WEEKLY GRAIN UPDATE
For week ending August 1, 2008
By
LYNN SMITH
Senior Futures Broker
ZANER GROUP
800-470-1406
SOYBEANS
On Monday, July 28th , 2008, Sept. Soybeans closed 7 ¾ cents higher at 13.96 ¼, as a very warm/hot weather forecast for most of the Midwest area in the next week prompted traders to add some risk premium back into the market after the sharp sell off the past two weeks. Some reversal of the long nearby/short deferred spreads because of the fast approaching first notice day also kept the nearby contracts under pressure. During the session, the USDA reported Soybean inspections totaled 10,134 million bushels last week vs. 6,891 m.b. the week prior. It was a neutral report and generated little impact on pricing. Funds bought an estimated 2,000 contracts during the session. After the close, the USDA reported 62 percent of the Bean crop was in the good/excellent category vs. 61 percent the week prior and 60 percent the 10 year average. They also reported 62 percent of the Bean crop was blooming vs. 79 percent the 5 year average. 21 percent of the crop was setting pods vs. 38 percent the five year average. The improvement in the good/excellent category was expected by most analysts, however the crop is still behind normal development for this time of year. Sept. Beans closed 10 cents lower at 13.86 ¼ on "turnaround Tuesday", as weather forecasts moderated the heat dome in the Midwest and continued to call for average precipitation for next week. Spillover pressure from lower Crude Oil and a higher U.S. dollar also added to the negative sentiment, although heat and dryness in the U.S. Delta is another concern that provided support off the lows. Funds sold an estimated 3,000 contracts during the session. On Wednesday, Sept. Beans closed up 9 ¼ cents at 13.95 ½, after a lower early trade gave way to fresh technical buying and continuing weather concerns. Spillover support from Crude Oil helped spark buying interest, although some moderation in the heat dome forecast for next week capped gains, The Mississippi Delta area continues to be stressed by hot, dry weather, which will impact pricing unless weather gurus see a change in conditions. Analysts expect a range of 250,000 to 450,000 million metric tons of Soybean exports to be reported in the USDA weekly sales/export report to be released prior to the open on
Thursday. On Thursday, prior to the open, the USDA reported Bean exports totaled 707,600 ( 436,000 m.t. new) vs. 654,500 metric tons (combined) for last week. It was a bullish report, however Sept. Beans opened lower on spillover weakness in Crude Oil, but near mid-session prices turned up and Sept. Beans closed at 13.94 ¼, off 1 ¼ cent for the session. Near term forecasts' calling for hot temperatures was balanced by next week's forecasts calling for cooler and wetter conditions. End of month positioning also contributed to the choppy trade that stayed within a 20 cent range for the day. Funds bought an estimated 2,000 contracts during the day. On Friday, Sept Beans closed down 38 ¾ cents at 13.55 ½, as cooler and wetter weather forecasts prompted traders to reduce weather premium from prices. Beans are entering the key pod-filling stage and with moderate temperatures and occasional rain the yields could come in better than had been anticipated. A firmer U.S. dollar also contributed to the negative sentiment, although Sept. Beans was able to hold support in the low 13.50's. Funds sold an estimated 3,000 contracts during the session. In last week's report, I recommended buying the Sept. $15. call for 25 cents or less, which should have been filled on Monday. However, the sell stop I recommended also should have been filled on Tuesday at 18 cents, for a loss on the trade of 7 cents ($350.00) plus trade costs. If Sept. Beans open below support at 13.53 on Monday, look to buy the Sept. 13.00 put for 20 cents or less, risk to 12 cents and target 40 cents or higher for profit taking.
CORN
On Monday, July 28th, 2008, Sept. Corn closed just over support at 5.82, up 4 ¾ cents for the session, with weather forecasts calling for warm/hot temperatures in the Midwest continuing through the weekend. During the session, the USDA reported export inspections totaled 39.027 million bushels last week vs. 31.133 m.b. the week prior, and 31.2 m.b. the 4 week average. It was a bullish report and confirmed the recent price break has increased end user purchase. In addition to increased export demand, ethanol producers and livestock feed users also have increased their purchases to take advantage of the price break. After the close, the USDA reported 66 percent of the Corn crop was in the good/excellent category vs. 65 percent last week and 63 percent the 10 year average. The report was in line with analysts expectations of an unchanged to plus 2 percent increase. Sept. Corn closed at 5.94, up 12 cents, on hot temperature forecasts for the weekend which may impact pollination for a portion of the crop. Demand has also picked up as evidenced by Japan's purchase of 152,400 metric tons of Corn, and ethanol producers and livestock users also were taking advantage of the $2.00 break in prices. Spillover pressure from Crude Oil started Sept. Corn negative in early trade, however mid-day weather updates suggesting the hottest
temperatures for the season in the Midwest prompted buying as traders sought to add some premium into pricing. On Wednesday, Sept. Corn closed 7 ½ cents higher at 6.01 ½, as a government decision refusing to release protected lands to farmers was bullish. The decision prompted buying of the Dec. 2009 contract which ended up 19 ½ cents at 6.55. Spillover support from Crude Oil also contributed to the positive sentiment, although weather forecasts calling for an end of the "heat dome" after mid-week capped the gains. Prior to the open on Thursday, the USDA reported Corn exports totaled 63,100 metric tons last week, a marketing year low, 81 percent under the week prior and 81 percent under the 4 week average. It was a negative report, especially in view of the recent $2.00 break in prices. Sept. Corn opened lower ant closed at 5.87 ½, off 14 cents for the session, as spillover pressure from a weak Crude Oil market combined with improving near term weather forecasts kept Corn on the defensive more most of the day. Funds also were liquidating positions for end of month squaring of accounts. On Friday, Sept. Corn closed down 22 ½ cents at 5.65, as a change in weather forecasts from hot and dry to warm and wet had some of the speculative funds exit their long positions. It appears now that the majority of the crop will have completed the pollination stage without any undue stress and moisture levels look to be average to above average as the ears are filling kernels. Some traders are predicting yields of 152/bushels per acre, which is over the 148.4 b.p.a. forecast by the USDA. In last week's report, I recommended buying the Sept. Corn $6.00 call for 15 cents which should have filled on Tuesday, however the stop I recommended at 9 cents also should have been filled on Thursday, for a loss of 6 cents ($300.00) plus trade costs. Next week I would look to buy the $5.50 put for 15 cents or less, risk to 10 cents and target 30 cents or higher for profit taking.
WHEAT
On Monday, July 28th, 2008, Sept.CBOT Wheat closed at 7.97 ¾, down 13 ¼ cents, as traders gave back a good portion of the gains from last Friday. Bargain hunting on Friday helped push the market higher, but a lack of fresh bullish news along with bearish fundamentals, turned the market South. Some traders expressed optimism that we are close to a harvest low. During the session, the USDA reported Wheat export inspections totaled 21.778 million bushels last week vs. 30.225 m.b. the week prior and 18.2 m.b. the four week average. The report was friendly, but not really bullish, and the market had little reaction after its release. After the close, the USDA reported 60 percent of the spring Wheat crop was in the good/excellent category vs. 63 percent the week prior and 59 percent the 10 year average. The report was not unexpected and current ratings are close to the norm for this time of the cycle. Next week a U.S. spring Wheat tour will look at the crops actual improvement which could impact pricing as the reports roll in. Sept. CBOT Wheat closed at 7.92, down 5 ¾ cents for the day, pressured by spillover weakness in outside markets and little fresh bullish news to spark any buying interest. However, the late rally in Corn provided support to bring prices back to moderate losses on the close. KCBT Sept. Wheat closed up 1/2 cent at 8.25 and MGE Sept, Wheat closed at 8.73, down 3 ¼ cents. Rain amounts of 2 ½ inches of rain in North Dakota relieved some of the previous dry conditions which caused some selling pressure, although the drop of 3 percent in the good/excellent category of the crop update reported by the USDA after the close on Monday countered the bearish precipitation total. On Wednesday, Sept. CBOT Wheat closed at 7.87 ¾, down 4 ¼ cents for the day, as spread trading of buying Corn./ selling Wheat and a lack of fresh fundamental news was negative for pricing. The USDA decision not to release protected lands also was bullish for Wheat in next years crop, as now the battle will be on for acres from competing products/ The ongoing crop tour in North Dakota showed solid yield potential with little disease present to impair those yields. Decent rains in the
Australian Wheat Belt also were negative after two years of severe drought. KCBT Sept. Wheat closed at 8.19 ¼, down 5 ¾ cents, with MGE Sept. Wheat closing down 3 cents at 8.70. On Thursday, prior to the open, the USDA reported Wheat exports totaled 726,400 metric tons, up 19 percent over the week prior and up 10 percent over the four week average. The report was bullish and demand has been good for the past 4 weeks, especially when considering the additional supply available from other origins including the Black Sea and Australia, if their crop recovers from two years of drought. Sept. CBOT Wheat closed at 7.83 ¾, down 4 cents as end of month liquidation and spread trading of buying Wheat/selling Corn to exit positions. Argentina's government authorized the export of an additional 900,000 metric tons of Wheat, which was bearish to Wheat, as was a projection by the International Grains Council for world Wheat production of 661.8 million metric tons, up from their June estimate of 657.9 m.m.t.. Traders indicated the increase in world production was pretty much "in the market", so it had little impact on pricing. KCBT Sept. Wheat closed at 8.14 ¾, down 4 b1/2 cents and MGE Sept. Wheat ended up ½ cent at 8.70 ½. On Friday, Sept CBOT Wheat closed up 10 ¼ cents at 7.94, as funds bought Wheat to start the month of August on the long side as Wheat normally sees some seasonal strength after the harvest lows have been seen. Some spread trading of buying Wheat/selling Corn and Soybeans, also contributed to the decline. In last week's report, I recommended holding the long Sept. $8.50 call (purchased at 17 ½ cents) and targeting 40 cents or higher, risking to 12 cents. On Thursday the $8.50 call traded at 11 ½ cents, so the trade was stopped with a loss of 5 ½ cents ($275) plus trade costs. Next week I would recommend buying the $8.00 call for 20 cents or less, risk to 10 cents and target 40 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.
