WEEKLY GRAIN UPDATE
For week ending May 23, 2008
by
LYNN SMITH
Senior Futures Broker
ZANER GROUP
800-470-1406
SOYBEANS
On Monday, May 19, 2008, July Beans closed sharply lower at 13.33, down 45 cents, on a combination of bearish weather forecasts and talk that the farmer strike in Argentina may be over this Wednesday. During the session, the USDA reported the Bean export inspections for last week totaled 8.5 million bushels vs. 13.1 m.b. the week prior and 12.1 m.b. last year at this time. It was a soft number, but had little effect on the market. Reports coming out of Argentina suggest a more conciliatory attitude on behalf of the farm groups, suggesting that they may come to an agreement with the government when talks resume on Wednesday. Mostly benign weather forecasts for the next 6 to 10 days in the Midwest also pressured prices as it looks like the Bean crop will be planted on time. After the close, the USDA reported the Soybean crop is now 27 percent seeded vs. 11 percent last week and 47 percent the five year average. Although the report verified that planting was behind schedule, the fairly dry weather forecast for the near term suggested the pace will pick up and the crop will get planted by the preferred date of June 10th. July 
Beans settled at 13.31 ½ on Tuesday, down 1 ½ cents, after an early rally ran out of steam after receiving confirmation of the suspension of the farmer's strike in Argentina. The trade pushed Beans up close to Monday's gap at 13.66, but could only get up to 13.63 ½ before light profit taking and ideas that Beans will show rapid planting progress over the next week turned the market around. On Wednesday, July Beans closed at 13.49, up 17 ½ cents, led by Soyoil which hit a five week high riding the sharply higher rally in the Crude Oil market. July Soyoil closed at 63.25, up 2.22 for the session, on spillover support from a new all time high in the Crude Oil market. Mostly drier weather forecasts for the Midwest also contributed to the bullish sentiment as it appears farmers will get the balance of the Corn crop planted and will not need to switch to Beans. Analysts expect a range of 175,000 to 450,000 metric tons of Soybean export sales in the USDA report to be released prior to the open on Thursday. On Thursday, prior to the open, the USDA reported Soybean export sales totaled 382,800 metric tons last week vs. 210,400 m.t. the week prior and 65 percent over the four week average. The report was "friendly", but not really bullish, and spillover pressure from the Crude Oil market pressed the market lower, with July Beans closing at 13.24 ¾, down 24 ¼ cents for the day. The inability of July Beans to push above Tuesday's high also generated some technical selling, although uncertainty regarding the farmer/government conflict in Argentina provided support at the lower levels. Funds sold an estimated 2,000 contracts during the session. On Friday, July Beans closed sharply higher at 13.68, up 43 ¼ cents, on technical buying and bull spreading (buying nearby/selling deferred) because of the continued farmer/government impasse in Argentina. Spillover support from Crude Oil and wet weather forecasts for the weekend preventing planting of Soybeans contributed to the bullish psychology. Technical buying once July Beans filled a gap at 13.66 also pushed the market higher. Funds bought an estimated 3,000 contracts during the session. In last weeks report I recommended buying the July $15. call for 15 cents or less, which should have been filled on Monday. The option did not trade at my target price of 35 cents or higher, so continue to hold the July $15. call with that profit target in mind and risk to 10 cents on a close basis.
CORN
On Monday, May 19, 2008, July Corn closed 4 ¼ cents lower at 5.86 ¾, as drier weather forecasts suggested the planting pace will pick up and perhaps get close to the average by the end of next week. During the session, the USDA reported Corn export inspections totaled 27.3 million bushels vs. 34.2 m.b. the week prior, and 23.7 m.b. last year at this time. It was a slightly negative report and it appears the large importers may be waiting for a price break based on improved weather conditions before they commit to new orders. Even though the weather forecasts call for drier weather in the next week to 10 days, the generally cold conditions will keep Corn emergence below normal and may delay pollination until late July/early August which may be the hottest time of the summer and could reduce yields. Traders were looking for a range of 73 to 80 percent planting completed in the USDA report to be released after the close. After the close, the USDA reported 73 percent of the Corn crop has been planted vs. 51 percent last week and 88 percent the five year average. They also reported 26 percent of the Corn crop has emerged vs. 56 percent our five year average. The report was slightly bullish, as most traders had expected more planting progress and the emergence total was well behind normal for this time of the year. July Corn closed up 3 cents on Tuesday, at 5.89 ¾, but well off the highs of 603 ½ made early in the session. Spillover support from Crude Oil and a weaker dollar pushed the market to its highs early in the session, however its inability to penetrate resistance at 6.06 encouraged short sellers and pushed the market below its 50 day moving average for the 2nd straight session. The sell off also occurred after former Federal Reserve chairman Alan Greenspan said that commodities might be in a "speculative bubble". On Wednesday, July Corn closed sharply higher at 6.07 /4, up 17 ½ cents, as the sharp rally in Crude Oil spilled over to the Corn market and thoughts that ethanol will follow Crude higher. July Corn closed above its 50 day moving average for the first time since last Thursday and in the process took out strong resistance in the 6.00 to 
6.06 area. Good planting progress should continue with generally drier weather forecast for the Midwest through the Memorial Day holiday weekend. However, the crop was still planted late and emergence is still behind the 5 year average. Most of the Corn planted has been in very moist soil, which should keep the root system near the surface and could lead to problems later if the weather changes to extended periods of dry conditions. On Thursday, prior to the open, the USDA reported Corn exports totaled 507, 200 metric tons vs. 547,200 m.t. last week and 8 percent under the four week average. The report was neutral, but lower Crude Oil prices pressed July Corn lower and it closed at 5.95 ¾, down 11 ½ cents for the day. Technically July Corn was still above its 50 day moving average, however at closed below major resistance at the 6.00 level. Spillover weakness from a sharply lower Wheat market also contributed to declines in the Corn market, as the prices of Wheat and Corn in the southern plains are comparable. On Friday, July Corn closed 4 cents higher at 5.99 ¾, as pre weekend profit taking pushed July Corn into negative territory in the early trade, however a rally in Crude Oil reversed the early trend allowing Corn to close near the highs of the session, but under major resistance at $6.00. July Corn continues to trade in a sideways pattern with support at $5.85 on the downside and resistance at $6.00 to $6.10 on the upside. Wet weather forecasts for the weekend presented a mixed blessing as it would delay late planting of Corn, but be beneficial for the crop already in the ground. Analysts expect 85 to 90 percent of the Corn crop will be planted when the USDA releases their weekly crop progress update next Tuesday (market are closed Monday for Memorial Day). In last weeks report, I recommended buying the July $5.60 Corn put for 12 cents or better, which should have been filled on Monday, but the market did not trade at our target price of 20 cents. Continue to target 20 cents for profit taking, risking to 6 cents, and on a sharp break look to buy the July $6.20 Corn call for 12 cents or less, risk to 6 cents, and target 24 cents or higher for profit taking. In the event the July call gets filled before our profit target on the July 5.60 Corn put is reached, sell the July put at market to exit that portion of our recommendation. Next week will be a shortened trading week because of the Memorial Day Holiday on Monday when all markets all be closed, and since it is the end of the month the large speculative funds could take partial profits on their long positions to lock in monthly bonuses, which could push the market sharply lower and provide us with a great buying opportunity.
WHEAT
On Monday, May 19th, 2008, July CBOT Wheat closed at 7.91, up 15 ½ cents, as drier than expected weather in Australia sparked fears of a third straight year of drought conditions which had severely restricted output over the past two harvests in that country. Farmers in Australia are seeding the winter Wheat crop and forecasts for mostly dry weather over the next 10 days suggested the crop will be short of moisture as planting progresses. During the session, the USDA reported Wheat export inspections totaled 12.0 million bushels vs. 20.5 m.b. the week prior and 27.3 m.b. last year at this time. It was a weak demand report, but the negative news out of Australia trumped the negative demand indicator. KCBT July Wheat closed at 8.37, up 12 ¾ cents with MGE July Wheat up 26 cents at 10.30, but off the early highs of 10.64, which was up the 60 cent limit in light volume. After the close, the USDA reported 45 percent of the winter Wheat crop was in the good/excellent category, down 2 percent from the week prior and well below the 59 percent posted last year at this time. They also indicated 94 percent of the spring Wheat has been planted vs., 82 percent the ten year average at this time. Analysts had expected an increase of 2 percent in the 
good/excellent category, although that may change dramatically as they approach harvest in 2-3 weeks. July CBOT Wheat closed at 7.84, down 7 cents on Tuesday, after early gains failed to hold and technical weakness pushed the market to the lows of the session at the close. Earlier in the session, July Wheat was able to penetrate strong resistance at 8.00 and made a high at 8.09 ½. However, spillover weakness in Soybeans and Corn turned the market down and the selling picked up once the 8.00 mark was broken on the way down. KCBT July Wheat closed at 8.30 ¾, down 6 ¼ cents, with MGE July Wheat closing at 10.34 ¼, down 3 ¼ cents for the session. On Wednesday, July CBOT Wheat closed at 7.78, off 6 cents for the session, as hedge pressure once again pressured the market lower after Wheat had been positive for most of the session. Some spreading of buying Corn/selling Wheat also contributed to the negative close, although some concerns of dryness in the Plains and hot weather forecasts for this weekend may stress the late-stage development of the winter Wheat crop. KCBT July Wheat closed at 8.30, off ¾ cents and MGE July Wheat settled 1 ¾ cents lower at 10.32 ½. On Thursday, prior to the open, the USDA reported Wheat exports totaled 492,300 metric tons vs.564,300 m.t. the week prior and 45 percent under the four week average. It was a weak report and along with spillover weakness from Beans, Corn and Crude Oil, July CBOT Wheat closed sharply lower at 7.45, down 33 cents for the day. Harvest pressure from the start of the winter Wheat harvesting in southern areas such as Texas pushed the market to a new six month low and bearish traders will be eyeing support at $7.00 for their next downside target. KCBT July Wheat also closed sharply lower at 8.00 ¼, down 29 ¾ cents, as harvest pressure pushed the market to the psychological $8.00 support area. MGE July Wheat closed 12 ¾ cents lower at 10.19 ¾, as tightness in the old crop supported the market, although the new crop planting is mostly complete at this time. On Friday, July Wheat closed at 7.52 ½, up 7 ½ cents, on pre weekend short covering after making a six month low early in the session at $7.40. Wet weather forecasts for much of the upper plains over the weekend should be beneficial, although flooding is a concern in some of the western areas. Hot weather forecasts for the southern Plains may stress the filling Wheat crop in that region, but the beginning of the harvest in southern Texas reminded traders of the impending large supply which may continue to depress prices, at least in the short term. KCBT July Wheat closed at 7.97 ¾, down 2 ½ cents, while MGE July Wheat closed at 8.57, up 5 cents for the session. In last weeks report, I recommended buying the July Wheat $8.00 call for 25 cents or better, which should have been filled on Wednesday, however we should have been stopped out on Thursday at 18 cents, for a loss of 7 cents ($350.) plus trade costs. Next week I would look to buy the July $7.70 call for 15 cents or less on a sharp break, risk to 10 cents on a close only, and target 30 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.
