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Published May 04, 2009, 04:00 AM

Swine flu pressures; weather supports

The wheat market took a turn for the worse as it started the week like most of the other commodities. Most of the losses April 27 were a result of concerns toward the recent swine flu pandemic. The fear is that if the swine flu issue continues to spread and more people get diagnosed with the disease, the world will slip back further into a recession and demand for U.S. ag products will decrease.

By: Ray Grabanski, Agweek

Wheat

The wheat market took a turn for the worse as it started the week like most of the other commodities. Most of the losses April 27 were a result of concerns toward the recent swine flu pandemic. The fear is that if the swine flu issue continues to spread and more people get diagnosed with the disease, the world will slip back further into a recession and demand for U.S. ag products will decrease. Overall, the early week losses were more about fear and market uncertainty than about anything else. The wheat was the best performer of the grains because of production concerns toward the winter wheat crop, although many are looking for conditions to improve. The lack of planting progress in the Northern Plains also is adding support to the spring wheat market. But not even the favorable fundamental picture could help overshadow the fear.

The lack of sell orders in early in the April 28 session along with light interest from funds added support to the wheat market. The attention of most traders switched from yesterday’s swine flu scare back to the poor weather conditions that continue to grip a lot of the major growing regions of the U.S. (especially the Northern Plains). Reports of planting delays continue to come in the Northern Plain states of North Dakota, northern Minnesota and northern South Dakota. Only 1 percent of spring wheat is reported planted in North Dakota compared with 28 percent last year at this time and an average of 26 percent planted during the past four years. And it appears that planting progress in the north will not advance much with another rain system set to move into the area.

The wheat exchanges started April 29 higher with much of the early support coming from weather. It is spring, and this is the time of year when the markets attentions start to focus on market fundamentals, the things that have to do with the physical product. So far, there has not been a lot of activity done with the physical product. Rains are moving across the Northern Plain states and that is further delaying planting progress. Rain also is moving through the winter wheat region and, while beneficial, the crop that is in need of the rain already has received enough rain for the short term. Crop conditions in Oklahoma and Texas continue to decline and not amount of rain will help those states as the crop continues to show the affects of the early spring freeze. Overall, the strength in the other grains, the inability of producers to move old crop supplies to town and the lack of advancement in planting progress continues to support the wheat.

Wheat’s marketing year only has one more week left to it, so there likely will be more cancellations as importers move their business to new crop. Continued planting delays in North Dakota are affecting planting decisions of many frustrated farmers. An expected starting date is May 2 (which looks unlikely with the recent rains system moving across the state) for the state of North Dakota, which is well behind average. The wheat market started to trade like it was tired, giving back a lot of its strength from the opening. The midsession selloff was tied to a change in the weather forecasts that are calling for a break in the weather (rain in the south while the north should see dry conditions), but wet and cool remain in the six- to 10-day forecast. This in turn will limit planting progress.

Corn

Corn dropped sharply to start the week on a breakout of swine flu worldwide. But after two bad down days, corn recovered sharply to end sharply higher for the week (20-plus-cent gains as of this writing) with most of the gains coming April 29. The 20-cent gains are impressive considering corn started the weekly sharply lower on the swine flu epidemic.

The shakeup in the corn market was substantial, but the bulls seemed to be the winners by the end of the week. Weekly export sales remained strong (52 million bushels old and new crop), so that seemed to be the support it needed along with the very wet and cool weather that caused additional planting delays.

Technicals also turned back to the upside with the strong late week price action. Trends are back to the upside, led by soybeans, which ran to new recent highs May 1. That’s a good start to the new month and may be a sign of good things yet to come. Old crop soybeans are leading the rally of grains higher, but Pro Ag also notes an improvement in corn basis as well heading into spring. That also adds to the bullish prospects of corn.

Pro Ag is bullish corn (and most grains), expecting the planting delays and improving export outlook to propel grains to higher levels.

Soybeans

Soybeans had a return to its bullish ways after a gut check for market bulls earlier in the week. April 27, soybeans traded down more than 50 cents on news of the swine flu virus, which spread across the world after an outbreak in Mexico. It became the lead story for most newswires for most of this week and caused an initial market reaction that was very strong in meats, grains, and commodities.

As of this writing, soybeans were up nearly 40 cents for the week, a tremendous recovery considering the early selloff. Technically, soybeans formed a weekly upside reversal — indicating the bull market might have a lot more punch in it as we go forward with little market supplies.

Meanwhile, planting delays caused by adverse planting weather (cool and wet) continue to grip the market. While the week ending April 27 was the best week of planting progress so far in 2009, its wasn’t anything to brag out. The only states that made significant progress were Iowa and Minnesota, which both planted in just one week more than 40 percent of their crop. Many southern Minnesota and northern Iowa farmers are done planting corn and are turning their attention to soybeans. However, most of the rest of the country has accomplished little, and wet weather (and a wet forecast the next two weeks) likely will keep it that way.

Exports are the real driver of the bull market in soybeans, led by the old crop as we continue to sell far too many soybeans given our extremely tight projected stocks. We simply do not have enough U.S. supplies to keep selling 30 million bushels of exports/week of old crop soybeans (our pace this week). At that pace, we would run out of soybeans by June 1. We also are selling plenty of new crop soybeans, too, with 12.3 million bushels sold this week. These are outstanding totals, levels that are exceptional and indicate South America might have real problems providing the supplies many importers need. Argentine production numbers continue to fall as the crop seemed to turn out worse than expected.

Overall, it’s been a great run higher in soybeans, and old crop soybeans probably can be sold at any time as futures are drastically improved and they now are inverted. Once we get a basis 40 cents better than “normal” for your area, it’s probably best to sell out of remaining cash soybeans. You might want to, however, check those basis levels because with the sharp futures gain, the soybean basis actually has worsened for many cash sales. Once sold, since soybeans are inverted in futures (May 6 cents higher than July, July 24 cents higher than August) you may want to buy them back and own August futures (or earlier) at a discount to current prices. At some point, though, we are going to have to sell these soybeans and let go ($11? $12? $14?). Somewhere, there is an acceptable net price for 2008 soybeans — which look to be very tight in ending stocks before 2009 harvest. We just don’t seem to be at those levels yet where demand is significantly reduced to match limited supplies.

Barley

USDA estimated last week’s barley export sales pace at 100,000 bushels with Japan the only destination. This brings the year-to-date export sales total for barley to 11 million bushels compared with 41.6 million bushels for this time last year. There were no barley shipments for last week. This brings the year-to-date export shipments total for barley to 11.2 million bushels compared with 35.1 million bushels for last year at this time. As of April 26, 17 percent of the nations barley had been planted compared with 9 percent last week and 32 percent for this time last year.

Durum

USDA reported no durum export sales for last week. This brings the year-to-date export sale pace for durum to 16.6 million bushels compared with 40.2 million bushels for this time last year. Last week’s durum shipments at 434,000 bushels with all of the bushels going to Algeria.

Canola

Canola futures on the Winnipeg, Manitoba, futures exchange closed the week ending April 30 with about $3 (Canadian) losses. The beginning of the week showed large losses coming into the canola market, while the rest of the week the market played catch up. Most of the selling was tied to spillover selling pressure from the sharp losses in the U.S. markets (soybean complex and energies), which were attributed to the swine flu outbreak in Mexico. Additional selling was a result of rumors that China might be looking at canceling some U.S. soybean cargoes. Canola’s losses were limited by news that China was in buying canola. The canola market traded with decent strength the rest of the week with most of the buying still coming from an overall friendly world vegetable oil market. Additional support came from spillover buying from a stronger U.S. soybean complex. Gains once again were kept in check by a stronger Canadian dollar.

Sunflowers

Cash sunflower bids in Fargo, N.D., increased 10 cents for the week ending April 30 to end at $14.60. The increase in the cash bid was a result of an overall push seen during the week in the soybean bean oil futures market.