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Published April 13, 2009, 04:36 AM

USDA report priced in

The wheat market started the week off sloppy with many of the contracts off slightly. After trading back and forth for a time, most of the contracts settled in to trade with decent losses.

By: Ray Grabanski,

Wheat

The wheat market started the week off sloppy with many of the contracts off slightly. After trading back and forth for a time, most of the contracts settled in to trade with decent losses. Most of the selling pressure was tied to the outside market s as they started the session on the wrong foot as well. All of the grains and outside market were expected to start the session higher (following the overnight session), but once the markets opened, they all went the opposite direction. Part of the pressure was tied to the financial markets and the steps the government is going to be taking with banks that do not fall in step. A stronger U.S. dollar added to the selling pressure. The April 6 export inspections report did nothing to help as wheat shipments remain stagnant.

The April 7 wheat market worked lower in the overnight session with the help of the strengthening dollar. Losses were limited in the overnight and in the early parts of the day session by the poor weather conditions with freezing conditions in the southern and central plains possibly damaging some of the hard red winter wheat in parts of Texas. Traders are second guessing just how bad the freeze was the night of April 6. There was a lot of wheat that was in the jointing stage, and many in the industry think this wheat was not far enough in the development stage to cause a lot of damage. Others disagree and think the wheat will have damage. Guess this one will be decided by the combine. Late in trading, the wheat extended session losses with much of the selling tied to a poor performing financial sector and strong dollar.

The wheat market started the April 8 session higher with most of the early support spilling over from the strength from the other grains. Both corn and soybeans started the session steady to slightly higher and that helped to push wheat on the opening, but the gains were short lived. Light support also was a result of news that part of the recent Iraq tender is going to come from the U.S. The U.S. will garnish about 100,000 metric tons of the 250,000-metric-ton sale. By midsession, the wheat market had lost its gains and actually turned lower.

For the week ending April 8, Minneapolis May futures dropped 14.75 cents, Chicago May was off 31.5 cents, and Kansas City May dropped 26.5 cents. Minneapolis cash grain bids dropped 30 to 70 cents.

USDA’s April supply and demand report showed a 16 million-bushel cut in wheat’s ending stocks estimate. To get the reduction in stocks, USDA increased wheat imports by 5 million bushels but increased seed demand by 1 million bushels and feed demand by 20 million bushels. But the friendliness of the U.S. numbers was offset by the bearishness of the world numbers. USDA went back over the past two years and increased wheat’s beginning stocks because of underreporting production in some of the past years. This adjustment resulted in the world ending stocks estimate to increase 2.25 million metric tons.

Corn

Corn prices dropped about 10 cents in a slow market news week. Pressure came from slightly lower energy markets and the need for a correction after last week’s run higher. The April USDA report came, with U.S. corn ending stocks projected 40 million bushels lower this month on higher feed-residual use. Feed use was hiked 50 million bushels as stocks of corn were less than anticipated. Since this already was reported March 31, it was more of a nonfactor when the report was released April 9. The season average price for corn was hiked 10 cents to $4 to $4.40 a bushel compared with $4.20 for the 2007 to ’08 price. These two high-priced years are the base for the 2009 ACRE program (and through the next four years), so these highest prices ever for any U.S. marketing year is important for the new ACRE program.

Global course grains supplies are projected 2.7 million metric tons lower this month with lower sorghum, barley and corn production. Much of the reduction is based on lower crops in Ethiopia, although this was offset somewhat by a hike in Brazilian production of 1 million metric tons for higher yields for summer harvested crops. This results in lower world coarse grain ending stocks by 1.12 million metric tons to 186.10 — a small reduction.

The changes in the USDA report are minor in scope, so this report is not expected to significantly determine corn price direction. Instead, as we enter April and the important planting month for corn, weather soon will begin dominating the corn market news.

Soybeans

Soybeans rallied sharply on old crop months, gaining 50 cents while new crop soybeans were virtually unchanged. This highlights the idea that old crop soybeans are running in short supply, while new crop soybeans should be much more plentiful. USDA reiterated that idea in its April supply and demand report, increasing soybeans exports 25 million bushels to a record 1.21 billion reflecting strong export numbers. The Argentine crop also was reduced drastically (4 million metric tons to 39 million metric tons total), indicating less competition from South American sources. This huge cut in South American supplies is the most bullish news item in the report and is likely to lead to a stronger soybean market. However, soybeans closed almost unchanged for the day April 9 since they had run up so much earlier in the week. The “buy the rumor, sell the fact” mentality apparently occurred once again after a USDA report. U.S. soybean ending stocks were cut 20 million bushels to only 165 million bushels, smaller than traders estimated and indicating the U.S. will be virtually out of soybeans by the end of this year.

World stocks also were cut, with production down 4.2 million metric tons mainly because of the Argentine production cuts. Global oilseed ending stocks also were cut substantially (4.1 million metric tons), reflecting the Argentine production cut. Overall, the report was considered bullish for soybeans and oilseeds.

Grains markets have been nothing but disappointment to producers for the past six months, first bottoming in November and then testing those lows this winter to leave a very sour taste in many farmer’s mouths. But recently, there have been a number of suggestions indicating the sleeping bull finally may be awakening as spring approaches:

n The world recession that has caused markets to be blase and left such a negative imprint on all commodities and stocks this winter may be ending.

n World governments are getting more aggressive in trying to stimulate economies, led by the U.S., which has been aggressively fighting recession-deflation by both monetary and fiscal stimulatory policy.

n Grain demand is stronger than expected, with world demand improving (especially for old crop soybeans).

n Farmers are showing there have been supply disincentives for 2009, with U.S. farmers indicating they will plant 7 million acres less in 2009.

n Extremely wet, cold spring weather patterns have developed that may present planting problems for spring planted crops. Typically, ideal yields are not achieved with late-planted crops.

n Upside monthly reversals in December have been followed with monthly and weekly upside reversals in March. Is this a strong indication bottoms are in?

Perhaps the most compelling reason for markets to go higher is the inflationary economic policy being pursued by world governments. Many would prefer inflation to deflation and are much more worried about deflation as a world problem, and may allow governments to have a higher tolerance for inflation in the coming few years. Usually, government policy changes slowly while weather changes quickly, so government policy pointed toward higher grain markets might be important to growers.

As we peek over the shoulder of spring into summer, it could bring some exciting times to grain prices based upon the recent price action, as a recovery could be substantial into the summer, perhaps giving producers a chance to sell something at a profit yet this spring, summer or fall.

Barley

In its April supply and demand report, USDA cut barley feed demand by 5 million bushels and reduced the export projection by 1 million bushels. The 6 million-bushel cut in demand followed through to be an increase in barley’s ending stocks estimate, now estimated at 89 million bushels.

Durum

USDA made quite a few adjustments to durum’s supply and demand numbers in the April report. On the supply side, USDA increased imports by 2 million bushels. Demand also was increased as USDA increased domestic demand by 6 million bushels and exports by 3 million bushels. Net result was a 7 million-bushel decrease in ending stocks, which now is estimated at 26 million bushels.

Canola

Canola futures on the Winnipeg, Manitoba, futures exchange closed about $1 (Canadian) lower (through April 8). The canola market started the week higher with much of the early support coming from spillover support from a higher overnight session as well as from support from an overall firmer tone in the vegetable oil market sector. Gains were kept in check by a sluggish U.S. soybean complex and lower U.S. energy complex. The April 7 canola session traded back and forth, favoring the lower side throughout the day. Early selling pressure was a result of the lower U.S. energy complex, but losses were limited by a stronger U.S. soybean complex. But once the U.S. soybean market failed, it spilled over into the canola market late in the session to force the canola to its lows of the session. The April 8 session had canola higher. The canola market followed the activity in the U.S. soybean complex. Gains were kept in check by losses in the U.S. energy sector as well as from position squaring ahead of the April 9 crop production numbers.