WEEKLY GRAIN UPDATE
For week ending July 25, 2008
By
LYNN SMITH
Senior Futures Broker
ZANER GROUP
800-470-1406
SOYBEANS
On Monday, July 21st, 2008, Sept. Beans closed sharply lower at 14.05, down 53 ½ cents, as moderating weather forecasts were seen as conducive to crop development. Settlement of the strike in Argentina also was a negative demand indicator and prompted profit taking and speculative selling on bearish chart patterns. During the session, the USDA reported Bean export inspections totaled 3.5 million bushels vs. 5.7 m.b. the week prior and 10.7 m.b. the 4 week average. It was a negative demand indicator as it appears importers will be going to South America for their near term needs. Funds sold an estimated 5,000 contracts during the session. After the close, the USDA reported 61 percent of the Bean crop was in the good/excellent category vs. 59 percent last week and 61 percent last year at this time. The 10 year average in the good/excellent category is 60 percent. They also indicated 45 percent of the crop is blooming vs. 26 percent the week prior and 65 percent the 5 year average. The report was in line with analyst's expectations as most were looking for a 2 percent increase in the good/excellent category. Sept. Beans closed 6 cents higher on Tuesday, at 14.09, as bargain hunting and short covering gave the market a bit of a bounce after three straight days of lower closes. Although weather conditions were mostly favorable for the near term, Beans are not as susceptible as Corn to near term forecasts, as the crop will not enter the critical growing stage until August. Funds sold an estimated 2,000 contracts during the session. On Wednesday, Sept. Beans closed down 23 ½ cents, at 13.85 ¾, as traders liquidated the long Bean/ short Corn spreads and benign weather forecasts also contributed to the selling pressure. Spillover pressure from Crude Oil also pressured the market lower, although prices are approaching an oversold condition. The Census Bureau will release the monthly Bean crush report prior to the open on Thursday, with analysts looking for an average of 140.1 million bushels vs. the actual May figure of 150.4 m.b. The USDA also will report Bean
exports prior to the open in Thursday with analyst's estimates running from 200,000 to 500,000 metric tons. Funds sold an estimated 3,000 contracts during the session. Sept. Beans closed down 12 ¾ cents at 13.73 on Thursday, as traders removed premium from the market as weather forecast continue to predict moderate temperatures with average to above rainfall in the Midwest Bean belt. Prior to the open, the USDA reported Bean exports (old crop) totaled 183,000 metric tons for last week vs. 102,500 m.t. the week prior. They also reported new crop sales totaled 552,000 m.t. for delivery after September1, 2008. The report was bullish, esp. for new crop Beans, but forecasts for weekend rains and moderate temperatures pushed the market lower Funds have now liquidated approximate 25 percent of their long Bean positions as compared with a 50 percent reduction in their long Corn holdings, so with continued good weather Beans could still come under pressure by as much as 75 cents to a dollar lower. Funds sold an estimated 3,000 contracts during the session. On Friday, Sept Beans closed up 15 ½ cents at 13.88 ½, after a failed attempt to make new lows prompted short covering and pre weekend profit taking. A lack of bullish news started the market lower on the open, however volume dried up and when it became evident that the market was not going to make a new weekly low, short covering pushed the market into positive territory. Sept. Beans have declined $2.60 over the past two weeks and with tight carry over projected by the USDA and uncertain weather conditions as Beans reach their pollination stage next month, traders put a little more premium back in the market. In last week's report, I recommended buying the Sept. $14.00 put for 40 cents or less, however that order would not have been filled as the low for the week was 47 cents on Monday. Next week I would recommend buying the Sept. $15.00 call for 25 cents or less, risk to 18 cents and target 50 cents or more for profit taking.
CORN
On Monday, July 21st, 2008, Sept. Corn closed sharply lower at 5.89 ¼, down 20 ¼ cents for the day, as favorable weather conditions continue to remove premium from the market. The improving weather conditions should result in better yields unless there is an early frost or a 180 degree change in the near term weather forecasts. During the session, the USDA reported export inspections totaled 29.8 million bushels vs. 24.1 m.b. the week prior, and 33.0 the four week average. It was a slightly negative report as it appears importers are in no hurry to secure product in the near term. The market has now retraced all of the gains made after the June flooding in the Midwest and 5.87 ½ is the 50 percent retracement level basis the December contract of the entire bull move began in August of last year. After the close, the USDA reported 65 percent of the Corn crop was in the good/excellent category vs. 64 percent the week prior and 62 percent one year ago at this time. That was also slightly above the 10 year average of 64 percent. They also indicated 34 percent of the crop is silking vs. 13 percent the week prior and 60 percent the 5 year average. The report was in line with analysts expectations as most had been looking for a 1-2 percent increase in the good/excellent category. Sept Corn continued lower on Tuesday, closing at 5.73 ½, down 15 ¾ cents, as spillover weakness from Crude Oil and favorable near term weather conditions combined to force the
WHEAT
On Monday, July 21st, 2008, Sept CBOT Wheat closed down 13 cents at 7.91, as spillover weakness from Soybeans and Corn along with expectations of a record World crop production for 2008-09 kept, the market on the defensive for most of the session. This was the lowest close since June 4th and reflected the sharp drop in adjacent markets along with improving yield expectations from the ongoing winter Wheat harvest. During the session, the USDA reported Wheat export inspections totaled million bushels last week, vs. 11.9 m.b. the week prior
It was a good report and showed the underlying strong demand that may ignite a demand driven rally once the winter Wheat harvest has been completed. KCBT Sept. Wheat closed at 8.23, down 14 ¾ cents for the session, while MGE Sept. Wheat settled at 8.75, down13 cents for the session. After the close, the USDA reported 71 percent of the winter Wheat crop has been harvested vs. 62 percent the week prior, and 82 percent the 10 year average. They also indicated 63 percent of the spring Wheat crop was in the good/excellent category vs. 61 percent the week prior and 75 percent for this time last year. It was also just above the 10 year average of 62 percent in the good/excellent category. The harvest percentage lagged behind analysts expectations of a range of 72 to 74 percent complete. Sept. CBOT Wheat closed up 5 ¾ cents on Tuesday, at 7.96 ¾, as traders unwound the short Wheat/long Corn trades as well as the short Wheat/ long Soybean spreads. Wheat is still in a "followers role" with Corn, so any rally may be subdued until the Corn market turns around. Although the Sept. contract is still under the 50 day moving average, it hasn't made a new contract low since May, so traders will watch those two areas for near term direction. KCBT Sept. Wheat closed up 1 cent at 8.24 and MGE Sept. Wheat settled unchanged at 8.75. Funds bought an estimated 3,000 contracts in CBOT trade during the day. On Wednesday, Sept. CBOT Wheat closed at 7.83 ¼, down 13 ½ cents, as the late sell off in Corn influenced a similar move in Wheat. Spillover weakness in Crude Oil also contributed to the negative sentiment in the market, although ideas that the market is oversold prevented any sharp decline. Funds sold an estimated 3,000 contracts during the session. Sept. CBOT Wheat closed up 4 ½ cents on Thursday, at 7.87 ¾, as liquidation of the short Wheat/long Corn spreads provided a little bounce to recent declines, although bearish World production expectations capped the gains at the close. Prior to the open, the USDA reported Wheat exports totaled 610,400 metric tons last week vs. 748,000 m.t. the week prior, 4 percent under the four week average. It was a friendly report as analysts had predicted a range of 400,000 to 750,000 metric tons. Traders are watching the weather conditions in Australia as the USDA raised its projection for 2008-09 production by one million tons from its June estimate to 25 million tons vs. only 13 million tons in 2007-08. After two years of severe drought, a return to more normal weather could boost the Australian production to a
record, much of it going to export. On Friday, Sept. CBOT Wheat staged a nice rally and closed with gains of 23 ¼ cents at 8.11, as bargain hunting and short covering pushed the market sharply higher. Wheat has been following the Corn market lower over the past two weeks, but it appears the selling may have exhausted itself. For the week, Sept. Wheat closed up 7 cents, which is quite impressive when compared to the sharp losses in Corn and Soybeans. KCBT Sept. Wheat closed at 8.32, up 15 ¾ cents on the day, and MGE Sept. Wheat closed at 8.86, up 161/4 cents for the session. Funds bought an estimated 3,000 contracts of CBOT Wheat during the session. In last week's report, I recommended buying the Sept. Wheat $8.50 call for 20 cents or less, which should have been filled on Monday for 17 ½ cents or better, which was the high for the day. The option did not trade at my target price of 40 cents or more, so I would target that price to take profits next week.
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.
