WEEKLY GRAIN UPDATE
For week ending May 30, 2008
by
LYNN SMITH
Senior Futures Broker
ZANER GROUP
800-470-1406
SOYBEANS
On Tuesday, May 27, 2008, (all markets were closed Monday in honor of Memorial Day) July Beans closed 20 ¼ cents lower at 13.47 ¾, on spillover weakness from Crude Oil and Gold and speculation that some of the large trading funds might take profits prior to the end of the month to lock in Monthly bonuses. During the session, the USDA reported Soybean export inspections totaled 12.7 million bushels vs. 13.1 m.b. the week prior and 8.1 m.b.last year at this time. July Beans opened higher after tacking on gains of 20 cents from overnight trading that was fueled by canceled negotiations between the Argentine government and local farmers that had been slated for Monday night. However, sharply lower crude oil prices dragged the market lower, and with generally benign weather conditions forecast for the next 6 to 10 days in the Midwest, farmers should be able to plant the Soybean crop on time. Analysts expect a range of 50 to 60 percent planted in the USDA weekly crop progress report to be released after the close on Tuesday (delayed one day because of the Memorial Day holiday). Funds sold an estimated 3,000 contracts during the session. After the close, the USDA reported 52 percent of the Soybean crop has been planted vs. 27 percent last week and 65 percent the 10 year average. They also reported 12 percent of the Bean crop has emerged vs. 34 percent the five year average. The report was mostly in line with analyst's estimates,
although with drier weather forecast for the balance of the week, the trade may consider planting as on time with the 5 year average. July Beans closed 25 cents higher on Wednesday, at 13.72 ¾, as continued concerns over the farmer strike in Argentina had traders in a buying mode as some of importers demand may have to shift to U.S. origin Beans. The slow emergence percentage also was supportive, as was a move higher in the Crude Oil market. Funds bought an estimated 3,000 contracts during the session. On Thursday, July Beans closed sharply lower at 13.22 ¾, down 50 cents, as month end profit taking by the large speculative funds pressed the market from the onset and technical selling accelerated the sell off. Spillover weakness from Crude Oil and Gold and a strong U.S. Dollar also contributed to the decline. Prior to the open, the USDA reported Soybean exports totaled 245,000 metric tons last week vs. 382,800 m.t. the week prior and up 5 percent over the 4 week average. It was a neutral report, but with the farmer strike back on in Argentina, exports should increase again for next weeks report. News that the U.S. Commodity Futures Trading Commission was expanding its investigation into energy market manipulation sparked the sharp decline in Crude Oil and traders expressed concern that the CFTC could take action to limit the role of speculative funds in the commodity markets. The funds sold an estimated 6,000 contracts during the session. After opening lower on Friday, July Beans attracted bargain hunting and short covering drove the market sharply higher, closing at 13.63 ½, up 40 ¾ cents for the session. July Beans ability to hold support also attracted technical buying along with no news of a settlement of the farmer strike in Argentina. Rumors of China purchases also triggered bull spreading (buying old crop/selling new crop) which allowed July Beans to close near the highs for the session. Funds bought an estimated 2,000 contracts during the session. In last weeks report, I recommended holding the long July Soybean $15.00 (purchased for 15 cents) call, targeting 35 cents or higher for profit taking. However, the call traded at my risk target of 10 cents on Thursday, for a loss of 5 cents ($250.00) plus trade costs. Next week I would look to buy the September $16.00 call for 45 cents or better, risk to 38 cents and take profits at 80 cents or higher.
CORN
On Tuesday, May 27, 2008, July Corn closed down 1 ¾ cents at 5.98, as spillover weakness in Crude Oil pressured the market lower, although July Corn was able to hold support just above 5.90. During the session, the USDA reported export inspections of Corn totaled 38.6 million bushels last week vs. 27.3 m.b. the week prior and 43.4 m.b. for the comparable period last year. It was a slightly friendly report, but not strong enough to generate any meaningful buying. The weather forecasts for the next week are mostly drier for the Midwest, so by next Monday the crop should be close to complete, although emergence may lag behind the 5 year average. Analysts expect 85 to 90 percent of the Corn crop should be planted in the USDA weekly crop update to be released after the close. After the close, the USDA reported 88 percent of the Corn crop is now planted vs. 73 percent last week and 91 percent the 10 year average. They also reported 52 percent of the crop has emerged vs. 76 percent the five year average. The report was in line with pre report estimates and now traders will be looking for rain to aid development of the young crop. July Corn closed 5 ½ cents lower on Wednesday at 5.92 ½, as the U.S. Department of Agriculture announced their decision to release acres from its Conservation Resource Program which might reduce feed demand for Corn. Some participants downplayed the impact of the release, however weather forecasts for warmer weather in the Midwest should accelerate emergence and early growth of the young crop. On Thursday July Corn closed 10 ¼ cents lower at 5.82 ¼, on spillover weakness from Crude Oil and a strong U.S. dollar. Fund
liquidation from concern that the CFTC might take some action following their investigation of manipulation in the energy markets forced the market sharply lower, although the market staged a partial recovery to close above the lows for the session. December Corn failed to close above its 50 day moving average for the first time since March. However, poor emergence and replanting because of excessive moisture was supportive and allowed the market to close over the lows for the session. On Friday, July Corn closed sharply higher at 5.99 ¼, up 17 cents, aided by short covering and concerns that the first crop rating of the season on Monday would lag far behind the average of 70 percent. Heavy rainfall in the western Corn Belt raised concerns regarding emergence and the likelihood that some acres will need to be replanted, which at this late date would probably lower yields from the average. Spillover support from the Soybean pit also contributed to the strong finish. Prior to the open, the USDA reported Corn exports totaled 477,000 metric tons last week vs. 507,200 m.t. the week prior. It was a neutral report as importers are playing a wait and see game depending on the progress of the newly seeded Corn crop. In last weeks report, I recommended holding the long Corn July 5.60 put (purchased for 12 cents) looking for a profit target of 20 cents. I also added a new recommendation of buying a July Corn 6.20 call for 12 cents or less, which should have been filled at the open on Wednesday at 10 ½ cents. I also said that if the Corn call was filled before the profit objective was reached on the July 5.60 put, to sell the put at market which should have been filled at 9 ½ cents on Wednesday, generating a loss of 2 ½ cents ($125.00) plus trade costs. Hold the long July 6.20 call, looking for 24 cents or higher for profit taking, while risking to 6 cents.
WHEAT
On Tuesday, May 27, 2008, July CBOT Wheat closed 6 ½ cents higher at 7.59, as short traders booked month end profits and concerns regarding another drought in Australia. Some reversing of the long Corn/short Wheat spreads also contributed to the positive sentiment. During the session, the USDA reported Wheat exports totaled 15.2 million bushels vs. 12.0 m.b. the week prior and 14.0 m.b. last year at this time. It was a neutral report as importers continue to wait on the sidelines until the winter Wheat harvest begins next week. In Australia, Rabobank lowered their estimate for Wheat production to a range of 20 to 24 million metric tons from 23 to 26 million metric tons last month because of the persistent dryness in the eastern areas prompting ideas that Australia may be vulnerable for a third straight drought. Funds bought an estimated 3,000 contracts during the session. July CBOT Wheat closed unchanged at 7.59 on Wednesday, after pushing toward the 7.40 area which has represented good technical support in the past. Spillover support from Soybeans and Gold brought the market back to even, but the impending harvest and expected hedge pressure prevented the market from closing positive for the day. KCBT July Wheat closed at 8.03 1.2, down 1 ½ cents, with MGE July Wheat at 10.50, up 5 cents for the session. On Thursday, July CBOT Wheat closed at 7.43 ½, down 15 ½ cents, as spillover weakness from Crude Oil, Gold and Soybeans along with the impending harvest kept prices under pressure from the onset. July CBOT
Wheat was able to hold technical support at 7.40, although some traders indicated the harvest pressure still to come may drive prices down to 7.00 or lower in the near term. The USDA will announce export sales for Wheat on Friday, one day late because of the Memorial Day Holiday. Analysts expect a range of 150,000 to 600,000 metric tons. KCBT July Wheat closed down 9 ½ cents at 7.94 and MGE July Wheat closed at 10.44 ½, down 5 ½ cents. Some areas of North Dakota are in drought conditions, although most of the remainder of the northern Plains has adequate moisture. July CBOT Wheat closed at 7.61 ½, up 18 cents on Friday, on technical buying and weekend short covering. Concerns for continued dryness in most regions of Australia also contributed to the push higher, as did spillover strength from Soybeans and Corn. Prior to the open, the USDA reported Wheat exports totaled 1,245,300 metric tons (904,000 m.t. new crop) last week vs. 492,300 m.t. the week prior. It was a huge number, and a good indication of the strong demand that should follow as the winter Wheat crop is harvested. KCBT July Wheat closed at 8.02, up 8 cents with MGE July Wheat closing at 10.55, up 10 ½ cents for the session. In last week's report, I recommended buying the July $7.70 call for 15 cents or better, which should have been filled on Thursday. However, the target price of 30 cents was not reached, so I would hold the long call and once again target 30 cents or higher to take profits, risking to 10 cents on a close only.
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.
