WEEKLY GRAIN UPDATE

For week ending May 9, 2008

by

LYNN SMITH

Senior Futures Broker

ZANER GROUP

800-470-1406

lsmith@zaner.com

SOYBEANS

On Monday, May 5^th, July Beans closed 18 ½ cents lower at 12.86, as traders expressed concern regarding the delays in Corn planting and the possibility that farmers may switch to Beans if they can't get Corn planted on time. Uncertainty regarding the status of Argentina Bean exports also pressured the market lower, because a resolution of the farmer/government dispute would lead to resumption of their exports and likely would cause a large amount of cancellation of U.S. exports that were booked in the event the strike would continue. During the session, the USDA reported last week's Bean export inspections totaled 11.8 million bushels vs. 14.2 m.b. the week prior and 15 percent over the four week average. It was a neutral report, but had little affect on the market. Funds sold an estimated 2,000 contracts during the session. After the close, the USDA reported the Soybean crop is now 5 percent planted vs. 2 percent planted last week and the 10 year average of 18 percent at this time. It was a friendly report, but there is plenty of time to plant Soybeans which normally goes into the first week in June. July Beans traded sharply higher on Tuesday before news that an announcement was forthcoming out of Argentina regarding the negotiation with farmers and their concerns with the excise tax placed on Soybeans, sparked a sharp sell off, pushing the market down 9 cents at the close at 12.77. The early rally in Beans followed a sharply higher Crude Oil market, along with a lower U.S. Dollar. However, the news from Argentina had the Beans do a 180, as traders guessed that a strike may have been averted. After the market closed, the Argentine government announced that talks with farm groups would resume on Wednesday. Funds sold an estimated 1,000 contracts during the day. On Wednesday, July Beans closed at 13.09, up 32 cents, as talk of a resumption of the farmer strike in Argentina sparked ideas that foreign importers may have to switch purchases to the U.S. Word that the Argentine government had refused to discuss modification of the grain export tax increased the odds that a new farm strike is imminent. A stronger U.S. dollar capped the gains with some traders evening positions prior to the monthly USDA supply/demand report to be released prior to the open on Friday. Market participants are looking for a decrease of about 8 million bushels in our carry over stocks from last months estimate and for a carryout for next year at 273 m.b. Analyst's projected a range of 150,000 to 350,000 metric tons of Bean exports in the weekly USDA export report to be released on Thursday, prior to the open. Funds sold an estimated 3,000 contracts during the session. July Beans closed at 13.10, up 1 cent, on Thursday, as traders evened positions going into the USDA monthly supply/demand report to be released prior to the open on Friday. Spillover support from Corn and Gold provided some buying interest, but that was balanced by sharply lower export sales and forecasts for continued rain events covering most of the Midwest in the next week. News from Argentina that the strike against the government had been approved, added to the bullish sentiment, although it appears the event had been mostly priced in. Prior to the session, the USDA reported the weekly Soybean export sales totaled 41,000 metric tons last week, 87 percent lower than the week prior and 91 percent under the four week average. It was a bearish report, however with the Argentine strike the U.S. should garner some additional export business in the near term. Funds bought an estimated 2,000 contracts during the session. On Friday, prior to the open, the USDA released their monthly supply/demand report. They reduced this year's Soybean carryover to 145 million bushels vs. last month's estimate of 160 m.b. They also estimated next year's Soybean carryover at 185 m.b. World Soybean carryover also was lowered slightly to 49.04 million metric tons vs. last month's estimate of 49.31 m.m.t. Analyst's had predicted this year's carryout at 152 million bushels, so the report was slightly under that amount, but the real "shocker" was their estimate of nest year's carryover with the average analyst's estimate of 273 m.b.b being over 88 m.b. above the USDA estimate. July Beans gapped sharply higher on the open and closed at 13.58, up 48 cents, as the strong demand projected by the USDA will "eat up" all but 40 million bushels of the extra supply provided by an increased acreage of over 11 million acres from last year. The report confirmed the fact that we will have little room for error in this year's crop, or we will need to price ration to prevent a further draw down of our carryover stocks. Unwinding of the long Corn/short Soybean spreads also contributed to the upward surge in prices, as did spillover support from new record high prices in Crude Oil. Funds bought an estimated 2,000 contracts during the session. In last week's report, I recommended buying the July Soybean $15.00 call for 30 cents or less, which should have been filled on Monday, and take profits at 60 cents or higher, which was not filled. Continue to hold the long $15.00 July Soybean call looking for 60 cents or higher and risk to 20 cents.

CORN

On Monday, May 5^th, July Corn closed sharply lower at 5.94, down 19 ½ cents, as traders booked profits because of increased concern with Congress discussing possible legislative changes regarding our ethanol mandates. Traders also expect decent planting progress in the USDA crop progress report to be released after the close, with a range of 20 to 35 percent planted. Weather forecasts calling for widespread rains in the Midwest Wednesday into Thursday also was supportive. During the session, the USDA reported our export inspections for Corn last week came in at 30.7 million bushels vs. 34.9 m.b. for the week prior and under the four week average of 41. m.b. It was the fourth straight week of declines leading some traders to conclude that the recent new highs may be affecting demand. Funds sold an estimated 6,000 contracts during the session. After the close, the USDA reported the Corn crop is now 27 percent planted vs. 10 percent last week and 52 percent the 10 year average. The report was in the low range of expectations, leading to a possible rebound on "turn around Tuesday". July Corn pushed sharply higher on "turn around Tuesday, hitting a high of 6,22, just two cents off the 30 cent limit, before profit taking and a sharp sell off in Beans brought the market off its highs to close at 6.06 ¼, up 12 ¼ cents for the day. Wet weather systems covering most of the Midwest on Wednesday through Friday sparked the early buying which also garnered support from a strong Crude Oil market and a weaker U.S. dollar. A longer range forecast calling for drier weather in the Midwest pulled the market lower going into the close. On Wednesday, July Corn closed up 6 ¾ cents at 6.13, as forecasts for continued wet weather over most of the Midwest in the next 6-10 days suggested further planting delays. Spillover support from Crude Oil also contributed to the bullish sentiment, although a weaker U.S. dollar prevented the market from making new highs. Some traders also evened up positions prior to the USDA monthly supply/demand report to be released prior to the open on Friday. July Corn closed at 6.30 ¼, up 17 ¼ cents, on Thursday, posting a new contract high and all time high for a front month contract. Bullish weather forecasts further delaying Corn planting as well as buying in anticipation of a bullish USDA month supply/demand report on Friday. Prior to the open, the USDA reported weekly Corn exports totaled 337,200 metric tons last week, down 39 percent from the week prior and 50 percent under the four week average. It was a bearish report, but the supply side of the equation is now the focus, so the report had little impact on pricing. Funds bought an estimated 4,000 contracts during the session. On Friday, prior to the open, the USDA estimated the current year carryover at 1,383 million bushels vs. their estimate at 1,282 m.b. in their month prior estimate. They also projected next year's carryover at 763 m.b. The USDA also raised their World carryout for this year's supply to 109.7 million metric tons, up from their estimate of 103.0 m.m.t. last month. They projected next year's World carryover at 99 m.m.t. The USDA's increase in this year's carryover was slightly over the average analyst's projection of 1,320 m.b. and the carryover for next year's Corn crop was over the average analyst's estimate of 707 m.m.t. Overall it was a slightly negative report, but the current wet weather forecasts for the Midwest next week kept sellers at bay. The USDA reduced demand for domestic feed and residual use by 14 percent and they reduced our foreign exports by 16 percent. They did not factor in any reduction in yields caused by planting delays. July Corn closed at 6.29 ¼, down I cent, and just above major support at 6.28. Analysts are looking for an increase in Corn planting percentage to a range of 40 to 60 percent in next week's USDA crop progress report to be released after the close in Monday. That would compare to the five year average of 75 percent. In last week's report, I recommended holding the July $7.00 Corn call (purchased for 15 cents) and target 21 cents for profit taking, risking to 10 cents. Unfortunately, the sell stop of 10 cents should have been triggered on Monday, resulting in a loss of 5 cents ($250.) plus trade costs. Next week I would recommend buying the July Corn $6.70 call at 17 cents or better, risk to 10 cents, and target 35 cents or higher for profit taking.

WHEAT

On Monday, May 5^th, July Wheat closed at 8.05 ½, down 3 ½ cents, as traders expected the rains from this past week may have improved the condition of our winter Wheat crop, with the USDA reporting on the crop progress after the close. Spillover weakness from Corn and Beans also kept the market negative, although July Wheat was able to hold technical support at 8.00. During the session, the USDA reported Wheat export inspections totaled 19.5 million bushels vs. 18.9 m.b. the week prior and just under the four week average of 19.7 m.b. KCBT July Wheat closed at 8.56, down 5 ¼ cents, with MGE July Wheat down 12 cents to 9.45 at the close. After the close, the USDA reported 58 percent of our Spring Wheat crop is now planted vs. 34 percent last week and 55 percent the 5 year average. They also reported 47 percent of the Winter Wheat crop is in the good/excellent category vs. 46 percent last week and 54 percent the 5 year average. The report was friendly as most analysts had expected a larger increase in the crop condition in the good/excellent category. July CBOT Wheat also traded higher on "turn around Tuesday", closing at 8.18, up 12 ½ cents, but 18 cents off the high of the day. July CBOT Wheat followed Corn higher early in the session, but as Corn came off its highs Wheat followed, closing near the middle of the days range. With harvest fast approaching, traders are looking for increased supplies to relieve the previous tight stocks and possibly push prices lower. A Wheat tour in Kansas indicated conditions there were "above average", and although the crop is about one week behind schedule, they expect the crop will be ready to head in the next 7 to 10 days. Cooler & drier than normal weather has slowed emergence in North Dakota and parts of Montana and Idaho. The USDA reported emergence at 11 percent as compared to 25 percent the 5 year average. July MGE Wheat closed up 30 cents at 9.75, with KCBT July Wheat up 8 cents at 8.64. Funds bought an estimated 2,000 contracts of CBOT Wheat during the session. On Wednesday, July CBOT Wheat closed at 8.07, down 10 ½ cents, as traders looked forward to increased world supplies of Wheat with expanded planting in most regions of the world. Traders also bought Corn and sold Wheat as a spread, which kept the market on the defensive. Reports of mostly good conditions in the Hard Red Winter Wheat crop tour also contributed to the bearish psychology, although moisture levels going forward will have a major impact on the outcome of this year's crop. Planting of Spring Wheat is progressing amid improving soil conditions, although cold weather could force some replanting. MGE July Wheat closed at 9.71 ¼, down 3 ¾ cents, with KCBT July Wheat closing at 8.57 ¾, down 6 ¼ cents. Funds sold an estimated 2,000 contracts of CBOT Wheat during the session. July CBOT Wheat closed at 8.22, up 14 ½ cents, on Thursday, on good export sales along with short covering prior to release of the monthly USDA demand/supply report on Friday. Prior to the session, the USDA reported the weekly Wheat export totaled 491,200 metric tons (combined old & new crop) vs. 499,200 m.t. for the week prior. Analysts had expected a range of 250,000 to 500,000 m.t., so the report came in at the top end of their expectations. Expectations for increased World Wheat supplies to be confirmed in the monthly USDA report tomorrow also capped gains. July KCBT Wheat closed at 8.68, up 10 ¼ cents, while MGE July Wheat closed at 10.13 ¼, up 32 cents. Funds bought an estimated 4,000 CBOT contracts during the day. On Friday, prior to the open, the USDA released their monthly supply/demand report by reducing their estimate of U.S. Wheat carryover to a 60 year low at 239 million bushels vs. 242 m.b. in their report a month prior. They also estimated the U.S. all Wheat production at 2, 392 million bushels vs. last year's production of 2,067 m.b. World carryout was projected at 110. million metric tons vs. their month prior's estimate of 112.5 m.m.t. They estimated next year's carryover at 124.0 m.m.t. The report was mostly in line with pre-report analyst predictions with the big increase in World carryover reflecting the increased planting because of this year's sharply higher prices. The World stocks figure as projected by the USDA would be an all time record carryover. July CBOT Wheat closed at 8.04 ½, down 17 ½ cents, but well off the 7.91 low. KCBT July Wheat closed down 22 ½ cents at 8.45 ½, with MGE July Wheat at 10.03 on the close, down just ¼ cent for the session. In last week's report, I recommended buying the July Wheat $850. call for 30 cents, which should have been filled on Wednesday, but my target of 60 cents or higher was not reached. I would hold the $850 call and target 50 cents or higher to take profits, risking to 25 cents on a close basis.

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