DTN Closing Grain Comments 02/08 14:36
Short-Covering Rally
Grains finished higher on noncommercial short-covering ahead of Tuesday's
USDA Supply and Demand report and light outside market support.
By John Sanow
DTN Analyst
General Comments:
Soybeans closed 16 cents higher in the March and 15 3/4 cents higher in the
May. Corn closed 4 1/2 cents higher in the March and 4 1/2 cents higher in the
May. Wheat closed 10 3/4 cents higher in the March Chicago, 11 cents higher in
the March Kansas City, and 9 1/4 cents higher in the March Minneapolis. The
U.S. dollar index is .126 lower. April gold is $12.20 higher while April silver
is $.255 higher and April copper is $4.85 higher. The Dow Jones Industrial
Average is down 60 points. March crude oil is $.60 higher. March heating oil is
$.0092 higher while March RBOB gasoline is $.0066 higher and March natural gas
is $0.096 lower.
Soybeans:
Solid gains were posted in soybeans Monday on short-covering by
noncommercial traders due to oversold conditions and a weaker U.S. dollar. Last
week's test of psychological support at $9.00 seemed to unearth some buying
interest as well. Commercial buying emerged as demand remains strong from
China. Weekly inspections were 39.6 mb, well above the 14.8 mb needed to stay
on pace with USDA's 1.375 bb projection. However, the carry in futures spreads
remains strong, indicating underlying fundamentals are bearish. This could be
signaling world ending stocks will increase to over 60 mmt in Tuesday's report,
something that has only happened one other time in history, during the 2006-07
marketing year. Traders anticipate U.S. stocks decreasing by 26 mb from
January's estimate of 245 mb, though more attention will be placed on the world
number longer-term. The March-to-May soybean futures spread closed at 10.5
cents or about 80 percent of full commercial carry (which is considered a
bearish level).
Corn:
The market found support from both sides, though contracts closed well off
session highs. Before Monday's session, March corn had fallen 71 1/2 cents in
less than a month, so it's possible further upside potential exists due to
oversold conditions. However, the extent of any rally will be limited by the
increasingly bearish supply and demand situation indicated by the strengthening
carry in futures spreads. Despite reports of government agencies closing Monday
due to the large winter storm, weekly inspections were released and were
disappointing to say the least. Total inspections of 27.1 mb, were well below
the 46.3 mb needed to stay on pace with USDA's 2.05 bb projection. Year-to-date
inspections of 693.5 mb are 9 percent behind pace. Tuesday's USDA Supply and
Demand report is anticipated to be bearish, even though U.S. stocks are
projected to decrease by 16 mb on stronger demand which could be more than
offset by a jump in world ending stocks. The March-to-May futures spread closed
at 11.5 cents or about 87 percent of full commercial carry (which is considered
a bearish level).*
Wheat:
After last week's consolidation it should come as no surprise that wheat
contracts rallied Monday. Combined with oversold conditions, a weaker dollar
and stronger row-crop trade, the market closed with double-digit gains.
Additional support was tied to a decent weekly inspections report. Total
inspections of 16.9 mb were above the 16.4 mb needed this week to stay on pace
with USDA's 825 mb projection. However, year-to-date inspections of 564.5 mb
are 24 percent behind last year and 5 percent below the projected decrease.
This means the pace will need to pick up even more or downward revisions may be
looming. The supply and demand report should be a rather ho-hum affair, with
U.S. stocks projected to decrease 3 mb to 973 mb and global ending stocks could
increase from better than expected production in the Black Sea Region. The
March-to-May Minneapolis futures spread closed at 11.5 cents, or about 87
percent of full commercial carry (which is considered a bearish level). The
Kansas City and Chicago markets are also sitting at bearish levels.
* Full commercial carry costs are calculated assuming $0.00165 per bushel
per day storage costs and a 3.10 percent interest rate.
John Sanow can be reached at john.sanow@dtn.com
(AG)
Copyright 2010 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.
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