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Grain futures - Weekly outlook: May 14 - 18

CommoditiesMay 13, 2012 09:12AM ET
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Investing.com - U.S. grain futures ended the week sharply lower on Friday, with soybeans plunging more than 3% and corn hitting a 7-month low as growing concerns over the health of the global economy prompted investors to cut their exposure to riskier assets.

Agricultural commodities were affected by broader market risk aversion on Friday, as market sentiment was weighed by concerns that ongoing political turmoil in Greece could result in the county’s eventual exit from the euro zone.

Risk aversion sharpened further following disappointing Chinese economic data, which added to evidence of an accelerating slowdown in the world’s second largest economy.

A deeper slowdown in China, the world’s second-biggest economy, would impair a global expansion that is already faltering because of Europe’s austerity measures.

Further adding to the gloomy trade environment, Wall Street lender JP Morgan Chase revealed late Thursday that a USD2 billion dollar loss will eat into its second-quarter results.

The heightened sense of risk aversion prompted investors to shun riskier assets, such as stocks and industrial commodities, and flock to the relative safety of the U.S. dollar.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, ended the week at 80.42, the highest since March 16.

A stronger dollar reduces the appeal of U.S. crops to overseas buyers and makes commodities less attractive as an alternative investment.

On the Chicago Mercantile Exchange, soybeans for July delivery settled at USD14.0313 a bushel by close of trade Friday. Earlier in the day, prices fell to USD14.0263 a bushel, the lowest since March 30.

On the week, soybean futures dropped 4.88%, the second straight weekly decline and the biggest since late November.

Soy prices plunged 3.6% on Friday, the biggest one-day slide in more than seven months, as investors continued to liquidate long positions to lock in gains from an impressive rally that took prices to a four-year high of USD15.1237 a bushel on May 2.

Soy’s losses accelerated after prices broke below their 40- and 50-day moving averages, triggering fresh sell orders amid bearish chart signals.

Friday’s drop erased strong gains made the previous day on the back of a bullish supply and demand report from the U.S. Department of Agriculture.

In its Supply & Demand Estimate Report published Thursday, the USDA lowered its forecast for near-term U.S. supplies and predicted higher exports.

The USDA said domestic soybean stocks as of August 31 are likely to drop to 210 million bushels, down 16% from the 250 million bushels it predicted a month earlier and 2.3% from a year earlier, due to higher exports and domestic use at processors.

The ending-stocks forecast for the end of the next marketing year is even lower, down to 145 million bushels, which is below the average analyst estimate of 170 million bushels.

Average soybean farm prices were estimated in the range of USD12 to USD14 for the 2012 crop compared to USD12.35 for 2011.

Soybean prices rallied nearly 19% since the beginning of February, and rose almost 6.5% in April, as market sentiment has been dominated by concerns over distressed crops in major South American soy growers and amid indications demand for U.S. soy from top consumer China remains strong.

However, prices are down more than 7% in the past seven sessions, with market analysts expecting an ever deeper drop heading into the summer, as the soy harvest in South America nears completion and higher prices eventually reducing the amount of Chinese purchases.

Elsewhere on the Chicago Board of Trade, corn futures for July delivery settled at USD5.8200 a bushel by close of trade on Friday.

Earlier in the day, prices hit USD5.7238 a bushel, the lowest since October 3, 2011. On the week, corn futures tumbled 6%, the steepest decline in four months.

Corn prices came under heavy selling pressure after the USDA unexpectedly raised its forecast for near-term supplies of the grain and projected a record harvest this autumn.

The USDA estimated that domestic corn inventories as of August 31 will be 851 million bushels, up 6.2% from the agency's previous forecast of 801 million bushels.

The unexpected increase stemmed from the USDA cutting its forecast for corn demand in the "feed and residual" category.

U.S. corn production is expected to increase this year to a record 14.79 billion bushels, up from 12.36 billion bushels last year. The previous record stood at 13.092 billion bushels set in 2009. Corn yields may reach a record 166 bushels an acre, the USDA said.

U.S. corn stockpiles are likely to more than double to 1.881 billion bushels by the end of the 2012-13 marketing year, above market expectations of 1.704 billion bushels.

The announcement of a 300,000 ton corn sale to an undisclosed buyer, most likely China, had little effect on prices.

The U.S. produced 38% of the world's corn last year, making it the both world's largest corn producing nation and the largest exporter of the grain, while China is the world’s largest consumer of the grain.

Meanwhile, wheat for July delivery settled at USD5.9663 a bushel by close of trade on Friday. Earlier in the day, prices fell to USD5.9238 a bushel, the lowest since January 19. Prices declined by 2.05% on the week, the second consecutive weekly drop.

Wheat futures closed lower on Friday, as spillover pressure from corn and soybean markets weighed prices down.

Favorable weather and increases in the ending stocks for wheat further weighed on the grain. The USDA pegged the 2012-13 winter wheat crop at 1.69 billion bushels, above forecasts for 1.639 billion bushels.

It also estimated total U.S. wheat production at 2.245 billion bushels, topping expectations for 2.194 billion bushels.

Old-crop U.S. ending stocks were 768 million bushels, down from 793 million bushels forecast in April and below expectations for 778 million bushels.

The agency pegged domestic wheat ending stocks for the 2012-13 crop year at 735 million bushels, below expectations for 782 million.

Corn is the biggest U.S. crop, valued at USD66.7 billion in 2010, followed by soybeans at USD38.9 billion, government figures show. Wheat was fourth at USD13 billion, behind hay.

In the week ahead, grain traders will focus on the USDA’s weekly crop progress and plating progress reports on Monday, as well as Thursday’s weekly exports data.

Market participants will also continue to monitor weather conditions in South America and throughout the U.S. Corn-and-Wheat-Belt regions. 
Grain futures - Weekly outlook: May 14 - 18

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