Grains react to dollar, acreage expectations

Corn: Overnight trade saw some active European selling, which was backed up by more day session selling on Monday. Those who were big buyers all last week with the dollar moving lower looked to take profits during the day ahead of the European summit.

News throughout the day did nothing to add more support to corn. Updated forecasts called for improvements to most of South America, which hit beans first and also spilled over to corn. Other direct news was thin, which allowed for easy following of outside markets. Trade is beginning to kick around 2012 acre numbers in the range of 94.25-94.75 million. Estimates for planted acreage that high do not come as a surprise, especially with an early forecast for a generally dry spring. It is from acreage estimates like this that a recent analyst poll looked for an end of year corn price of 547 for the March 2013 contract. There will be another poll to watch out for that will be due out later in the week covering acreage.

Right now, large acres from a dry spring combined with expectations for trendline yields will keep a cap on new crop rallies. Old crop corn remains centered around the 630 economic value.

Bears will continue selling new crop bounces on early thoughts of big 2012 production. Those same bears will sell old crop until more export support is found. Bulls' best bet right now is more fund money coming into the market to keep the rally going while news is slow. Neither side can get overly excited while the March price remains at 630…Ryan Ettner

Soybeans: Beans took the biggest hit of the grains on Monday, falling 33 3/4 for the March contract. The dollar contributed to the selling pressure as it bounced 24 cents. If the dollar continues to strengthen this week, we could see more of a decline in beans.

Weather was a concern but the forecast has increased rain amounts this week across Argentina. The weather used to be a bullish story, but the concern for rain is starting to get over looked.

We talked about acres in our weekly meeting today. We are expecting to see a big increase in corn acres due to the profitability. One real question is the trade’s perception of soybean acres. Corn acres will beat bean acres hands down in the Midwest. However, cotton may ease the big decline as it may drop 1.2 million acres. Some of these acres in the South could go into beans. The top three states for cotton are in serious drought situation.

Wheat: The wheat market started the trading week out on a negative note on Monday. The downward pressure came from outside market forces.

Last week’s wheat rally was partly driven by a weaker U.S. dollar. Today, the dollar was higher as European traders sold the euro and in turn bought the U.S. dollar. The euro currency has had a pretty good rally the past two weeks and was a little overbought. The technical overbought situation and an upcoming European summit was enough to push short-term buyers to the sidelines and lock in profits. Commodities tend to trade inverse to the dollar, so with the dollar strength on Monday, that put pressure on the wheat.

The other grain pits were weaker today on better rain prospects for South America, so they were not there to provide support for the wheat pit. The wheat market did find some support from continued unconfirmed reports that Russia was considering placing an export tax on wheat exports. That part of the world is also experiencing a bout of bitterly cold temperatures. This has the trade talking up the possibility of winter kill. We will have to wait until the crop comes out of dormancy to determine if there was any real winter kill damage.

Allendale still views the wheat market with a bearish tilt. With stocks projected near 20-year highs in both the United States and the World, there is currently plenty of wheat to feed the world's demand…Jim McCormick

Ryan Ettner is a registered commodities broker and grains analyst at Allendale, Inc. Steve Georgy is a Sr. Broker/Manager at Allendale, Inc. Jim McCormick is Senior Broker/Manager at Allendale, Inc. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com.

About the Author

Ryan Ettner is a registered commodities broker and grains analyst at Allendale, Inc. Steve Georgy is a Sr. Broker/Manager at Allendale, Inc. Jim McCormick is Senior Broker/Manager at Allendale, Inc. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com

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