Published: May 02, 2008 10:56 am            

Grain Outlook: Dollar recovery puts pressure on soy

Originally published in the May 2, 2008, print edition.

The following market analysis is for the week ending April 25.

SOYBEANS — The rhetoric out of Argentina this week does not lead us to expect that the conflict between farmers and the government will be settled quickly.

In the latter part of the week, the Argentine government announced they would implement a seldom-used “supply law” they have on the books. This law allows the government to fine, imprison, or confiscate goods and property of anyone convicted of failing to supply domestic markets with essential goods.

May 2 is the deadline to resume the strike and blockades if the government does not roll back the recently increased export taxes on grain exports. If the deterioration continues, additional business for the United States will lower estimates for this year’s carryout to minimal levels.

The old crop basis has benefited from this scenario, growing stronger almost daily as growers try to turn their attention to planting. On the futures side, July beans were down 40 cents and November was down 59 cents for the week.

The U.S. dollar rebounded this week from record lows even as crude oil reached a new all-time high of $119.90. Some believe the Federal Reserve may not lower interest rates at their April 30 meeting or, if they do, it will be the last time for awhile.

Labor issues in the United Kingdom and militant attacks on pipelines in Nigeria countered the dollar’s strength to push crude oil $2.36 higher on the week. Did we really trade fundamentals in the energies this week? Concerns over gasoline supplies as we head into driving season added to support in that market.

The Census Crush report was released this week, showing a crush of 152.6 million bushels, about a million bushels less than anticipated. The February number was revised downward by 2 million bushels.

Exports this week were respectable at 13.8 million bushels, bringing total export commitments to over 96 percent of the total export projection for this year. Sales were lead by Mexico with 6.2 million bushels and followed by China with only 1.9 million bushels.

Next week’s sales are expected to be larger on new sales made to China this week. There were no new crop sales reported this week.

OUTLOOK: The recovery in the dollar lent pressure to the soy complex this week. The delayed corn planting provided pressure on the assumption fewer acres will be switched from beans to corn. Another week will provide us with a much better idea of how the Argentine situation will play out.

In the meantime, basis is well supported by slow farmer selling and spreading ideas that the carryout for this year will drop below 100 million bushels as exports grow. Look for any gains to be led by the old crop on smaller ending stock ideas and Argentina’s problems, while new crop prices will depend more heavily on weather.

There is a tendency for November beans to trend lower in May. First support in the November is at $11.70, then $11.55; resistance lies at $12.83 1/2 which is the 50-day moving average.

CORN — Farmers finally got to turn wheels this week before rain again shut them down.

Weather forecasts and on-going problems in Argentina provided some support to the market, but the strength in the dollar limited gains. Losses seen early in the week on a better forecast were unable to be recovered. July corn lost 22 1/4 cents on the week and the December contract was down 16 cents.

Planting progress as of April 20 was 4 percent complete, the smallest percentage planted for this time of year since 1993. This was only a 2 percent increase from last week and compares to the average progress of 17 percent.

The damp and cool week behind us and the forecast for another week or so of the same will keep our progress behind the average. Basis levels were mostly steady across the Midwest with demand and farmer sales balancing each other.

Export sales at the upper end of expectations at 30.5 million bushels pushed total export commitments to 2.2 billion bushels, almost 88 percent of the U.S. Department of Agriculture projection. New-crop sales jumped to 89.5 million bushels after new sales of 8.4 million were reported this week.

Japan indicated this week they will be sourcing more corn than usual from the United States this year due to limited offerings from China.

The high price of feed was reflected in this week’s poultry report. Egg sets were down 2 percent from last year and chick placements were even with last year. The trend has been slowing for a month as margins weaken due to higher feed costs.

It’s interesting this week that pressure from the livestock sector in Texas has pushed that state to request a one-year waiver of half of the U.S. ethanol mandate, blaming the high cost of feed on the competition for corn from the ethanol industry.

OUTLOOK: Planting progress and weather forecasts will provide the magnitude of upcoming market moves. Support in the December corn comes first at $6, then $5.80 with resistance at $6.25, then $6.50.

Nystrom notes: The May crude oil contract set an all-time high price of $119.90 before expiring this week. Gasoline reached a record $3.0815 on the Nymex. The next USDA reports of major importance are the June 30 Acreage report and Grain Stocks report.

        

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