Grain Market Gleanings

CBoT Report Bullish on Beans, Wheat, Corn

Soybean, corn, and wheat all have rally potential in 2003, according to The Pennington Report, a market analysis prepared by Pennington & Company, an independent research firm, for the Chicago Board of Trade www.cbot.com . A summary about what the report outlined for each crop:

Soybeans—An excellent South American crop is essential to offset last year’s reduced U.S. crop, meet worldwide consumption demand, and offset less world production of other oilseeds. The summer high of $6.25 set in August could be tested or penetrated in the January-March timeframe, according to one analyst, and if there are crop problems in South America, which should become clear in February to March, prices could rally to $7.00 or higher.

Wheat—Experts expect the wheat market to be very volatile this year, being lackluster when major importers are out of the market and reacting wildly when they appear to be back in, particularly for large amounts. Spreads between CBOT and other wheat types could fluctuate dramatically depending on the type of wheat sought and when.  Non-traditional exporters appear to be gaining market share at the expense of traditional exporters, a trend expected to intensify this year.  However, it is uncertain whether these non-traditional exporters will be able to supply the higher-protein bread wheats in shortest supply, lower protein wheat or feed wheat. Thus, given the number of possible combinations of wheat exporters, wheat qualities, unknown degrees of substitution of one kind of wheat for another, and differences in prices offered for various classes and origins of wheat, will result in price volatility that could persist for the rest of the marketing year. 

Corn—Supplies are the second tightest in the past 40 years. The only time they were tighter was in 1995-96, the year corn futures prices hit $5.54.  Strong exports and feed use could push prices higher.  Experts are divided on corn’s price direction, however: one expert calls corn the “ugly stepsister” that might find it difficult to dance without the assistance of the rest of the CBOT ag complex, pointing out that the world will be resistant to $2.50 U.S. corn, and will instead look to other sources such as Argentina and China, the U.S.’ two biggest corn export competitors.

Another analyst says the corn market is very reliably inversely correlated with the direction of the U.S. dollar, and that corn could surprise and be the star performer into mid-year, as corn strength tends to follow about 10 to 18 months after dollar weakness.

Market Factors to Watch
Analysts in the CBoT’s recent Pennington Report included the following among the factors that are critical to the staying power of the 2002 grain recovery:

Upcoming Government Reports—USDA reports, including supply/demand, crop production, winter wheat seed-ings, grain stocks and acreage reports, are critical to market direction in supply-driven markets.  Traders will also be following biweekly commitments of traders (COT) reports, which detail the level of speculative participation in each futures market. Weekly export sales and crop condition reports are also important. A calendar of report release dates is available at www.cbot.com/cbot/calendar/month ; government reports are available at http://usda.mannlib.cornell.edu/reports ; and COT reports are available at www.cftc.gov .

Weather—Through spring, it will be particularly important to monitor crop conditions in South America, and spring planting conditions and acreage forecasts for the U.S.

Level of the U.S. Dollar—The U.S. dollar appears to have peaked in January 2002, making U.S. agricultural products cheaper and thus more competitive on world markets. A dollar rally could stall the upside potential by making U.S. exports too expensive.

Export Demand—Exports are critical to the grain markets. Keep your eyes peeled for any news affecting the U.S.’ ability to compete for export customers. The market will be watching weekly export sales reports to see whether the U.S. is on track to meet USDA export projections.

War with Iraq—This could put the markets in turmoil, directly by increasing energy costs and indirectly by affecting trading relationships. The market would attempt to forecast such issues as dollar direction, potential impact on the economy and supply/demand implications if war appeared to be on the horizon.

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