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RAY GRABANSKI COLUMN: Corn takes leadership of market

Wheat Wheat was sharply higher despite a volatile week of trade. Wheat opened sharply high on speculation that the March 11 U.S. Department of Agriculture reports would cut wheat carry-out even further below its already historically low numbers. ...

Wheat

Wheat was sharply higher despite a volatile week of trade. Wheat opened sharply high on speculation that the March 11 U.S. Department of Agriculture reports would cut wheat carry-out even further below its already historically low numbers. Also adding to gains was traders covering short positions and some spillover from rallying corn. The USDA supply and demand report for March confirmed traders speculations. USDA cut wheat carry-out by 30 million bushels as a result of increased exports and food use.

Exports were raised 25 million bushels based on current pace and continued export restrictions by other countries. This pushed prices nearly a limit higher on all three exchanges. This carried over into March 12 as followthrough buying once again pushed wheat sharply higher. Technical buying and concerns over tightness of stock supported gains. March 13 trade started out mixed but turned bearish as profit taking pushed prices lower after three straight days of strong gains.

USDA export inspections were bullish at 18.1 million bushels. This is with preliminary expectations of 16 million to 21 million bushels. Cumulatively, this puts us at 146 percent of where we were at this time last year. Primary destinations were Taiwan and the Philippines. USDA export sales are to be viewed as neutral. Preliminary expectations were for 9.2 million to 27.6 million bushels. USDA reported 7.7 million bushels. This is enough to stay on pace for the year with the new USDA projection of 1.225 for this marketing year.

It's interesting to note that hard red spring wheat and soybeans are not participating much in the recent rally, with the choppy nature of markets and liquidity problems in futures trades becoming a problem. We used to say that pork bellies were a money game and didn't have much to do with fundamentals as it did with short term money movements.

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Grains might be becoming similar to the pork bellies, with elevators, hedgers and merchandisers shying away from the huge volatility in the market. Even some cash merchants are doing their best to avoid futures markets.

This creates an atmosphere that allows huge pushes in grain prices in a short period of time (see hard red spring wheat trading in February). The scary environment in the grains has made it difficult to make selling decisions at a time when prices are extraordinarily high. Pro Ag openly wonders if farmers will be tight holders of grain until harvest and then a flood of grain could hit at that time -- depressing prices.

Never has there been a more volatile period in grain trading history.

Corn

Corn futures were sharply bullish on spillover from neighboring grains and outside markets. Corn began sharply higher bouncing back from losses. These gains were supported by a widespread interest in buying commodities and strong long-term fundamentals.

A lower U.S. dollar also contributed to the increased buying interest. The USDA supply and demand reports for March were neutral for corn. The only new fundamentals to direct the market showed that acres were at 87 million when 90 million acres is needed this spring.

Despite the lack of news for corn, the market rallied on spillover from sharply higher wheat. March 12 brought about lower prices with trades profit taking after March 11's gains. Trade was slow and choppy, and some wheat-corn spreads added additional bearish pressure. March 14 brought the market higher again on strong export sales and speculative buying. Rallies in crude oil also provided bullish momentum. Later profit taking limited gains, but corn still finished modestly bullish.

USDA export inspections were neutral at 44.8 million bushels. This is with preliminary expectations of 42 million to 48 million bushels. To stay on pace for the year, 45 million bushels was needed. Primary destinations were Japan and Korea Republic. USDA released its export sales report, which was bullish for corn at 48.3 million bushels. This is with preliminary expectations of 23.6 million to 39.4 million bushels. This is more than double of what was needed to stay on pace for the year.

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Corn has taken over the leadership of the grain bull market, with corn rallying to new all-time highs for the week (July '09 traded above $6). That also has led new crop winter wheat (Chicago Board of Trade and Kansas City) to new highs as well, keeping the bull market alive in spite of the recent very negative downside reversal in soybeans. Apparently, traders think we will plant plenty of soybeans and not enough corn this year.

With fertilizer prices astronomically high, we can understand why. If today's Informa report is any indication, however, the market has work to do. Markets have flirted with the $6 level at times, and it is possible we could eclipse that mark by the end of the week of March 17.

Soybeans

Soybean markets finished slightly lower on the week although prices traded back and forth within an 80-cent range the majority of the time. While prices may have dropped from the highs, there has been no loss of volatility.

Every little shred of technical inclination or fundamental news appears to set this market off, making very difficult marketing conditions for producers. The one solid bit of fundamental information this week was found in the monthly USDA crop supply and demand reports, which again reduced total expected carryout of soybeans for 2008. Projections are now down at 140 million bushels, a 20 million-bushel decrease from the previous month. This was lower than trade estimates and provided a moderate amount of underlying support.

Many speculators, however focused on upcoming harvest in South America, and more importantly, taking profits on existing positions. One important note to all this is the fact that open interest (the amount of new positions in the market) actually has decreased. This signals that pressure is not coming from fresh selling interest, but rather a closing of existing positions.

USDA export numbers also were supportive with both inspections and sales at the high end of trade estimates. Inspection numbers for the week ending March 6 were reported at 29.85 million bushels against expectations for 26 million to 31 million bushels. Sales were similar at 381,000 metric tons against expectations for 250,000 to 600,000 metric tons.

Grains markets continue to defy bears who sell off the market only to see another grain push to new highs. Soybeans have some major negative technical action on charts, though, and will need to overcome these bearish signs if they are to follow other grains higher. We could have a potential top in place for soybeans, but with corn and winter wheat rallying to new highs, we still are not getting a consistent signal from grain markets.

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Will they continue to rally, or are grains for the most part nearly complete with their 18-month bull market? It would be difficult for soybeans and hard red spring wheat to continue going down while corn and winter wheat rally, but given the erratic nature of grain markets, even that is possible to some extent. So for now, the new sheriff in town seems to be corn, which is leading other markets higher for now. Can this new sheriff keep the other grain townsfolk behind the bullish rise?

Small grains

Small grain prices fell with offered barley contracts falling around $1 to near $8 to $8.50 and durum prices faltered as well. Of all the grains, hard red spring wheat may be turning the most bearish, and if that market falls, it will remove a lot of support from other minor small grains such as barley and durum. Old crop prices remain strong, as the total supply of either one is not overwhelming.

Barley prices in Minneapolis were unchanged, and there was no quote on durum. USDA's supply and demand reports confirmed recent trends. USDA reduced total projected carry-out of wheat, including durum as a class. Carry-out estimates there were reduced from 19 million bushels to 14 million bushels as a result of an increased export pace. Feed grains such as barley were less affected with carry-out projections left unchanged. USDA did increase feed use by 5 million bushels, but offset the increase by decreasing projected exports.

Dry beans

Dry bean prices increased in the latter half of the week as buyers tried to compete with recent price increases in soybeans and wheat. So far, dry bean bids really have held back, only showing small increases here and there.

The week's move to $36.50 on pintos and $40 on navy beans is a substantial improvement. At this level, it may be worth producers at least considering dry bean production, although you should take into careful account the input costs of dry beans versus soybeans. These prices should remain in place for at least the next week or two.

Oilseeds

Oilseed markets remained volatile but generally strong. There is a fair amount of concern as Asian vegetable oils weakened and crush numbers were neutral. However, the supply and demand reports offered support that is longer term, with oilseed supplies continuing to fall.

Soybean carry-out is projected at the lowest levels since 2003 to '04 and with lower U.S. dollar values, it is going to be hard to shed much in terms of exports. It's true that the demand for oilseeds is much more elastic than that of wheat. Regardless, there is still a large segment of soybean demand that is transferable to other oils such as canola and sunflower, and prices will increase accordingly.

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