Soybeans

The USDA reports this morning were considered bearish with the market called 8-12 cents lower on the opening. Quarterly stocks as of March 1st came in at 1.27 billion bushels which was about 65 million bushels more than traders expected. Soybean planting intentions came in at 78.098 million acres as compared with 78.5 million expected and 77.5 million last year. While the plantings number was slightly below expectations, the hefty stocks number eases traders fears of tightening ending stocks for old crop. This also means that beginning stocks will be about 60 million bushels above trade expectations.

PRICE OUTLOOK: Traders see the stocks number as bearish as this will boost both old crop and new crop ending stocks estimates for upcoming supply/demand reports and we could also see adjustments higher in world ending stocks which are already at the second highest in history. November soybean resistance comes in at 930 3/4 with 895 as initial downside objective and then 880 1/4.

Corn

The USDA planted acreage and March 1st stocks reports were considered bearish with the market called 3-5 lower on the opening. Planting intentions came in a bit below expectations at 88.798 million acres as compared with trade estimates near 89.2 million and 86.5 million last year. However, the need for the extra acres may come into question with the bearish grain stocks numbers. Stocks came in at 7.694 billion bushels which was near 200 million bushels above trade expectations and a whopping 740 million bushels above last year. The stocks number should lead to a sharp revision higher in old crop ending stocks in the next supply/demand which means a higher beginning stocks number for the 2010/11 season.

PRICE OUTLOOK: The report is clearly bearish with resistance for December corn now at 385 with 370 3/4 as initial downside objective. July corn looks set for a further break to 356.

Wheat

Today’s USDA reports were considered negative across the grain complex. In wheat, acreage was higher than expected, but quarterly stocks came in slightly below trade expectations. Traders are looking for the wheat market to open 2-4 cents lower. The USDA pegged all-wheat acreage at 53.8 million, about 500,000 acres above the average trade estimate. Last year’s planted area for all-wheat was 59.133 million acres. Spring wheat area was pegged at 13.9 million acres this morning, about 500,000 above trade expectations. Winter wheat was also bumped to slightly above trade expectations at 37.7 million. Stocks as of March 1st were 1.352 billion bushels in wheat, about 15 million below trade expectations. This compares to stocks of 1.040 on March 1st, 2009.

PRICE OUTLOOK: The overall negative tone of the reports could pull May wheat back down to new contract lows. If so, this would mark the fifth day in a row that May wheat has made new lows. The question then may be whether trend-following funds will add to their near-record large net short position at these price levels, or whether they will be more interested in covering shorts on weakness.

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CRUDE OIL MARKET FUNDAMENTALS: The weaker dollar coupled with some encouraging economic data are helping support the crude oil market, but with OPEC indicating an “ideal” price range of $70-80 per barrel, the trade may be reluctant to push prices much beyond current levels. Yesterday’s comments from the OPEC secretary general that member countries have restarted $45 billion of projects that had been postponed due to the economic crisis is being taking by some as further indication that the cartel is willing to boost output to keep prices from getting high enough to crimp demand. This notion is being reiterated by other OPEC ministers and is the theme of the International Energy Forum that is convening in Mexico this week. The OPEC minister also commented that he expects worldwide demand to increase by 900,000 barrels per day this year, mostly due to growth in China and India. A couple of terrorist events also lent underlying support yesterday – 1) a suicide bombing in Moscow subway by what are believed to be Chechen rebels and 2) the arrest in Saudi Arabia of 113 al-Qaeda linked militants, which underscored possible threats to Saudi oil production. Adding to the bear’s case is a report that Nigerian exports are expected to surge to well over 2 million bpd in May, up from 1.82 million in April. The G-8 has issued a statement that seemed to try to say everything and nothing at the same time. It called for “appropriate and strong steps” in dealing with the Iranian nuclear issue, but it did not mention sanctions and did mention remaining open to dialogue with Iran. If crude prices turn down from here, the chart action will reinforce the series of lower highs that has formed since the market put in its recent top on March 12th and would indicate that the market will likely turn lower. This would seem to make the March 17th high in May crude at 83.36 and the March 12th high at 83.47 critical. Key support levels are at Friday’s low of 79.54 and last week’s low at 78.86. Falling thru that second level could send the market back to 76.87.

GASOLINE: May RBOB also reached its highest level since March 18th on decent consumer spending data and the weaker dollar yesterday. Overnight it traded up near yesterday’s highs. US retail gasoline prices fell last week for the first time in six weeks, but this came after they reached their highest level since October 2008 the previous week. Gasoline margins on the board are still strong but have slipped off of their recent highs. If crude stalls or moves lower, then RBOB might find it difficult to break out above the consolidation of the past several weeks. Gasoline stocks have declined the past few weeks but they are still running well ahead of last year and the 15-year average. Key resistance for May RBOB comes in at the March 17th high at $2.3135.

HEATING OIL: Above normal temps expected in the Northeast today through the next 10 days suggest heating demand will be minimal. May heating oil rallied right up to its Mar 17th high of $2.1560 yesterday and is close to breaking out above the upper end of its consolidation range, but it may be difficult to do so without a breakout in crude oil or further draws to heating oil stocks. Key resistance May heating oil comes in at March 17th high of $2.1560 with support at $2.1072 and $2.0607.

TODAY’S ENERGY MARKET GUIDANCE: OPEC’s target price range of $70-$80 per barrel has traders skeptical that the market can move much higher from here.

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OUTSIDE MARKET DEVELOPMENTS: Asian and Indian gold prices were flat this morning following a strong day highlighted by a strong forecast for Chinese annual growth. Bullion demand is expected to remain buoyant with prospects for a surge in Chinese growth and anticipated Indian demand during the post-Easter wedding season the focus. The dollar is moderately lower this morning, with end of the quarter profit taking cited and the EU/Greece debt problem easing for a moment with Greece raising funds through the sale of debt. Data was mixed overnight with Japanese February industrial production falling 0.9 percent, however, the accompanying survey indicated output will rise in March. Japanese household spending fell 0.5 percent in February against a forecast for a 1.5 percent rise. Investor demand for gold was apparent on Monday, with the SPDR Gold Trust holdings up 5.176 tonnes, totaling 1,129.823 tonnes. This is the highest level of holdings for 2010 and very near the June 1, 2009 record high of 1,134.03 tonnes. The dollar will likely be a heavy influence on gold today with the June dollar index flirting with key settlement support at 81.345. Focus will shift to U.S. economic data, with Consumer Sentiment expected to rise to 50.0 this morning.

GOLD MARKET FUNDAMENTALS: The forecast for a near term surge in Chinese growth, a softer dollar as the EU/Greece debt crisis moves to the 2nd page for a moment and the forecast for Chinese gold demand to double in the next decade could keep gold well supported on pullbacks. The Indian wedding season is a positive as post-Easter Christian marriages are expected to firm demand, and renewed interest in the Spider Gold Trust could trigger more U.S. investor demand as gold captures headlines.

SILVER MARKET FUNDAMENTALS: Silver is a bit more focused on the health of the U.S. economy. Expect silver to trade closely with today’s U.S. equity market. The focus for silver traders will be the 9:00 AM cdt release of Consumer Sentiment. Traders are looking for a reading of 50.0, up 4 points from the previous month. Japanese data was mixed and did not offer overnight direction.

PLATINUM: The platinum market is sensitive to Chinese growth and currently is in a strong position to challenge higher levels following the government think tank forecast for higher than expected GDP. Global equity markets will be closely monitored by the platinum trade, but the bull camp is in control of this market and the prospects for new highs will become a reality if U.S. economic data is strong this week. The market is also benefiting from a weaker dollar and better than expected industrial EU sentiment. Platinum still has potential to move toward and past the 2010 highs. The March highs are the next target at $1,644.50 and $1,654.

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The market seems poised for a resumption of the uptrend after reaching the high end of a two-month consolidation. The surge higher in London could attract some increased producer selling ahead but at least the issue of defaults from Vietnam exporters should subside. Rains have delayed the harvest in Indonesia and the lack of producer selling in Vietnam has left many exporters short on supply to make commitments. Vietnam officials revised exports in February lower and believe that March exports were near 1.83 million bags, down 19.2% from last year. This pushed six month cumulative exports to 10.16 million bags, down 9.2% from last year’s pace. May coffee was able to extend this week’s rally yesterday as the market moved toward the highs for the past several months. Calmer trading in the Dollar along with continued problems with export defaults in Vietnam gave the market some support. A reduced forecast for production in Guatemala, partially due to lower rainfall and less fertilizer usage, could point to other countries in that area having difficulties with this season’s crop as well. London July coffee surged 4.4% to close at the highest level since February 3rd. Daily ICE certified deliverable coffee stocks were down 53,003 bags to 2.612 million with 74,332 bags pending review. Uncertainty on the quality of the Brazil crop and a continued slow recovery of production from Colombia may cause the market to build a minor weather premium ahead of the Brazil harvest.

TODAY’S GUIDANCE: The improving technical action and a sense that fund traders are searching for commodity markets which might see some supply tightness ahead indicates that the coffee market could benefit from any shift back toward the commodity sector if the dollar begins to retreat.

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The sell off in cotton may have started to accelerate yesterday amid signs that recent price gains may be curtailing export sales. General strength in the dollar in recent days is making US cotton even more expensive, despite a moderate setback in the dollar overnight. In fact, since the surge to a new high for the year in the dollar this week came after the end of the latest reporting period for US export sales, this raises the possibility of a further slowdown on next week’s Export Sales report. This week’s net export sales for cotton came in below trade expectations at 86,200 running bales for the current marketing year and 26,600 for the next marketing year for a total of 112,800. As of March 18, cumulative cotton sales stand at 82.4% of the USDA forecast for 2009/2010 versus a 5 year average of 79.2%. A few more weeks of sub-par sales could put us behind the 5-year average pace. At this point, old crop sales need to average 101,000 running bales each week to reach the USDA forecast. The monthly Cotton Consumption report was also out yesterday. It showed US factory consumption of domestic and foreign cotton at 266,955 bales in February, about unchanged from the previous month. Stocks held by mills rose to 151,758 bales from 141,115 bales last month. Initial Jobless Claims came in marginally lower than expected yesterday at 442,000 which was a 6-week low. Yesterday’s price action started on the positive side. May cotton chopped sideways at generally higher levels overnight, but selling by funds pushed the market lower during the morning hours and into early afternoon with a final push below Wednesday’s low prior to the close. Stocks registered for delivery against the ICE No. 2 contract rose for the sixth day in a row yesterday to 772,800 running bales from the previous day’s total of 760,852 running bales.

TODAY’S GUIDANCE: Selling in cotton appears to be tied to slowing of export demand at higher prices. Since export demand combined with a limited old crop supply has been the key factor behind the long term rally in cotton, this bears watching. Another negative factor may be the relatively anemic rally we saw to start the overnight session despite a moderate break in the dollar. Trend-following funds are still net long by over 54,000 contracts in cotton and that could generate a consistent source of selling pressure if the market moves lower today and into the start of next week. First support is now down at 78.47 to 78.70 in the May contract. First resistance is now at 81.84 to 82.00.

TODAY’S MARKET IDEAS: Traders should look to lighten up on long positions.

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May sugar will need to move back over 17.81 to expect any new buying interest and for a confirmation of a near-term low. It will take a close over 18.64 to see a weekly closing price reversal to confirm the daily reversal on Wednesday. Traders will be monitoring the Commitments-of-Traders reports after the close as recent reports have shown a reluctance by speculators to move out of large net long positions. However, that may mean that these traders have started to sell this past week. May sugar could not find follow-through buying yesterday after Wednesday’s surge up from 10-month lows. After some choppy to lower trade early, the market deteriorated late in the session. A stable Dollar added to the reluctance of physical buyers to step into the market, even with prices losing nearly half of their value over the past two months. An estimate that this season’s production in India will be 17 million tons, about 1-2 million higher than estimates a few months ago helped to spark some selling but this news was also out as the market fell to the lows into the middle of the week. Traders are hopeful that India can produce near 24-25 million tonnes for the 2010/11 season as compared with usage which is thought to be near 23-24 million. This, combined with ideas of heavy incoming supply during the next few months from Brazil who could boost production by 3-4 million tonnes above last year helped to support. Tunisia bought 18,000 tonnes of white sugar for June arrival. Pakistan postponed a new tender to buy 200,000 tonnes of white sugar from March 27th to April 17th. Pakistan bought 200,000 tonnes on Monday. The US Agriculture Undersecretary yesterday indicated that there has been no decision yet on increasing US sugar import quota. April 1st is the first day in which the department can adjust the import quota for the season and many traders believe the US needs to import an additional 1 million tonnes to alleviate tight supply.

TODAY’S GUIDANCE: China could emerge as a more significant importer for the coming year if their drought situation does not go away and Russia, US, Mexico and others could be close behind. The daily reversal on Wednesday is a clear sign of a near-term low but the market will need to experience follow-through buying to confirm a low.

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The market seems to be in a position to see another leg down over the near-term unless there is help from outside market forces. The December cocoa contract forged a big gap down failure on Thursday but the trade did try to buy on the decline. Apparently the cocoa market continues to extract a weather premium from cocoa prices that might have been put in place with the rally last summer and fall. While the fear of cocoa production losses in the Pacific might remain an issue for some traders, the prospect of incoming supply in Africa would seem to leave the bear camp with the near term edge. The lack of a significant impact on the Indonesia crop of any major weather difficulties after traders “assumed” a loss due to El Nino remains an underlying negative force. Indonesia will set a monthly export tax in an attempt to support increases in the local grind industry. Output for the year ending September is still expected to reach near 500,000 tonnes, up 2% from last year. There are still plenty of longer-term production issues with the cocoa market and there is some concerns that even with the surge higher in prices in the past year that producers in the Ivory Coast are still shifting to rubber production due to disease issues and volatility of production. Producers can make a monthly income with rubber trees instead of a few pay days a year. Ghana purchases through March 11th have reached 512,792 tonnes which is down 5.5% from last year but due to smuggling, it is difficult to assume anything from these numbers. Traders see the harvest this year as high as 800,000 tonnes but see deliveries up to 700,000 from 710,000 in deliveries last year.

TODAY’S GUIDANCE: Mid-crop weather has been favorable so supply is still a potential bearish force just ahead. We still see the need for lower prices which may be necessary to spark better demand. Selling resistance for July Cocoa comes in at $2875 and $2897 with next downside objective at $2691.

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NEAR-TERM MARKET FUNDAMENTALS: The wheat market again ran out of selling on a push to new lows for the year yesterday, much as was the case in early-to-mid March. This came despite a sharp rally in the dollar and generally favorable weather and weather forecasts for all major wheat producing areas including spring wheat areas in the northern Plains. A private forecast out yesterday called for spring wheat plantings to be near 13 million acres this year, down 2% from last year. Australia’s Bureau of Statistics reports that wheat stocks held by bulk handlers fell in February by 8.7% versus January. This left stocks at 15.56 million tonnes. In yesterday’s action, the May wheat contract eased during the overnight session to a new low for 2009, but failed to extend its losses at the start of the day session despite big run up in the dollar. Prices recovered to higher on the day into mid morning before easing again into early afternoon. Wheat lost ground to corn on a late rally in corn. Prices remained in the top end of yesterday’s range into this morning. Traders reported yesterday that an unknown quantity of Russian wheat has been sold to Peru and Venezuela. If confirmed, this would mark an encroachment by Russian wheat into another traditional US wheat market. In recent years, Russia has dominated sales to key markets in the Mediterranean Basin, particularly in Egypt where the US has been all but eliminated from the world’s largest wheat import market.

TODAY’S GUIDANCE: The USDA will release its latest weekly Export Sales report this morning. Sales need to average 183,000 tonnes each week to reach the USDA’s export projection for 2009/10. They have been running above the average needed for most of this year and this has allowed the cumulative wheat sales total to finally push above the 5-year average for this point in the marketing year. We continue to look for the May contract to push through the early October low at 472. However, this may be a short term buying opportunity due to a lack of selling in wheat that may be tied to the fact that trend-following funds are still heavily net short in this market. Light support remains at 472 in the May contract with next chart support at 450. First resistance is near 492.

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NEAR-TERM MARKET FUNDAMENTALS: The upside break-out in the US dollar and fears that next week’s USDA planted acreage report will show higher planted area for the coming year helped to pressure soybeans yesterday. However, this news was partially offset by talk of a continued dockworkers strike in Argentina and expectations that the March 1st stocks report (also released next week) will show tight US supply. There was some talk that the strike may be settled which helped to pressure the market but this could not be confirmed and it appears the strike continued for a second day on Wednesday and is still in tact this morning. The weekly broiler report showed a continued expansion in the poultry business this year with eggs set for the week up 4% from last year which is the highest percentage increase since early 2008. This suggests improving domestic meal demand into the summer. The soybean market was the leader to the downside yesterday versus other grains with similar losses seen in both old and new crop contracts. Traders said that selling came from funds as well as from spreaders versus corn. The selling was credited to a sharp rally in the dollar along with sell offs in crude oil and other key commodity markets. Weather forecasts have added some heavier rain for Missouri, central Illinois and parts of the mid-South through the end of the week. One analyst noted that this may have triggered a reversal of the corn/soybean spreads which retraced some of the gains made by soybeans earlier in the week. The Census crush report this morning showed February crush at 153.8 million bushels which was right in line with trade expectations. Soybean oil stocks were 3.294 billion pounds which was below trade expectations and meal stocks were 700,463 tonnes which was well above trade expectations. This was the highest February crush on record. Weather looks favorable for the harvest in South America into the middle of next week. Weekly export sales will be released this morning and for old crop soybeans we need just 107,300 tonnes each week to reach the USDA projection.

TODAY’S GUIDANCE: If the strike is settled in Argentina soon, the meal market is looking at an enormous supply to absorb into the summer and the cheap prices in Argentina along with a strong US dollar could cause US stocks of meal to stay high and this would leave US crushers less inclined to hold the crush pace at a record level. We continue to believe that there are enough planted acres in play this year and that November soybeans have stayed at a high enough price level for long enough to see soybean planted acreage above 79 million acres for the 2010 season. In fact, a Farm Futures magazine survey to producers showed intentions to plant near 79.4 million. If so and we assume last year’s yield, ending stocks could come in at 475 million bushels from 190 million this year and 138 million last year. Given the Census crush data this morning, traders can look to re-enter long July oil/short July meal spreads as meal supply looks especially burdensome into the summer. In addition, oil demand could improve in the US with increased bio-diesel and China is already reporting losses of near half of their rapeseed crop (500,000 tonnes) due to ongoing drought in China. Open interest is down in meal from a March 15th peak and this suggests short-covering which is not a good foundation for an extended rally. Look for large planted acreage on March 31st which is likely to pressure November soybeans.

TODAY’S MARKET IDEAS: November soybean selling resistance is at the 935 3/4 to 939 level with some support at 918 1/2 and then 880 1/2 as downside objective. July meal selling resistance is still at 274.80 with close-in resistance at 270.50 and 246.60 as downside objective. July oil buying support is 39.15.

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The corn market managed to withstand a sharp rally in the dollar yesterday. The May contract saw modest losses early in the day, but it staged a late rally before closing higher. Corn gained substantially on soybeans in the process and traders indicate that the spread between these two markets is continually adjusting based on weather forecasts and private acreage numbers as we approach the USDA’s March 31st Planting Intentions report.

Yesterday’s action coincided with the latest Farm Futures Magazine’s survey which pegged US corn plantings at just 87.3 million acres. This is below trade expectations. South Africa has increased its corn crop forecast by 7.7% to 12.96 million tonnes versus their previous estimate. They indicate that this is due to improved yield prospects. In the US, wet weather is still expected to spread from Missouri into central and southern Illinois today before delivering the most concentrated rain amounts along the Ohio River Valley. This is a rain pattern that has repeated itself on a number of occasions over the past two years, and some traders think that this helped to support corn yesterday on ideas that early field work could be somewhat delayed in the southern Corn Belt after all. The rain system is expected to push into the eastern US by tomorrow with drier and colder weather in most of the Corn Belt on Saturday. Moderate rains are then expected in the central and southern Corn Belt on Sunday with a warmer and mostly dry spell expected to push into the Midwest from the Plains on Monday. The USDA will release its weekly Export Sales report this morning. Sales need to average 610,600 tonnes each week to meet the USDA’s export projection for 2009/10. Traders report that an Israeli firm rejected offers on a tender for 27,000 tonnes of US corn and bought 35,000 tonnes from the EU.

TODAY’S GUIDANCE: Yesterday’s hook reversal action coincided with the latest Farm Futures Magazine’s survey which pegged US corn plantings at just 87.3 million acres. This is below trade estimates somewhere near 89.0 million, and well below the highest trade estimates at 91 million acres or more. It also fits with other recent surveys suggesting that farmers are more likely to increase soybeans acres this year in comparison to their initial intentions last fall. We continue to believe plantings need to be above 90 million to avoid tightness for the coming year and could come in above 91 but concede that a smaller number is possible. Weather forecasts are still more favorable toward corn planting than was the case last week, but rain at the end of this week in the southern Corn Belt is making some traders a bit less comfortable. That is helping to support corn versus soybeans along with a raft of industry surveys that point to soybeans gaining more acres than corn this spring. This may be a lingering effect of the negative experience that farmers had with corn quality last year. May corn rejected a move under 390 yesterday and appears set to remain with some sideways action into the report next week. Given the potential to see higher soybean and corn plantings for next week, we would wait for the report before attempting to trade a spring weather market from the long side.