured the March contract. Mar Wheat closed at 10.42, up 1 cent for the day. Some traders opined March Wheat may have notched their high on Monday at 11.53, and closed almost limit down at 10.48 in a classic "key reversal". MGE March Wheat briefly surged to an expanded limit up of $1.35 to $19.88, before profit taking trimmed the gains and it closed at 19.35, still up 82 cents for the session. I did not recommend any weekly trades last week because of the daily volatility. For next week, I would recommend an option trade of buying the May $11.00 Chicago Wheat call for 50 cents or less (it closed at 62 1/8 cents on Friday), risk to 40 cents and target $1.00 or higher to take profits.
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.
