WEEKLY GRAIN UPDATE
For week ending May 16, 2008
by
LYNN SMITH
Senior Futures Broker
ZANER GROUP
800-470-1406
SOYBEANS
On Monday, May 12, 2008, July Beans closed at 13.42 ½, down 15 ½ cents, in a consolidation of the sharply higher close on Friday, along with spillover weakness from Crude Oil. During the session, the USDA reported Soybean export inspections totaled 13.1 million bushels last week vs. 11.8 m.b. the week prior and 8.8 m.b. last year at this time. It was a neutral report, but expectations of improving exports with the Argentine strike ongoing were mildly supportive. Traders also were cautious going into the weekly crop update to be released by the USDA after the close. Analysts expect approximately 16 percent of the Soybean crop will have been planted as of Sunday. Funds sold an estimated 3,000 contracts during the session. After the close, the USDA reported only 11 percent of the Soybean crop has been planted vs. 26 percent at this time last year and 29 percent the five year average. It was a friendly report, but there is still plenty of time to plant the Soybean crop which usually is complete by the end of the first week in June. July Beans closed sharply higher on Tuesday, settling at 1379 ½, up 37 cents, on speculation that the Argentine farmers strike will continue beyond Thursday, diverting export sales from that area to U.S. Beans. Also drier weather forecasts for the Midwest suggesting the Corn crop will get planted and limit switching to Beans also contributed to the bullish sentiment. Spillover support from a strong Crude Oil market was also friendly. On Wednesday, July Beans closed unchanged at 13.79 ½, as the bullish 
prospect of picking up Bean exports from South American customers was balanced by weak Crude Oil and a firmer U.S. Dollar. Argentine grain exporters have begun to declare "force majeure" on their shipments as they will be unable to satisfy some of their previous commitments because of the ongoing farmer strike. Looking forward to Thursday's USDA export report, analysts are looking for a range of 75,000 to 250,000 metric tons of Soybean sales. July Beans closed sharply lower on Thursday at 13.47, down 32 ½ cents, on profit taking and signs that the farmer strike in Argentina may be abating. Prior to the open, the USDA reported Bean export sales totaled 201,400 metric tons vs. 41,000 m.t. the week prior. The total was about in the middle of analyst expectations, however the possibility of a settlement of the farmer strike in Argentina generated selling pressure, along with spillover weakness in Crude Oil. On Friday, July Beans closed sharply higher at 13.78, up 30 ½ cents, as short covering and technical buying pushed the July contract briefly over the 14.00 mark, but a sell off in crude oil attracted profit taking driving Beans lower into the close. The continuation of the farmer strike in Argentina through next Wednesday kept sellers at bay, although hesitation at the 14.00 resistance area prompted profit taking going into the close. Funds bought an estimated 3,000 contracts during the session. In last week's report, I recommended holding our long 15.00 July Bean call from 30 cents, looking to take profit at 60 cents and risking to 20 cents. We should have been stopped out on Tuesday at 20 cents for a loss of 10 cents ($500.) plus trade costs. Next week I would recommend buying the July 15.00 call at 15 cents or less, risk to 10 cents, and target 35 cents or higher for profit taking. Any actual settlement or rumor of a settlement of the farmer strike in Argentina could generate a sharp 30-40 cents sell off that could provide a good buying opportunity.
CORN
On Monday, May 12, 2008, July Corn closed down 14 ½ cents at 6.14 ¾, as a slight change in the longer term weather forecast calling for drier weather next week, prompted profit taking by the funds. During the session, the USDA reported export inspections totaled 34.2 million bushels last week vs. 30.7 m.b. a week prior and 40.9 m.b. one year ago at this time. It was a mostly neutral report, although it did show we are still in a slack demand time frame. Traders continued to express concern regarding congressional inquiry looking at the ethanol mandate, which limited fresh buying. The market also looks a little weak from a technical standpoint, although the underlying fundamentals remain quite bullish. Some evening of positions prior to the release of the weekly crop progress report by the USDA after the close also contributed to the weaker close. Funds sold an estimated 5,000 contracts during the session. After the close the USDA reported 51 percent of the Corn crop has been planted vs. 27 percent the week prior and 77 percent the five year average. The USDA also reported emergence at 11 percent vs. 4 percent last week and 33 percent the five year average. The report was neutral to slightly negative, as most analysts had been looking for a range of 40 to 60 percent planted. However, the fact that the farmers were able to plant 24 percent in a less than ideal week, suggested that with slightly drier weather the next week will show another increase of 25 percent or more, bringing the planting close to the norm. July Corn closed at 607 ¼, down 7 ½ cents, on Tuesday, on drier near term weather forecasts and a general lack of bullish news. Strength in the U.S. Dollar also 
contributed to the near term pressure, as it made our Corn exports slightly more expensive, since Corn quotes are denominated in U.S. dollars. On Wednesday, July Corn closed down 11 cents at 5.96 ½, as continuation of the buying Beans/selling Corn spread also pressed the market lower. Some traders expressed disappointment in last Friday's USDA demand/supply report that had been expected to be bullish, and it turned out to be slightly bearish instead. Technically, July Corn settled just above its 50 day moving average at 5.92 1/2, and any move below that mark could cause some short term liquidation of long positions. July Corn closed up 2 ¾ cents at 5.99 on Thursday, as bearish weather forecasts kept the market under pressure for most of the session. The National Oceanic and Atmospheric Administration predicted June, July, and August temperatures would be below normal for the Midwest this year, therefore relieving some of the traders concern that the late Corn crop would pollinate at the hottest temperatures of the summer and possibly reduce yields. Prior to the open, the USDA reported Corn exports totaled 547,200 metric tons vs. 337,200 m.t. the week prior and 14 percent under the four week average. It was neutral to pricing, but it broke the 4 week trend of declining numbers. After July Corn dipped below its 50 day moving average at 5.93, the market rallied going into the close as news of a possible resolution of the farmer strike in Argentina ending the spreading of buying Beans and selling Corn, at least for the short term. Commercial and technical buying pushed the market up on the day to close above its 50 day moving average. On Friday, July Corn closed down 8 cents at 5.91, as weekend profit taking and technical selling pushed the market lower for the session. Short covering early in the session pushed July Corn up to 6.08, but a lack of follow through buying prompted fund profit taking, which accelerated as July Corn broke the 50 day moving average at 5.93 ¼. Drier weather forecasts for the next 6-10 days should accelerate the Corn planting and traders are looking for 70-82 percent complete in the USDA crop progress report to be released after the close on Monday. Funds sold an estimated 6,000 contracts during the session. In last week's report, I recommended buying the July Corn 6.70 call for 17 cents which should have been filled on Monday, however the sell stop should have been filled on Tuesday at 10 cents, for a loss of 7 cents ($350.00) plus trade costs. With drier weather forecasts we should get most of our crop in by Memorial Day and I think Corn could drift lower for the next two weeks, barring any surprises from the USDA crop progress update on Monday. July Corn has good support at 5.85, but a break of this level could produce a rapid move down to the 5.60 major support area. Try to buy the July $5.60 Corn put at 12 cents or better, risk to 6 cents, and target 20 cents or higher for profit taking.
WHEAT
On Monday, May 12, 2008, July CBOT Wheat closed at 8.05 ½, up 1 cent for the session, in an inside day with late session short covering lifting the futures off their lows. During the session, the USDA reported Wheat export inspections totaled 20.5 million bushels last week vs. 19.5 m.b. the week prior and 23.6 m.b. one year earlier at this time. The report was in line with expectations as most traders are looking at soft demand until we begin harvest of the winter Wheat crop. July Wheat traded under strong support at 8.00 early on, but a lack of follow through and unwinding of the short Wheat/long Corn spreads also pulled the market higher, but the gains again were capped by thoughts of an impending harvest and larger supplies just down the road. Reports of good rains in Australia also were negative, although a tender for 50,000 tons of hard Wheat by Iraq was supportive. KCBT July Wheat closed at 8.43, down 2 ½ cents, on reports the winter Wheat crop is in good shape and improving as we approach harvest in 3-4 weeks. The winter Wheat tour in Kansas placed their crop size at 379.1 million bushels vs. the USDA's estimate last Friday of 357.2 m.b. MGE July Wheat closed sharply higher at 10.48, up 45 cents, in light volume, on bull spreads (buying old crop/selling new crop) placed by ADM & UBS. Analysts also expect planting progress to come in at about 74-75 percent planted in the USDA crop progress report to be released after the close. After the close, the USDA reported our winter Wheat condition was unchanged at 47 percent. They also indicated our spring Wheat planting is 81 percent complete vs. 58 percent last week and 71 percent the 10 year average. July Wheat closed down 9 ¾ cents at 7.95 ¾ on Tuesday, on spillover pressure from Corn and growing expectations of larger World supplies of Wheat as the year progresses. Growing conditions remain mostly positive for U.S. winter Wheat as well as in other growing regions of the World. KCBT July Wheat closed at 8.35 ¼, down 7 ¾ cents with MGE July Wheat at 10.47, down 1 cent. On Wednesday, July CBOT Wheat 
made a 5 month low, closing at 7.64, down 31 ¾ cents for the session. Technical selling when July Wheat closed below its 200 day moving average at 7.89 accelerated the down move, as this had been a good support level previously. Spillover weakness from Corn also contributed to the negative sentiment, with little bullish news to stem the tide. Good moisture in the Plains also was bearish as the crop looks to be improving as we near harvest in 2-3 weeks. KCBT July Wheat closed at 8.11, down 24 ¼ cents and MGE July Wheat closed 9 cents lower at 10.38. Funds sold an estimated 3,000 contracts of CBOT Wheat during the session. July CBOT Wheat closed at 7.71 ½, up 7 ½ cents on Thursday, after it appeared we had reached a selling exhaustion from Wednesday's sharply lower close. Prior to the open, the USDA reported Wheat exports totaled 564,300 metric tons (combined old & new crop) vs. 491,200 m.t. (combined) the week prior. It was a neutral to slightly friendly report, but the supply side of the equation is dominant for pricing until the crop is "made" and in the bins. KCBT July Wheat closed at 8.21 ½, up 10 ½ cents, as traders bought the lows from Wednesday with concerns for yields and protein levels of the winter Wheat crop. MGE July Wheat closed at 10.07, down 31 cents, on a reversal of the bull spreading (buying nearby/selling deferred) performed earlier in the week and good progress in planting of the Spring Wheat crop. Funds sold an estimated 2,000 contracts of CBOT Wheat during the session. On Friday, July Wheat spent a quiet day with trade taking place on both sides of Thursday's close. July CBOT Wheat closed at 7.75 ½, up 4 cents, on light short covering going into the weekend. KCBT July Wheat closed at 8.24 ¼, up 2 ¾ cents, as decent crop progress had traders looking forward to a large winter Wheat harvest, however bargain hunting on oversold conditions pushed the market into positive territory on the close. MGE July Wheat closed off 3 cents at 10.04 in light volume with little new news to influence the market. We should have been stopped out of our long July Wheat $850 call on Monday at 25 cents (bought at 30 cents) for a loss of 5 cents ($250.) plus trade costs. Although the impending harvest is bearish to pricing, I believe most of the large harvest may have been priced in and I think the Wheat market may be in for a "bounce" higher as traders begin to transition from a "supply" to a "demand" market. Look to buy the July Wheat $8.00 call for 25 cents, risk to 18 cents, and target 50 cents or higher for profit taking.
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.
