Corn: All those planters rolling last week finally hit the market today. Add into the mix the Goldman Sachs fraud is gaining much more traction, and today's market felt some serious pressure.
Another weekend has gone by with good conditions for planting. In addition, this week looks to remain dry allowing for many more to get a large amount in the ground. Just when talk will get going that conditions are getting far too dry, there is a forecast for rain this weekend. Following that weekend, we are forecast to find another dry week followed by yet again another rain the following weekend to start May. In all, a fast planting pace followed by rain, then another week of progress followed by rain is what the market has to trade from today. Honestly, you really can’t plant a garden any better than that.
When looking at planting pace expectations this afternoon, there are a few notes worth knowing. For this calendar week, the largest jump between reports has been a 14% gain in 2004. Officially, the trade claims to be looking for 19% complete. Looking at the size of the sell off in corn today, it shows that many do feel that a number of 30% is much closer to the truth, no matter what the government has to say.
Tomorrow we will digest the planting pace report but will also be trading the upcoming weather, which is anything but bullish. A key number to keep in mind for December corn will be 375 1/4. If corn falls below that level, it will open another door to lower trade. We have seen very good support around 377 and will need that to hold once again. Right now, the most important fact to take away from planting pace is that 2004 saw a fast pace and saw a massive jump in yields over 2003. That could very well be the market focus for the next couple weeks at least.
Soybeans: “Reality Monday” was the theme as traders face some very real issues. Weather is ideal and those who have tried to talk bullish because “good weather was pushing acres to corn” have a wetter forecast, which would slow corn planting. Traders worried about “overly dry” weather and the likes of a “1988 drought” were also set back on prospects for rain in the next two weeks.
But the biggest issue for beans comes from the Hedge Fund industry. As we pointed out Friday, the SEC charges that Goldman Sachs fraudulently sold OTC CDO’s could open Pandora’s box. There is already talk that many banks offering OTC trading will be investigated. But let’s face it, the government is not going to go after the US banks and shut them down.
The real agenda is to regulate and control the hedge funds. This is the group that sold CDO’s that were mathematically built to fail. This is also the group that bought the insurance against these products knowing that when, not if they failed, the insurance would pay off. Hence they collected investment money for these CDO’s from municipalities, states, union pension funds, and even foreign governments when they sold them, and then when the instruments failed they collected billions from the insurance company AIG.
Well AIG could not pay their obligations so you and I paid these hedge funds via the AIG bail out. Make no mistake, if the GS investigation confirms some of the stories we have heard, then an ARMY of attorneys will seek payment on losses and damages from many OTC trading firms and Hedge Funds. Right now, the market will be on the defensive as this unfolds and these Hedge funds lighten up their risk to prepare for the inevitable fight before them.
This will be bearish for the short term…at least until many OTC markets get unwound or roped into regulatory authority. Our long term hopes would be that investors look for regulated environments to trade in so they have protections built in. If that happens then the long term impact could be bullish commodities. But there could be significant negative impact before we get to that side of the story…Bill Biedermann
Wheat: The trade was anticipating weekly good to excellent crop conditions to increase by a minimum of 1% as wet weather was dominant in KS, OK and TX much of last week. Today, NASS did report a 4% increase in the combined good to excellent area from the week prior. This is the fourth highest rating ever for this week.
Positive to wheat futures is world demand increasing for wheat flour and wheat grain despite that none was sourced from the US. Also supportive to wheat futures are weekly export inspections which fell within the pre-released estimates and were enough to better last week levels. Also positive to wheat futures is news how MGEX did lower margins on spring wheat futures and its indexes today.
Bearish to wheat futures is the negative perception of lower crude oil and higher US Dollar. It is estimated funds were sellers of 7,000 contracts of wheat on Monday. Look for positive trade for Tuesday as a common message you are likely to read is futures were “overdone” on Monday…Joe Victor
Bill Biedermann is Sr. Vice President at Allendale. Ryan Ettner is a registered commodities broker and grains analyst at Allendale, Inc. Joe Victor is Vice President at Allendale. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com.