THE SEASONAL GRAIN BLUES
January and February are seasonally a time of year when corn, beans and wheat pull lower. It is the dead of winter with grains locked up on the farm until the spring thaw, while the winter wheat crop lies dormant until March when spring temperatures begin to rise. After the three-week rally into the U.S.D.A. January 12 crop production report that brought corn and beans to near-summer high prices. We have seen large trend-following funds selling previous long positions. This is the seasonal adjustment that occurs before the March-to-June season rally begins. The seasonal downturn in grains should continue in the week ahead on two key issues. One, as snow covers 60% up the upper-midwest cars spend more time in the garage. This creates a seasonal downturn in crude oil prices as lack of driving and fuel usage allows crude oil inventories to build. Corn and beans follow crude oil lower as corn's relationship to crude comes from corn-based ethanol usage and soybeans, soyoil as to bio-fuel useage. Some of this is actual usage and much of it psychological. The second near-term negative issue is demand. January and February are the two key growing months for corn and beans in South America or Brazil and Argentina the number two and three largest world bean producer exporters behind the U.S. Current thinking is record production will come out of that area off record planting and an El-Nino weather pattern that is bringing ample rain fall. The psychology is South American production will cut deeply into our U.S. world export share thru the first quarter.
Index and trend-following funds control the market's trend. These funds don't know a bushel of grain from a phone booth, and don't care. They are seasonal technical traders. The near-term technical downtrend ends in February with the trend turning up by March 1 on several seasonal issues. March sees crude oil prices turning higher dragging the grains along as crude anticipates the spring summer driving season and a draw down in crude oil inventories. Additionally, the market pushes higher into the March 30 planting intention report when the U.S.D.A. survey of farmers tell us how much of each grain they intend to plant. The rally comes as each grain pushes higher to find a price as incentive to plant the particular crop and on fear a crop could lose 3 or 6 M.A. or more if a more profitable price on another crop steals acres away. Back to the immediate near-term.
The seasonal low should be in before February 20th. That low in that time frame should hold through to June's end as the March 1 through June period will price in another good demand pace especially for high protein beans and the uncertainty of the planting and growing season weather premium being built in.
The wild card this week could be weather as the current forecast sees very hot and dry conditions in Argentina the next seven to ten days. It was a year ago this time, Argentina turned hot and dry as they entered the flowering stage for beans and stayed that way until harvest. The U.S. filled their production shortfall by exporting more than 8 million metric tons of beans to importers. This could be a one-week aberration from the wet pattern prior, but any hint of an extended dry period and beans could post a low and rally pulling corn and wheat along.
The other near-term issue is demand. Bears believe that a record South American crop could have key world-player China either slow U.S. bean imports to even cancel previous purchases in favor of cheaper South American beans. I do not see this as China's mandate for a more protein-rich diet for near-term needs and fill the recently built storage facilities to satisfy the government's goal of building a strategic grain reserve to insure their protein mandate goes unimpeded by drought or wild world price swings such as in 2008.
Near term, I look for a low in corn basis March futures not lower than 3.42; March beans not lower then 9.15; and March wheat 3.42 before turning up into March. The weekly export sales report came out ahead of the opening.It put wheat sales last week at 825 t.m.t. versus the four week average of 216. Wow, what happened.Its all about the 90 cent drop in prices making asian markets and others take advantage of value . Don't get excited we still sit with record reserves and would need 750 t.m.t. weekly to turn demand side bullish for prices. Corn sales were 1.610 m.m.t. a new marketing year high, over ayear ago of 1.090 and 2008 of 1.595 olso the four week average of 763. Like wheat , corn too had a nice price correction drawing in some pent up demand. Bean saw 929 t.m.t. sold last week up 23 percent from the week prior and four week average of 868.China was in for 700 t.m.t. of the total, the highest Chinese toltal in over two months. The amount loaded on boats and shipped were 1.546 up 22% from or four week average with 859 to China. Bean demand is well ahead of the record sales of 2009 to start the year. For those who would like to use me as your full service broker call 800-563-9510 or e-mail me your ideas to firstname.lastname@example.org There are no account minimums.Tim Hannagan