WEEKLY GRAIN UPDATE
For week ending June 13, 2008
by
LYNN SMITH
Senior Futures Broker
ZANER GROUP
800-470-1406
SOYBEANS
On Monday, June 9th, 2008, July Beans closed at 14.52, off 5 ½ cents, as bullish weather forecasts were offset by suspension of the farmer strike in Argentina that could divert export business back to them and possibly cancel some of the recent Soybean sales, particularly to China. Reports of flooded fields in Iowa, Missouri, southern Illinois, Indiana, and Ohio prompted bear spreading (selling old crop/buying new crop) and outright buying in the November contract which closed at 14.47, up 7 ½ cents for the session. During the session, the USDA reported Soybean export inspections totaled 3.983 million bushels last week vs. 9.887 m.b. the week prior and 12.2 m.b. last year at this time. It was a weak report, but not unexpected, as importers tend to back off until the results of the major crop report are known. Traders also squared positions ahead of the USDA monthly supply/demand report to be reported prior to the open on Tuesday. After the close, the USDA reported 77 percent of the Soybean crop has been planted vs. 88 percent the 10 year average. They also reported the first crop rating of the season at 57 percent in the good/excellent category vs. 66 percent the 10 year average. The report confirmed the lateness of seeding as well as the impact of the excessive rainfall. On Tuesday, prior to the open, the USDA reported their monthly supply/demand data which included a decrease of 20 million bushels in 2007-08 Bean ending stocks to 125 m.b. from 145 m.b. in May. They also reduced their carryover estimate for 2008-09 by 10 m.b. to 175 million bushels, from 185 m.b. in May's report. The report was bullish, but in line with trader expectations, so after pushing higher early in the session July Beans turned negative, as ideas that late planted Corn may go to Bean seedings, 
prompted some profit taking. July Beans closed at 14.46 ½, down 5 ½ cents for the day. Funds sold an estimated 3,000 contracts during the session. On Wednesday, July Beans opened higher and settled up the 70 cents limit at 15.16 ½, on wet weather concerns delaying planting in a large portion of the Midwest Bean area which may lead to reduced yields or a possibility that some areas will go unseeded. Spillover support from Crude Oil and Corn contributed to the bullish psychology. Traders also were watching the "truce" regarding the recent strike between farmers and the Argentine government, which could disintegrate at any time. Weather forecasts calling for continued heavy rains in the period through June 21st in the Midwest Corn & Bean Belt also had traders buying until they have signs the weather outlook is changing. Analysts expect a range of 300,000 to 500,000 metric tons of Beans was exported last week, which will be reported in the USDA weekly export report on Thursday, prior to the open. July Beans opened lower on Thursday on profit taking following the limit advance yesterday, however the market reversed course as it became clear that the suspension of the farmer strike in Argentina that was announced really had no impact on exports of Beans out of that country. July Beans pushed higher, making three month highs at 15.46 ¾, before closing at 15.36 ½, up 20 cents for the session. Bull spreading (buying old crop/selling new crop) also aided the front months, while new crop November Beans closed at 15.12 ½, up 3 ½ cents for the day. Prior to the open, the USDA reported Soybean exports totaled 272,000 metric tons last week vs. 298,600 m.t. the week prior. I t was a bullish report and brought the market year to date export totals over the USDA projected Bean exports for the entire marketing year. Funds bought an estimated 4,000 contracts during the session. On Friday, July Beans closed 23 ½ cents higher at 15.60, as weather delays and technical buying pushed the market higher with traders expressing concern that the farmers may not be able to complete Bean seeding by the optimal planting date of June 20. Wet weather forecasts for the weekend from Iowa east through Illinois, Indiana and Ohio kept sellers at bay as traders did not want to go home short over the weekend. Good demand because of the farmer/government conflict in South America prompted bull spreading (buying old crop/ selling new crop) which helped July gain on the November Bean contract, which closed at 15.31, up 18 ½ cents for the day. Funds bought an estimated 5,000 contracts during the session. Next week I would try to buy the September $20.00 call for 35 cents or better, risk to 25 cents, and target 70 cents or better for profit taking. Although the option is over $4.00 out of the money, it has good open interest and enough time to allow us to reach our price target, especially if July Beans can close over their previous contract high at 15.96.
CORN
On Monday, June 9th, 2008, July Corn closed at 6.57 ½, up 6 ½ cents, as continued wet weather in much of the Midwest delayed completion of the planting as well as requiring reseeding of some areas that were flooded. Corn gapped higher on the open, but lacked the buying power to challenge the contract highs of 6.73, and profit taking prior to the USDA monthly supply/demand report to be released on Tuesday brought the market down as it closed 10 cents off the highs of the session. Some analysts expect 3 to 4 million acres of Corn need to be planted, although some of those acres may be planted to Beans and some may not be seeded as farmers may decide to take the insurance instead. During the session, the USDA report Corn inspections totaled 36.3 million bushels vs. 37.376 m.b. the week prior and 34.0 m.b. last year at this time. It was s decent number for a major report week, but had little impact on pricing. Capping the gains was a weak Crude Oil market and a strong U.S. dollar, which makes Corn a little more expensive to own since prices are denominated in dollars. After the close, the USDA reported 89 percent of our Corn crop has emerged vs. 69 percent the 10 year average. The crop rating dropped 3 percent to 60 percent from last week, but well below the 10 year average at 69 percent. So the report confirmed the Corn crop is still behind 
schedule, however it is still early and good weather can turn this around in a heartbeat. On Tuesday, prior to the open, the USDA projected an increase in 2007-08 ending stocks by 50 million bushels based on their lower export estimate. They also lowered their yield expectation for this year crop to 148.9 bushels per acres from 153.9 b.p.a., which in turn lowered their 2008-09 ending stocks to 673 million bushels, down 90 m.b. from last months estimate of 763 m.b., and substantially lower than this year's carry out of 1,433,000 m.b. The yield reduction was a surprise and with the recent local flooding, traders reasoned that there may be further reductions in upcoming reports. July Corn closed up 16 cents to 6.73 ¼, after hitting an all time high of 6.74 just before the session ended. The rally may have been stronger, however a weaker Crude Oil market and the stronger U.S. dollar capped the gains. On Wednesday, July Corn gapped sharply higher on the open and closed up the 30 cent limit, at 7.03 ¼, an all time record high for a front month Corn contract. It was also the first close over $7.00 for a front month Corn contract, Building on sharp gains in Tuesday's trade, July Corn quickly pushed higher on news of massive flooding in Iowa, Central Illinois, Indiana, and Ohio with thoughts that it may be to late to replant to Corn and even possibly too late to plant to Beans. Taken in tandem with the reduced yield as projected by the USDA in their supply/demand report yesterday, traders are looking for further reductions in carryover and higher prices to ration the dwindling supplies. July Corn opened a little lower on Thursday, but quickly reversed and made a new all time contract high at 7.25 ½, before profit taking pared the gains, and July Corn settled at 7.09, up 5 ¾ cents on the day. Weather forecasts for next week show a drying trend which may allow some replanting or possibly seeding with Beans. Prior to the open, the USDA reported Corn exports totaled 524,600 metric tons vs. 530,200 the week prior. It was a bullish report as exports remained strong even as the price moved higher over the past two weeks. Funds sold an estimated 12,000 contracts during the session. On Friday, July Corn once again set a new all time contract high at 7.37, before light weekend profit taking brought the market back to a close of 7.31 ¾, up 22 ¾ cents for the session. Tightening supply forecasts for the 2008-09 crop because of record flooding in Iowa and other major Midwest states, had traders buying Corn to ration the remaining dwindling supplies. Many analysts, including myself, had been expecting a pre weekend pullback on profit taking, however most sellers were reluctant to "step in front of a moving freight train" so the rally continued. Although the market is "overbought" with relative strength over 80 on a daily basis, the market has the ability to continue higher as long as the funds are adding to their long positions. Look to buy the September $9.00 call for 25 cents or better, risk to 18 cents, and target 50 cents or higher for profit taking.
WHEAT
On Monday, June 9th, 2008, July Wheat closed 22 ½ cents lower at 7.88 ½, on pre-report profit taking and market squaring prior to Tuesday's USDA monthly supply/demand report. Some intermarket spreading of buying Beans and Corn and selling Wheat also pushed the Wheat market down at the close. Fundamentals remain bearish, but a sharp move higher in Corn will drag the Wheat market higher. During the session, the USDA reported 19.4 million bushels of Wheat was inspected for export last week vs. 21.489 m.b. the week prior, but over last year's 9.2 m.b. for the same time of the year. The demand outlook looks to improve as the winter Wheat harvest nears completion at months end. KCBT July Wheat closed down 21 ¼ cents at 8.25 ½, with MGE July Wheat at 9.96, down 31 ¼ cents for the session. After the close, the USDA reported 47 percent of our winter Wheat crop was in the good/excellent category vs. 48 percent the 10 year average. They also indicated 9 percent of our winter Wheat crop has been harvested vs. 10 percent the 10 year average. 63 percent of the spring Wheat crop was in the good/excellent category vs. 70 percent the 10 year average. The report was basically in range of analyst's expectations. On Tuesday, prior to the open, the USDA reported their expectations of 1.817 b.b of winter Wheat production, up from 1.778 b.b. in last month's report. They also increased carryout for 2009 to 487 million bushels, up 4 m.b. from their month prior estimate, The report was pretty much in line with expectations, but the strong rally in Corn produced spillover demand in Wheat and July Wheat closed at 8.09, up 20 ½ cents for the session. Short covering and a "buy the news, sell the fact" mentality also contributed to the bullish psychology in the market. Funds bought an estimated 3,000 contracts during the day. On Wednesday, July Wheat gapped higher and closed at 8.69, up the 60 cent limit, on short covering and spillover support from limit up moves in Corn & Soybeans. Wheat tends to follow pricing in Corn since it can be used as a feed substitute depending on pricing. In yesterday's USDA supply/demand report, the USDA raised feed use by 25 million bushels to 255 m.b., which was up from 60 m.b. in 2007-08. KCBT July Wheat also closed up its 60 cent limit at 9.06 ½, with MGE July Wheat closing up its respective 60 cent limit at 10.46. Funds bought an estimated 5,000 
contracts of CBOT Wheat during the session. July CBOT Wheat closed at 8.51, down 18 cents on Thursday, as profit taking after yesterday's limit up close, pushed the market sharply lower. Fundamentals are bearish for Wheat because of increased supply from most regions of the World. However, the substitution factor of Wheat for Corn as a feed grain prevents the Corn market from getting too high in price, relative to Wheat, regardless of the near term supply fundamentals. Prior to the session, the USDA reported export sales totaled 335,100 metric tons last week vs. 237,800 m.t. the week prior. The report was slightly better than analyst's estimates of 100,000 to 250,000 m.t., but much improved from the week prior. On Friday, traders will be looking to the results of an Egyptian tender for 55,000 to 60,000 m. t. of Wheat for shipment July 11-31 on a cost and freight basis to determine near term direction in the futures markets. KCBT July Wheat closed at 8.92 ¼, down 14 ¼ cents for the day and MGE July Wheat settled 20 cents lower at 10.26. On Friday, July CBOT Wheat closed sharply higher at 8.82, up 31 cents for the day, on the coattails of a strong Corn and Soybean market. Although the fundamentals do not support the current price, Wheat will continue to trade off the Corn market since it has the ability to be a substitute in feed grains if the Corn/Wheat spread widens any further. A profit taking correction in the Corn market will likely spark a larger decline in Wheat, although any decline will likely be short lived. KCBTR July Wheat closed up 32 cents to 9.24 ¼ while MGE July Wheat closed at 10.54 ½, up 28 ¼ cents for the session. If July CBOT Wheat hesitates in the $9.00 level, consider buying the September $8.00 CBOT Wheat put for 30 cents or less, risk to 20 cents and look to take profits at 60 cents or more.
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.
