WEEKLY GRAIN UPDATE
For week ending February 22, 2008
by LYNN SMITH
Senior Futures Broker
ZANER GROUP
800-470-1406
lsmith@zaner.com
SOYBEANS
On Tuesday, Feb. 19th (all markets were closed on Monday in honor of Presidents Day) May Beans gapped higher and posted a new life of contract high at 14.28, before settling at 14.17 ¾, up 26 ½ cents for the day. Ideas that China will be buying additional Soybeans and Soy Oil because of severe weather related losses in their Rapeseed crop along with strong spillover support in outside markets including Crude Oil, Gold, and Platinum propelled the market sharply higher at the open.
The early gains were trimmed around midday on profit taking, but a lack of follow-through selling allowed the market to recover into the close. During the session, the USDA reported export inspections for Soybeans for last week came in at 32.95 million bushels vs. 37.804 m.b. for the previous week and well over the 11.6 m.b. needed each week to meet the USDA projection for the current marketing year. The report was above expectations and over ½ of the total is headed for China confirming the rumors that began circulating last week.
There were additional rumors that China bought 10 cargoes of South American Soybeans and almost 100,000 tons of Soy Oil last week. Brazil's northern and central growing areas have had drier weather for the past few days, allowing resumption of early harvesting however, forecasts for above normal precipitation for next week could slow the harvest once again. Analysts expected Parana, Brazil's second largest producing area, to show only 2 percent of their harvest complete vs. 5-10 percent normal for this time of the year.
Funds bought an estimated 3,000 to 4,000 contracts during the session. May Beans traded an inside day on Wednesday and closed at 14.17, off ¾ cent in a consolidation of yesterday's contract highs. There was little fresh news to move the market, although traders will be looking forward to the USDA Outlook Forum which begins on Thursday in Washington D.C. November Beans made a new contract high at 13.67 ½, and closed at 13.66, up 5 ½ cents on the day, in a continuation of the "buying acreage" theme that has been prevalent the past few weeks.
On Thursday, May Beans closed at 14.24 ¾, up 7 ¾ cents, on ideas world demand for Soy oil and Soybeans is increasing along with the ongoing battle for acreage prior to spring planting. Spillover support from a strong Gold market along with a weaker dollar also contributed to the positive sentiment.
USDA Chief Economist Joseph Glauber said Soybean planted areas for 2008 is expected to reach 71 million acres vs. last year's total of 63.7 m.a., but unchanged from the USDA projection on Feb. 12th. The report appeared to have little influence on the market.
May Beans posted a new life of contract high at 14.40 on Friday, before closing at 14.38 ¼, up 13 ½ cents for the session. Prior to the open, the USDA reported weekly export sales for Beans totaled 630,000 metric tons, up 92 percent over the week prior and equal to the four week average. Speculative buying continued to push prices higher with spillover support from the strong metals markets. Funds bought an estimated 3,000 to 4,000 contracts during the session.
None of my trade recommendations from last week's report were filled, as the Beans gapped higher on Tuesday and never traded below Tuesday's low. Although Soybeans look to continue trending higher, I would recommend longs tighten their stops, as funds may decide to book profits and earn their monthly bonuses prior to month end. Look to buy May Beans at 14.10, using a 13.95 sell stop, and target 14.80 or higher to take profits. Option traders may look to buy the May 15.00 call for 42 cents or less, (it closed at 54 cents on Friday) risk to 30 cents, and take profits at 70 cents or higher.
CORN
May Corn gapped higher on Tuesday, Feb. 19th (markets were closed on Monday Feb. 18th, for President Day) on spillover strength from the Beans, along with strength in outside markets including Crude Oil and the metals. May Corn closed at 5.32 ½, up 5 ½ cents for the day, after making a high at 5.36 ¾ early in the session.
During the session, the USDA reported Corn export inspections totaled 48.4 million bushels last week vs.40.66 m.b. for the week prior, and over the 45.18 m.b. needed each week to meet the USDA projections for the marketing year. Cumulative shipments market year to date total 47.8 percent of the USDA projection as compared to 43.4 percent of the 5-year average for this time of year.
The report was above analyst's expectations and added to the bullish sentiment already present in the market. News that China only sold 30,000 metric tons of Corn in January also was quite bullish as traders took it to mean that China will not be a significant Corn exporter this year as in the past. Also news that South Korea bought 165,000 metric tons of optional origin Corn for delivery in the 2007-08 marketing year also was supportive.
Traders will be watching for news from the USDA Outlook Forum on Thursday and Friday for further market direction. Funds bought an estimated 3,000 contracts during the session. May Corn started lower on Wednesday, but as Crude Oil and Gold turned higher, May Corn followed an closed at 5.36, up 3 ½ cents for the day. Argentina pegged their 2007'08 Corn production at 19 to 21 million tons which was below the USDA estimate of 21.5 m.t. and added to the bullish psychology already present in the market. Some traders also wanted to be positioned for the USDA Outlook Conference which begins on Thursday. Short covering near the close pushed the market to close just off the highs for the session.
Funds bought an estimated 4,000 contracts during the session. On Thursday, May Corn settled at 5.37 ½, up 1 ½ cents, on spillover support from strong metals and a weaker dollar.
The USDA Outlook Forum released their estimate for Corn planted areas for the 2008 season at 90 million acres, which was above their Feb. 12th projection of 88 m.a. Although the report was slightly bearish, most traders noted it was just an estimate and certainly could change in the next few weeks prior to planting. The USDA will release their weekly export report before the open on Friday, delayed by one day because of the Presidents Day holiday on Monday, and analysts look for a range of 450,000 to 1,000,000 metric tons.
May Corn closed 2 ½ cents lower, at 5.35, on Friday, pressured by a higher than expected ending stocks figure released by theUSDA's Outlook Forum. The USDA pegged 2008-098 ending Corn stocks at 1.243 billion bushels, which was from 50 to 100 million bushels over the figure some market analysts had projected. Prior to the open, the USDA reported Corn exports for last week totaled 1.141 million metric tons, which was up 22 percent from the week prior and up 16 percent over a strong four week average. Some pre week end profit taking, along with a weaker Crude Oil market also contributed to the negative pricing, although May Corn made a brief comeback just prior to the close of trading. May Corn traded an inside day between Thursday's high and low, but option related selling in the March contract kept the market on the defensive going into the close.
In last weeks report, we were long March Corn from 4.95 looking to take profits at 5.20 or higher. March Corn opened at 5.21 on Tuesday, so we should have been filled for a profit of approximately 26 cents ($1300.) less trade costs. My option recommendation from last week was not filled. Next week I would look to buy May Corn at 5.15, using a protective sell stop at 5.02, and target 5.50 or higher to take profits. For option traders, look to buy the May Corn 5.50 call for 20 cents or less (it closed at 24 cents on Friday) and risk to 15 cents, with 40 cents as my profit target.
WHEAT
On Tuesday, Feb. 19th (markets were closed on Monday for Presidents Day) May Wheat closed at 10.47 ½, up 5 ½ cents for the day, on spillover support from the Bean and Corn pits, although profit taking in the MGE March Wheat capped the gains for the session.
During the session, the USDA reported Wheat export inspections for the week ending Feb. 14th totaled 20.451 million bushels vs. 17.7 m.b. for the previous week. That brought our cumulative market year to date total inspections to 927.394 m.b., up from 612.793 m.b. last year at the same time. It was on the high end of analyst's estimates of 15 to 21 million bushels and was considered "friendly" to the market.
MGE March Wheat closed sharply lower at 18.60, down 75 cents for the day, after briefly hitting 18.00, the newly expanded $1.35 limit down. Unwinding of the long March/short May spreads and ideas that we may have seen the highs for the year when March hit 19.88 on Friday, contributed to the sharp sell off.
However, Japan indicated it was seeking 151,000 metric tons of Wheat, including 60,000 tons of dark northern spring Wheat, in a tender to be completed on Thursday, giving some traders ideas that the rally may not be over.
On Wednesday, May Wheat closed 14 cents lower at 10.33 ½, on profit taking and lack of fresh fundamental news to entice buyers back into the market. MGE May Wheat also closed down on the day at 15.30, down 17 ½ on the day, on continued long liquidation after making all time highs last week. Minneapolis Wheat has been the leader of the Wheat markets for the past few weeks, and ideas that the highs near the $20.00 mark may hold gave little fresh incentive for the funds to buy back into the market. Fund selling was estimated at 2,000 contracts during the day.
May Wheat closed 12 cents higher on Thursday, at 10.45 ½, on commercial and speculative buying with some traders of the opinion that the recent correction may have run its course. Talk of Iraq looking for Wheat supplies also was supportive which appeared to be confirmed by the late commercial buying.
The USDA's Chief Economist Joseph Glauber reported their projection of 64 million acres to be seeded to Wheat in 2008, at the annual Agricultural Outlook Forum in Washington D.C. That total was up from last year, but below the USDA's projection of 65 m.a. in their supply/demand report on Feb. 12th. Analysts estimated a range of 250,000 to 600,000 metric tons of Wheat exports to be reported by the USDA in their weekly release before the open on Friday, delayed for one day because of the Presidents Day holiday on Monday.
On Friday, May Wheat began the day in negative territory, but the strong rally in MGE Wheat, pushed the market into positive territory and May Wheat closed at 10.64 ½, up 19 cents on the day. Prior to the open, the USDA reported Wheat export sales for last week totaled 101,000 metric tons, up 22 percent from a week prior, but 70 percent under the four week average. The report was a weak demand indicator at best, but the early weakness was more than overcome by speculative buying which occurred after MGE May Wheat went up their 60 cent limit at 16.18 ¼.
On Monday the MGE Wheat limits will expand to 90 cents because of the limit up closes today. Traders continue to focus on the near term tightness in World stocks which has been overcoming the potential increase in Wheat supplies going forward. Funds bought an estimated 1,000 contracts during the session.
In last week's report, I recommended buying a Chicago May Wheat 11.00 call for 50 cents, however the low for last week on that option was 54 cents so there was no trade. For next week, look to buy the May Chicago Wheat 12.00 call for 35 cents or less, risk to 25 cents and target 70 cents 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.
