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NEAR-TERM MARKET FUNDAMENTALS: May wheat pushed closer to the early February low at 480 3/4 overnight in conjunction with a stronger dollar. This follows last week’s very disappointing export sales total of just 101,600 tonnes. Some traders are concerned that higher wheat prices or a stronger dollar could bring a halt to the recovery in export sales that we have seen in wheat since the start of the year. However, this week’s export inspections, or shipments, in wheat were 20.4 million bushels which was above the high end of the range of trade expectations. Cumulative inspections stand at 77.7% of the USDA’s projection for the 2009/10 marketing year versus a 5-year average of 76.3%. The current inspection total finally pulled ahead of the 5-year average on last week’s report after lagging the 5-year average for much of the marketing year. Inspections need to average 14.5 million bushels each week to reach the USDA’s projection. Wheat opened higher yesterday, but ran into selling pressure just under 500 in the May contract. Rain is expected across most of the soft red winter wheat belt over this week. The heaviest amounts are expected across the southern and western portions of the soft red belt with some heavy amounts also possible in the east central Plains. Amounts forecast for the north central Midwest have been increased slightly into Thursday.

TODAY’S GUIDANCE: A minor downtrend has developed in wheat over the past week. The fact that this is happening so close to the early February low at 480 3/4 in the May contract may embolden funds and other specs to become more aggressive on the sell side. However, changes on the supply/demand report or a turn lower in the dollar would likely bring a wave of short covering. Remain on the short side in wheat, but be quick to take profits near the February lows. First support in the May contract is at 472 with first resistance now down a bit to near 504 1/2 to 505 3/4.

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NEAR-TERM MARKET FUNDAMENTALS: After finishing last week on a down note, corn pushed below Friday’s low in the May contract yesterday and then took out Monday’s low overnight. The latest round of selling came in conjunction with a lower dollar, but funds were on the sell side yesterday and this is raising concerns that trend-following funds might resume their long term push to the short side. This week’s export inspections were in line with trade expectations at 34.0 million bushels. Cumulative export inspections stand at 42.1% of the USDA’s export projection for 2009/10, still well below the 5-year average of 49.1%. Inspections need to average 44.8 million bushels each week to reach the USDA’s projection. The pace of export sales has crept a bit closer to its 5-year average in recent weeks than is the case with inspections, but recent sales to important East Asian customers such as South Korea have been for delivery in mid summer or later which suggests that they may be decently covered through late into the current marketing year. This adds to the possibility that sales and inspections will continue to lag the 5-year pace in coming weeks and that the USDA may again need to lower its export projection. In recent sales to Japan, higher freight rates pushed the sales to the US as the freight cost from South America approached $20/tonnes from a more normal freight of near $10/tonne. Brazil’s crop supply agency, Conab, raised its 2009/10 corn crop slightly to 51.38 million tonnes from 51.36 in February. Weather forecasts in the US call for rain in the Midwest and South through the end of the week. Heavier amounts are still called for across the mid-South and Deep South, especially on Thursday, but amounts for the Upper Midwest have been increased somewhat near the end of the week. This comes as snow melt has soil moisture levels at fairly high levels in many areas. After two straight very wet spring planting seasons, traders are thought to be nervous about the potential for localized flooding and planting delays in corn again this year.

TODAY’S GUIDANCE: Traders see ending stocks near unchanged for tomorrow morning but this forecast includes weaker demand numbers (especially export) and a lower production forecast by about 35 million bushels. If the “re-survey” shows production unchanged, the market is vulnerable to some bearish surprise for the report. Given the lagging pace of export sales and shipments, corn remains vulnerable to selling pressure whenever the dollar rallies. That is the case this morning and old crop contracts appear headed for a test of the 360 level, just above the early February lows. The December contract may find better support due to the wet spring weather and it could hold above its February lows. May corn support comes in at 365 and 359. December corn support is near 395 1/2.

TODAY’S MARKET IDEAS: Erosion is hard to stop in the corn market after it starts gaining momentum, and that appears to be where we are at right now. Hold off on buying, and look for continued erosion in call premiums in old crop contracts.

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NEAR-TERM MARKET FUNDAMENTALS: Good weather for harvest in South America, speculative long liquidation selling and forecast for a hefty supply ahead has helped to pressure the market. Brazil supply officials from Conab pegged the Brazil soybean crop at a new record high 67.57 million tonnes this morning, up more than 10 million tonnes from last year and up from the latest USDA forecast of 66 million tonnes. Traders indicate that El Nino has caused palm production in Malaysia to be negatively impacted and that dry weather into the second quarter could also cause disruption in production. February production was thought to be down near 6% from last year. Big meal deliveries and talk of slow export demand helped to pressure the meal market overnight. Meal exports from India in February were just 218,748 tonnes, down 42.6% from last year and this pushed cumulative exports for the first five months of the marketing year to 1.3 million tonnes, down 43.4% from last year. The soybean complex started the week on a positive note with all three markets trading mostly higher throughout the day. Weekly soybean export inspections, however, were below trade expectations at just 30.9 million bushels. Cumulative inspections stand at 81.3% of the USDA’s export projection for 2009/10 versus a 5-year average of 69.1%. Still, inspections need to average just 10.1 million bushels each week to reach the USDA’s projection. Traders see higher crush and export numbers for Wednesday morning’s USDA update. Traders are looking for the USDA to lower its estimate of 2009/10 ending stocks to near 195 million bushels. Ending stocks were lowered to 210 million bushels in February from 245 the prior month. Argentina and Brazil are experiencing mostly dry conditions with scattered rains forecast into this week in southern growing areas of Argentina and in northern growing areas of Brazil. The rains in Brazil are expected to be light enough to cause only minimal harvest delays with about 1/3rd of the crop there already harvested.

TODAY’S GUIDANCE: The technical picture remains weak for meal and soybeans with the break under the February low for May meal leaving 250.80 as next downside objective. Selling resistance for July soybeans drops down to 954 3/4 and 962 1/2 with 893 as next objective. Use 881 3/4 as next objective for November soybeans with 929 1/4 and 933 1/4 as selling resistance.

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NEAR-TERM MARKET FUNDAMENTALS: Wheat followed equity and commodity markets higher to start the overnight session, but then sold off to below Friday’s close in conjunction with a sharp rally in the dollar. The early strength took the May contract above Friday’s highs to the highest level since January 19th. This came after trend-following funds again trimmed their large net short position on the latest Commitments of Traders report. The report showed Non-Commercial no CIT traders (trend-following funds) as net buyers of 2,135 contracts reducing their net short position to 63,168 contracts. Index funds were net buyers of 3,954 to increase their holdings to 97,758. The Farm Minister of India again called for a good winter wheat crop in comments on Friday. He indicated that this is expected to help cool the recent sharp run up in domestic food prices. Iraq reported on Sunday that it bought 380,000 tonnes of wheat on a tender that closed one week ago. This was more than expected last week. Thailand plans to buy 80-100,000 tonnes of wheat according to trade sources. Vietnam is expected to ship only 400,000 tonnes of rice in March which is down 48% from last year. A major trading company in Japan has indicated that it is considering entering the Russian wheat market. This follows comments by Russian officials last week that they intend to aggressively pursue Far Eastern wheat sales during the next two years.

TODAY’S GUIDANCE: The failure to hold the early overnight gains indicates that wheat will need support from a lower dollar or else general buying in commodity markets if it is to continue moving higher. Next resistance is at 527 3/4 in the May contract and then as high as 541. First support is near 503 3/4 and then near 495.

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NEAR-TERM MARKET FUNDAMENTALS: A strong US dollar, a continued shift in the demand for soybeans from China to South America and ideas that cash markets will weaken as the South American harvest progresses helped to pressure the market overnight. Talk of a wet spring and seasonal buying from speculators plus end-of-month buying helped support the market last week. China’s Ministry of Commerce cut their forecast for February imports to 3.32 million tonnes, down 18% and also lowered their forecast for March imports to 3.32 million tonnes, down 14% from last year. Argentina soybean prices at Rosario, Argentina closed at an 11-month low of $224/tonne. For May delivery, prices are at $218/tonne. The Commitments of Traders Futures and Options report as of February 23rd for Soybeans showed non-commercial traders were net long 19,179 contracts, an increase of 5,456 contracts. In the CIT Supplement report, commodity index traders held a net long position of 169,966 contracts, down 1,434 contracts for the week. In oil, non-commercial traders were net long 19,122 contracts, an increase of 1,664 contracts. Commodity index traders held a net long position of 97,758 contracts, up 3,954 contracts for the week. For the 12 agricultural markets covered in the supplemental report, index funds were the strongest buyers of oil. For meal, non-commercial and non-reportable combined traders held a net long position of 35,627 contracts, up 6,288 contracts in the net long position for the week. Aggressive fund buying in soybeans and oil and a more positive tone for outside markets helped support solid gains on Friday. Traders said that a lower dollar and sharply higher crude oil helped to boost the soybean complex. Funds were also consistent buyers over the course of the day with talk of a wet spring and ideas that the market is a bit oversold helping to support. Weather has been dry in Argentina at the end of the week last week and into today but there could be some scattered rains for Tuesday through Thursday this week before warm and dry conditions return on the weekend. This appears to be near ideal for Argentina crops drying out from late February hefty rains. Brazil is seeing unwelcome rains stretching from the south central growing state of Parana up into Mato Grosso which may keep harvest slow. The USDA announced a sale of 113,000 tonnes of soybeans to China on Friday but delivery is 2010/11 season. Taiwan is tendering to buy 40,000-60,000 tonnes of US or Brazil soybeans this week. Argentina appears set to begin blending 5% bio-diesel with diesel. Argentina produced 1.2 million tonnes of bio-diesel in 2009 which was exported and the industry is expected to produce near 1.6-2.2 million tonnes for the coming season.

TODAY’S GUIDANCE: Corn may see a boost from wet weather this spring but it is a tough case to support soybeans as late plantings would boost soybean acres. We remain bearish and believe bounces are still selling opportunities. Selling resistance for July soybeans is at 972 1/2 with 946 3/4 as light support and 893 as downside objective. Use 881 3/4 as next downside objective for November soybeans with 942 resistance.

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NEAR-TERM MARKET FUNDAMENTALS: The corn market continued to extend its recent gains during the overnight session with the May contract pushing to its highest level since January 14th. This came despite a strong move higher in the dollar and the lingering effects of last week’s negative US economic data in the areas of jobs and housing. Traders indicate that relatively light farmer selling after the January-February break and fair feed demand is helping to generate a short covering rally in futures. One analyst also indicated that the move to the net short side by trend-following funds in January and early February is mow seeing a minor reversal. The Commitments of Traders report for the week ending February 23rd showed strong buying by Non-Commercial no CIT traders, also known as trend-following funds. They were net buyers of 20,348 contracts to switch their net position to net long 18,105. Index funds were net buyers of just 206 contracts, but their long position is still near its all-time high at over 447,000 contracts. The corn market saw a pause in its advance during the middle of last week, with some traders crediting that to poor economic numbers in the US. However, last week was bracketed by a very strong rally on Monday and an advance to a new high for the week on Friday. Weather in Argentina was dry again over the weekend as expected. Forecasts call for mostly dry conditions into the first half of this week with temperatures at normal to somewhat above normal levels. This is considered favorable for the corn crop as it advances through the filling stage and the crop nears harvest in some areas. Weather in the US is expected to clear somewhat this week allowing for unrestricted corn movement in most areas. Traders continue to see expectations for a wet spring and slow planting progress to benefit corn at the expense of soybeans. Cash markets are developing a two-tiered pricing structure as corn processors and ethanol plants bid up for higher quality corn and lower quality corn is pressured due to an excess supply of lower quality corn. Traders are nervous that as the weather warms up in the weeks just ahead that more corn will spoil.

TODAY’S GUIDANCE: Look for the steady advance to continue in a corn market where managed funds may be looking to boost their very small net long position. The fact that the market held up so well amid poor economic data last week may indicate that corn is either moderately oversold, or perhaps benefiting from a resurgence of mild inflationary concerns. The 100-day moving average is near 400 in the May contract this morning and that appears to be where we are headed. First support remains near 383 and 379 with resistance is at 395 to 403.

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While the soybean complex may be inundated with too much supply, the focus of attention for the corn market over the near term will be on longer term demand factors and of course on the outlook for planted acreage. In its baseline projections issued in late 2009 in preparation for the budget process, the USDA put corn planted area for the 2010/11 season at 88 million acres, up from 86.5 million this past season. This estimate will be updated in the USDA Outlook Forum for February 18-19 (released after this writing), but there is a general market opinion that corn planted area will increase by 2-4 million acres over that number, with some estimates even higher. Traders seemed to dismiss the preliminary baseline projections from the USDA, but we should point out that while there are more than 2 million acres coming out of the Conservation Reserve Program and winter wheat plantings were low, the baseline projections for the 8 major row crops are projected at just 247.1 million acres, down from 248.9 million last year and from 253.1 million acres in 2008. If the baseline numbers are close to correct, the trade may be overestimating total plantings for the coming season.

The enclosed table shows several “what-ifs” for the corn outlook for the 2010/11 season if we assume that producers will plant 4 million more acres this spring than they did last year. We have also assumed a slight increase in usage for the coming year due to the surge in ethanol production and reassuring reports from the EPA last month that helped to confirm that corn-based ethanol growth is likely to continue over the next several years. In November, the US used 362.4 million bushels of corn to produce ethanol. In order to reach the new USDA forecast of 4.3 billion bushels, the US needs to average 361.2 million bushels each month to reach the new projection. Given the recent trend, the USDA may be in a position to increase this forecast again in future reports.

If we assume a trend-line yield for the coming season at 161 bushels per acre, US ending stocks for the coming season are likely to decline to 1.702 billion bushels, compared to 1.719 billion this year and 1.673 billion last year. A record yield would drive ending stocks to just over 2 billion bushels. However, if we were to assume a yield that is the average of the previous five years (152.4) then ending stocks slip under 1 billion bushels, and the stocks/usage ratio would fall to just 7.4%, the second lowest in history. If we were to plug in the same yield as we had in 2005, ending stocks drop to 616 million bushels and the stocks/usage ratio to a record low. A yield level such as that would be only 8% below trend.

In its February Supply/Demand report, the USDA estimated world ending stocks for the 2009/10 season at 134.04 million tonnes, down from 145.88 million tonnes last year. This put the stocks/usage ratio at just 16.6%, the third lowest in 35 years.

There are plenty of factors which could keep grain markets under pressure over the near term, but our analysis suggests that corn prices are not likely to see a long, drawn out bearish trend. It also suggests that any sign of a weather issue that might reduce yield should be taken as a sign of a potential very tight situation ahead. Aggressive traders might assume a 388 to 351 trading range for May corn over the near term.

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NEAR-TERM MARKET FUNDAMENTALS: Wheat responded to weak outside market influences overnight with traders indicating that the dollar seems to be the major price factor in wheat this week. Traders indicate that yesterday’s sharp run up in the dollar turned funds to the sell side after these traders had been strong buyers on Tuesday. A higher dollar again overnight brought further pressure, but one trader noted that there appeared to be a limited pool of sellers. India’s Farm Minister Sharad Pawar reports that their 2010 wheat harvest is likely to be above the previous year’s record of 80.6 million tonnes. This may cause storage problems there and could result in India lifting its current ban on imports. Wheat stocks in India as of February 1st stood at 20.6 million tonnes, up 22.6% from a year ago and this is the main source of concern over storage. The improving supply outlook in India in recent months has brought periodic indications that the ban on exports could be lifted, but sources there indicate that any deals may be government-to-government as opposed to sales by the private sector. Egypt is tendering to buy up to 60,000 tonnes of wheat for delivery during the first half of May and Japan has bought 21,002 tonnes of feed wheat. Other news is light with the USDA’s Export Sales report delayed until tomorrow morning due to the President’s Day holiday on Monday.

TODAY’S GUIDANCE: Yesterday’s sharp retreat makes the wheat market vulnerable to a test of the recent lows just above 480 in the May contract. A push through to new highs in the dollar index this week would make that test more likely, but a retreat in the dollar could bring renewed short covering by trend-following funds. This could result in a move to near 530 in the May contract. It’s all about the dollar right now. First support in May wheat is at 505 3/4 with next support at 495 to 498. Next resistance is at 527 3/4.

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NEAR-TERM MARKET FUNDAMENTALS: Traders indicate that the corn market lacks much in the way of fresh news. A sharply higher dollar sent the corn market lower yesterday. Further weakness overnight in corn was accompanied by another modest gain in the dollar. This comes against a backdrop of improved economic numbers in the US yesterday and ongoing concern that sovereign debt problems in Europe will bring a continued flight to the dollar. Weekly export sales will be release tomorrow. Argentina’s Ministry of Agriculture raised its estimate of the maturing corn crop there to between 19 and 21 million tonnes. This is up 46% or more from last year and it is well above the latest USDA estimate of 17.2 million tonnes. Last fall, estimates had fallen as low as the 11-12 million tonne range due to lower planted area and the lingering effects of last year’s drought. A processors’ association in South Korea is tendering for 55,000 tonnes of optional origin corn for arrival on July 20th. Recent reports from Japan and South Korea have indicated concern there over quality issues with US corn that have arisen from the late, wet harvest this past fall. In the US, some fears have arisen that low-quality corn may even be getting rejected by some ethanol plants. If we assume that producers will plant 4 million more acres this spring and also assumed a slight increase in usage for the coming year due to the surge in ethanol production, a trend-line yield at 161 bushels per acre might cause ending stocks to decline to near 1.7 billion bushels, compared to 1.719 billion this year and 1.673 billion last year. A record yield would drive ending stocks to just over 2 billion bushels. However, if we were to assume a yield that is the average of the previous five years (152.4) then ending stocks could slip under 1 billion bushels, and the stocks/usage ratio would fall to just 7.4%, the second lowest in history. While lower yields are not expected, the exercise illustrates how important yield will be for corn values for the coming season. Reassuring reports from the EPA this month helped to confirm that corn-based ethanol growth is likely to continue over the next several years. In November, the US used a record 362.4 million bushels of corn to produce ethanol. In order to reach the new USDA ethanol use forecast of 4.3 billion bushels, the US needs to average 361.2 million bushels each month.

TODAY’S GUIDANCE: The corn market shows signs of wanting to test the early February low at 359 in the May contract. Weak technical action could carry the May to as low as 351. The slow pace of exports is not helping and one of the few positive factors could be the increased concern over quality issues for 2009/10 US corn which could provide a boost to higher quality deliverable stocks. However, this is a somewhat backdoor kind of ‘positive’ factor that does not support overall demand. December corn support is at 393 1/2 and 391 with 402 and 408 1/2 resistance.

TODAY’S MARKET IDEAS: Consider strategies which could benefit from a short-term downtrend followed by a rally.

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NEAR-TERM MARKET FUNDAMENTALS: May soybeans rallied as much as 64 cents off of the February 4th lows to this week’s high before seeing significant selling yesterday. Traders indicated that funds and producers were sellers and there remains a concern for the bulls that both South America and US producers become more aggressive sellers at the same time that demand begins to slow. Gulf basis levels slipped 2 cents yesterday but remain high for nearby shipment. Most of the new interest is on Brazil soybeans and traders expect a significant shift away from US origin in the weeks ahead. There are plenty of acres available for planting this coming season with the sharp decline in winter wheat plantings, but corn and wheat followed soybeans lower in January, so there is not too much advantage for producers to move away from a normal rotation. On the contrary, there are some producers who have moved away from a normal corn, soybean, corn rotation in recent years to a corn on corn and then soybean rotation, so that soybeans were grown just once every three years. This worked out well on paper for a few years when ethanol growth supported corn values, but high fertilizer costs and weaker corn values of the past few years may cause producers to shift back to a more traditional rotation. This could result in more active soybean plantings than expected this year. In addition, areas of traditional double-cropped wheat/soybean acres could end up with just one full season of soybeans this year, which would result in higher yields for soybeans. Traders said that the market largely ignored a slightly better than expected January crush rate estimate from the National Oilseed Processors’ Association (NOPA) who pegged the crush at 162.4 million bushels in January. Soy oil stocks were pegged at 2.695 billion pounds, about in line with trade expectations. Weather remains favorable for South American crops. If we assume that producers will plant 1 million more acres this spring and also assumed a slight reduction in both crush and export for the coming year due to the surge in available supply from South America, a trend-line yield at 43.4 bushels per acre could cause US ending stocks to swell to near 410 million bushels, up from 210 million this year and 138 million in 2008.

TODAY’S GUIDANCE: The market has recovered from an oversold condition and the current rally appears to be a selling opportunity.

TODAY’S MARKET IDEAS: Selling resistance for May soybeans is 974 3/4 with 935 1/2 and 932 as support. Keep 894 1/2 as downside objective. July meal selling resistance moves down to 277.20 with 266.90 as support. July oil support is near 38.98 with 40.38 as next resistance. Consider entering bear put spreads in July soybeans such as the July 970/880.