RAY GRABANSKI: Grains anxiously await planting intentions report
Wheat Wheat was lower despite some gains early in the week. The week opened bullish with the stabilization of the economy bringing speculative money back into the commodity market. Sharp losses late in the week before opened the door for wheat to...
Wheat was lower despite some gains early in the week. The week opened bullish with the stabilization of the economy bringing speculative money back into the commodity market. Sharp losses late in the week before opened the door for wheat to spring back and close sharply higher March 24 and 25. However, by midweek traders began to start positioning for USDA's prospective planting report to be released March 31. This report is expected to be bearish for wheat with preliminary speculation being that higher wheat prices have attracted an influx of acres. This in addition to news that wheat acres globally are increasing and contributing to traders profit taking ahead of the report. Pressure on prices also comes from the feeling that U.S. wheat prices are too high for the rest of the world. This trend held for the rest of the week, with volume lighter as some traders are waiting for the report.
USDA export inspections were on the low end of expectations at 18 million bushels. This is with preliminary expectations of 18 million to 23 million bushels. This is 1 million bushels ahead of the week before. USDA export sales were within expectations at 20.7 million bushels. This is with preliminary expectations of 14.7 million to 27.6 million bushels. This puts us at 1.199 billion bushels cumulatively, with the USDA projection at 1.225 billion bushels for the year. This is the largest export sales report since Jan. 31.
As of March 28, the grains appear at a crossroads. Should they run higher and once again defy the technicians who typical are able to pick tops by the amount of price changes which occurred (recent breaks in wheat and soybeans are large enough to qualify)? Or do wheat and soybean markets break now in a new downtrend that will continue for months? These are the questions currently heavy on the minds of traders as we move into the USDA acreage intentions report March 31. Much has happened already this winter, and the rally that began in September 2006 now is getting more mature by the day. The 19-month rally in wheat had a blast-off top in hard red spring wheat (followed a few weeks by winter wheat blasting higher) that certainly can qualify for a trend buster. Hard red spring wheat cash prices are almost $8 off their highs, and the market is more erratic than one could have imagined. The reasons for wheat to have topped probably are more convincing than for soybeans, and seasonally wheat prices are more likely to peak now than later. All in all, producers again need to consider profitability over topping the market when making marketing decisions.
Corn futures were sharply bullish rebounding after losses a week ago. Early in the week, corn closed sharply higher as the economic situation stabilized and speculative money returned to the market. This brought commodities across the board higher as confidence returned to the market. Corn has the underlying support to move higher and this was able to push the market bullish with the support of outside markets and neighboring grains. Also the worry over 2008 acreage is a bullish factor in the market with concerns that corn won't get the acres needed. This has allowed for some positioning ahead of the USDA reports March 31. In addition, delayed planting in the southern Midwest because of heavy rains and flooding is providing underlying support for the week's gains. The market did see some pressure March 27 from neighboring grains and some light technical selling. Also after gains earlier in the week, some traders took some profit off of the table ahead of the weekend and the report. Even so, corn was able to stay bullish with strong underlying fundamentals to keep the market moving higher.
USDA export inspections were above expectations at 42 million bushels. This is with preliminary expectations of 35 million to 40 million bushels. Cumulatively, this is 17.5 percent ahead of year ago levels. Export sales were within expectations at 28.7 million bushels. This is with preliminary expectations of 23.6 million to 35.4 million bushels. This is enough to remain ahead of pace for the year.
In a turn of events, corn seems to have overwhelmingly assumed leadership of the grain complex. In fact, based on the past month, corn has lost 5 cents where soybeans are down more than $2. This has provided a shift in the corn/soybean ratio, but the impact of this will not be reflected in the March 31 planting intentions report. Because of that, ProAg sees no reason why the March 31 report won't be friendly to corn and bearish to soybeans, particularly when it comes to new crop contracts. Corn is the one grain that really has shown little to no intention of going lower and also has not seen the speculative spike that soybeans and wheat have seen. If USDA bears this out March 31, we look for corn to break from the other grains as it will again have to try and shed demand to balance out supply and demand in the coming year.
Soybean futures did finish higher for the week, but at the same time, tremendously weaker as traders focused on the possible outcomes of March 31's USDA planting intention and quarterly grain stocks reports. Early-week trade turned out to be a big bounce after the previous week (two limit higher days) but soon cooled down as traders took profits and closed out existing positions. Everyone seems to be waiting with bated breath to see how the acres are going to fall, but few doubt that soybeans are going to see sufficient plantings. The average trade estimate is calling for 71.5 million acres, but ProAg would lean more to the higher side of the range at 73 million to 74 million acres. Again, this really reflects only a snapshot in time, as price levels have changed substantially since March 1. However, it probably is the most concrete evidence we have, and as such, the market will show some reaction.
USDA export sales numbers were bullish again and continue to be one of the brighter spots in the market. Export inspection numbers finished at 26.2 million bushels, well above the expected range of 15 million to 21 million bushels. This is about 3 percent less than last year's pace, but USDA also is projecting 8 percent less in total shipments for this year. As for exports, numbers also were ahead of expectations at 25 million bushels. Sales pace also is ahead of what is needed to meet USDA projections.
Wheat and soybeans are struggling with resistance levels, and based on recent trade, looks like it wants to move to the lower side after testing resistance levels. That would be a bad sign, as we barely made a recovery to resistance levels in what would be a bear market. That would be a confirmation of a change in trend from up to down and is a bad sign in what is a 19-month bull market. ProAg suspects (although the corn-soybean price ratio has shifted to favor corn recently), that soybeans will attract the production necessary to fill in gaps for the 2008 to '09 year. The big question is what this means for old crop prices, which seasonally, tend to peak sometime between April and June. ProAg looks for a selloff in the coming weeks, with a possibly rally this summer on weather. By and large, however, it appears the top is in.
Producers and buyers alike are awaiting the results of the planting intention reports, and small grains outside of wheat have been little talked about. However, bit by bit, we seem to be hearing ideas that because futures fixed contracts were hard to come by at elevators for wheat, many in the northern and western areas of North Dakota may have switched to barley and/or durum as a result of the advantage of a guaranteed price and, in some cases, act-of-God clauses. If this is true, we could see prices of new crop come down substantially, particularly since 2008 wheat markets seem to have topped as well. Barley will receive some support from very high corn prices, but it likely will not be enough to overcome a collapse in wheat from a peak of $25.
Dry beans are the one crop that seemed to lag the rest of grain this year, although there is no doubt that recent offered prices have been very attractive. If you are considering raising any type of dry bean, we would like to see at least a portion contracted to protect against a price downfall, especially since soybeans and other specialties may not be offering much in the way of competition in the coming weeks and months. Input costs remain very high, and that is one factor that may come into play in the dry bean and soybean consideration.
Oilseed markets, while making a small rebound for the week, are showing more and more signs that the top is in. For one thing, much of the underlying support stemmed from rallies in soybeans which are getting weaker and weaker both technically and fundamentally. The upcoming USDA report, for instance, is expected to show a big increase in planted soybean acres. While this does not have a direct affect on canola or sunflowers, it does ease some of the previous supports for soyoil, a major underlying factor. Also, acres competition with other specialties such as barley and durum is dying down, leaving little incentive for buyers to push prices any higher.