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Published April 20, 2009, 04:00 AM

Soybean strength helps support grains

The wheat market started the week trading both sides of the fence, starting lower, rallying to post small gains around midsession, but then slipping slightly on the close to end the session lower in Minneapolis and Kansas City but stronger in Chicago.

By: Ray Grabanski, Agweek

Wheat

The wheat market started the week trading both sides of the fence, starting lower, rallying to post small gains around midsession, but then slipping slightly on the close to end the session lower in Minneapolis and Kansas City but stronger in Chicago. The early selling pressure was tied to spill over selling from a lower opening in the other grains. The winter wheat contracts were able to break to the upside around mid session with most of the support coming from thoughts that April 13’s crop condition report would be friendly. The export inspections report was neutral to wheat as it showed a decent shipments pace.

The April 14 wheat session opened the trading day higher. Early support was a result of spillover strength from the higher corn and soybean complex. Adding light support was a struggling U.S. dollar. The friendly U.S. crop progress report added the spark to help the wheat start higher. Late in the session, wheat faded its gains with much of the selling tied to weather forecasts that are calling for better weather conditions to move into the Southern Plain states.

The wheat market traded both sides of unchanged during April 15’s session with most of the early support coming from strength from the other grains, especially soybeans. But once the soybean complex came under pressure, the wheat also slipped lower. Additional selling pressure was from improved weather forecasts for the Southern Plain states.

April 16’s session had wheat opening higher. The wheat received another big push on the close as fund buying stepped into the market to push the wheat to new highs for the session. Spillover strength in the soybean market helped wheat for most of the session.

Overall, the week’s wheat performance was lackluster with many of the months ending steady to only slightly lower for the week. The old crop Minneapolis markets seemed to be the market that received the biggest hit while the other contracts were steady to 3 cents higher or lower for the week. Most of the trader’s attention was focused on the delayed planting progress up in the Northern Plain states and declining conditions in the Southern Plains states.

Last week’s export sales pace for wheat was estimated at 11.4 million bushels with 4.5 million bushels being old crop and 6.9 million bushels being new . This brings the year-to-date wheat export sales total for wheat to 944.7 million bushels compared with 1.23 billion bushels for this same time last year. USDA estimated last week’s wheat shipments pace at 20.7 million bushels. This compares with 17.2 million bushels for last week and 15.3 million bushels for last year at this time. The year-to-date wheat shipments pace currently is sitting at 880.9 million bushels compared with 1.08 billion bushels for last year at this time.

Corn

Corn prices dropped about 10 cents for the week, lower on expectations that weather will improve and corn will be planted this spring. In spite of cold soil temperatures, farmers in Iowa and Minnesota got started with some field work and corn planting this week. That got traders in a negative mood for corn prices this week, thinking the weather planting delays are now over.

Pro Ag isn’t so sure about a permanent change in the weather, or the market’s ability to so far discount a slow start to the planting season. Instead, we think the corn planting progress was less than normal this week, with most areas still not in the field. Even in areas where farmers can find ground dry enough to work, the planting is in less than ideal conditions as soil temperatures are still well below the 50 degrees needed to germinate corn. Even for corn planted, most of the seed will sit in cold and many cases damp soil before germinating when temperatures warm. However, that usually doesn’t lead to a vigorous corn plant.

Pro Ag also is concerned about the relative workload that farmers still face this spring. In many areas, not much ground was worked in the fall in many areas, and with wet soils to start the year it won’t be easy to get ground prepared ideally for planting. This is going to lead to a slower planting pace than normal even once producers get into fields, and crop conditions which are below average. We doubt very much that progress will accelerate past the “normal” pace anytime soon. Instead, if we fall even further behind normal planting paces, it’s likely the market will gain some steam.

Pro Ag has turned more bullish the corn market, expecting bottoms have been completed and markets will probably head higher near term. Technical indications are suggesting the bull market might finally be waking, and outside markets continue to suggest a stronger commodity price outlook will continue to inflict upon upside pressure on all commodities. We are tilting more firmly into the bullish side of the market and expect price improvements in jumps and spurts once the lateness of the season settles in to trader’s current market understanding.

Soybeans

Soybeans rallied sharply again this week on old crop months, gaining 50-plus cents while new crop soybeans gained only about 33 percent of that amount (17 cents). This highlights the idea that old crop soybeans are running in short supply, while new crop soybeans should be much more plentiful. We continue to have outstanding export sales for soybeans — much more than we have supply to provide for in old crop. While USDA carry-out is only 165 million bushels for the 2008 crop year, we are selling-exporting 20 million 30 million bushels of soybeans per week vs. USDA’s projection of about 5 million bushels. At that pace, we will eat up the entire U.S. carry-out in the next six weeks. This is why the market is taking a drastic measure of pushing sharply higher to allocate the short supply left into the new crop harvest. So far, the price rally is having little impact on demand (especially Chinese demand).

Chinese demand seems insatiable, and regardless of what anyone says about what the Chinese will do in the future (many claim export will slow drastically moving forward) it doesn’t matter why is said, it only matters what the Chinese do. Even what the Chinese themselves say about their import program for soybeans doesn’t seem to matter, as lots of things have been said about how they don’t need any more soybean imports — that their supplies have grown — that they plan to slow purchases in the coming weeks, etc. People have been speculating what the Chinese will or won’t do (including the Chinese), but nothing seems to change on the export front. The U.S. continues to report huge export sales-shipments of soybeans — basically an unsustainable pace — regardless of what is said or written. As always seems to be the case with the Chinese, the only thing that matters is what they do. And right now, they continue to buy soybeans for import at a pace U.S. supplies cannot support. That is the reason soybeans are so bullish, and that is why prices for old crop soybeans continue to rise.

New crop soybeans are a completely different animal. Since new crop supplies are expected to be plentiful, new crop is rising at only about one-forth to one-third the rate of old crop. New crop supplies are forecast to be large at 300 million bushels carry-out or larger — large supplies. This means that we may need to even attract more use for new crop soybeans, so new crop is not keeping pace with old crop rallies. Adverse weather would need to develop for soybean production in the U.S., and so far, there isn’t a soybean in the ground in the U.S. Corn planting is behind normal (and likely will fall further behind), so that doesn’t provide excitement for new crop as some corn could even be switched to soybean acreage at this point.

So we have a split market — with old crop soybeans very bullish, and new crop soybeans riding along in the back seat — sort of the ugly sister of old crop soybeans. New crop are being dragged higher by the old crop excitement, but new crop numbers still don’t look overly bullish. For now, new crop soybeans are a price follower of old crop soybeans.

Barley

USDA estimated last week’s barley shipments pace at 12,000 bushels with China the only destination. This brings the year-to-date shipments pace for barley to 11.1 million bushels compared with 33.2 million bushels for last year at this time. Planting progress has started for barley as USDA estimated 3 percent of the crop planted as of April 12. This compares with 13 percent for the five-year average. There was no barley exports reported for last week. This puts the year-to-date export sales total for barley to 10.9 million bushels, which compares with 41.2 million bushels for this same time last year. Cash bids in Minneapolis remain unchanged.

Durum

USDA estimated last week’s durum shipments pace at 648,000 bushels with all of the bushels going to Italy. USDA estimated last week’s durum export sales pace at 600,000 bushels. This brings the year-to-date export sales pace for durum to 16.6 million bushels compared with 39.5 million bushels for last year at this time.

Canola

Canola futures on the Winnipeg, Manitoba, futures exchange closed higher for the week with many of the months gaining over $9 (Canadian) for the week. The canola market was supported by a stronger U.S. old crop soybean market. A stronger Malaysian palm oil market added buying power to the canola market (mainly because of carry-over buying from the stronger overseas veg oil market). Canadian commercial demand remains strong and that added to the strength in the canola market this week. Cash canola bids in Velva, N.D., ended April 16 at $15.70.

Sunflowers

Cash sunflower bids in Fargo, N.D., were left unchanged for the week ending April 16 at $14.70. The back and forth trading in the soybean oil contract was the reason for the lackluster cash performance in sunflowers. The overall outlook for vegetable oil products is good, but the potential for sharply higher sunflower acreage for 2009 has the sunflower market sitting and waiting.