Uncertain Day in the Grains Ahead of Holiday

A mixed start is expected this am, roughly 5-10 lower wheat, down 3-5 corn and up 3-5 beans. The Dalian, China grain futures market was mixed today but crude oil is much higher and rallying while the $ is a bit lower, a bullish combination for the grains.

Deliveries were larger than expected in wheat, 4000 lots. Oil was 2900 and oats 298. Corn was in line, 636. Bean deliveries were larger than many expected, 162 with JP Morgan stopping 120, probably for Cargill. Many traders were surprised there were any meal deliveries even though just 22 lots were delivered. The delivery dates were Aug 28 for wheat and oats, July 24 for corn, July 22 for beans and June 19 for meal.

Remember, today is the last trading day of the month, a day when funds reputedly are more active than usual.

FC-Stone will put out their Sep production guesses Tuesday afternoon with Informa likely out the day after. The International Grain Council upped their world wheat production estimate 10 million tonnes vs last month to another record 672 million for the 2008-09 year. Last year, only 609 million tonnes was produced. They increased their world corn production guess 15 million tonnes vs last month to 774 million. Last year, world production was 785 million.

Over the next 3 days, much needed rain is forecast for Australian wheat areas. One forecaster is calling for over .5" rain in northern New South Wales, which produces almost 1/3 of Australia's wheat crop. August rains usually total 1.5" in this area but so far this month less than .5' has fallen after just .25" or less in July. Little rain is forecast for the dry western Argentine wheat belt until mid next week and then the rain is expected to favor eastern areas. Meanwhile, rain in the main grain areas of China is likely to continue the next few days, keeping conditions favorable overall there. The monsoon rains are drying up sooner than usual in Indian oilseed areas, which will stress the crops there.

Up to 1" of rain fell in parts of Iowa and Missouri yesterday with similar amounts in northern Illinois. Mostly dry weather is predicted for most of the corn belt the next several days with temps warming up. Scattered rain is forecast in the western half of the belt by Tue-Wed next week. Hurricane Gustav is likely to enter the gulf of Mexico within a few days and it could damage oil drilling and refining facilities along the gulf coast, pushing crude oil prices higher. This would be friendly for our grain market. However, later next week the remains of the hurricane could bring rain into the midwest, which would be bearish for grain prices.

It is too soon to say now so traders could be extra cautious today ahead of all this uncertainty as well as ahead of the 3 day holiday weekend.---Vic Lespinasse

Crush Report, Export Sales Plus Weather: Could See Wide Swings in Grains Today

Crude oil is higher and the $ lower this am, a bullish combination for the grains. However, they were lower overnight and are called lower this am, 5-7 wheat and corn with beans down about 15. Dalian, China grain futures were all lower today and Malaysian palm oil fell 32 ringgit.

The Census Bureau July crush was about 1 million bushels below trade ideas, 139.1 million bushels. Oil stocks were 2.784 billion lbs, roughly 50 million lbs less than expected and meal stocks were much less than expected at 294,500 short tons. Weekly export sales were a bit higher than expected for wheat, 392,000 tonnes between the old and new crop years. Corn sales were also better than thought, 303,000 tonnes old crop and 544,000 tonnes new crop, 847,000 tonnes total. Bean sales were slow, minus 193,000 tonnes old crop and plus 336,000 tonnes new crop for a total of just 143,000 tonnes between the two crop years. Meal sales were in line, 76,000 tonnes between the two crop years. Oil sales were poor, minus 19,000 tonnes due to cancellations. Rice sales were good at 94,000 tonnes.

Cool and wet weather in the Canadian prairies will slow harvest efforts there the next several days. Argentine wheat areas had welcome rain in some areas overnight but the driest area, the west, had the least and the next chance of rain doesn't come until mid next week. More welcome rain is forecast in the main growing areas of China the next several days. Beneficial rain is forecast in Australian wheat areas the next several days, favoring the east.

The US northern plains will see harvest slowed by wet weather in the 6-10 day period but generally favorable harvest weather is forecast until then. Welcome late season rain fell in the northwest part of the midwest again overnight, up to 1.5". Scattered rain is forecast for the midwest today into tomorrow but amounts will mostly be less than .75". Generally dry weather is then forecast until Tuesday next week, when rain is forecast to return. The 6-10 day calls for cool and wet weather in the west and warm and dry weather in the east, although this forecast is highly tentative as the US and European weather models differ during this time frame. Also, the remains of hurricane Gustav could bring a lot of rain into the midwest next week depending on where it goes in the Gulf the next several days but this is difficult to predict at this time.

I am a bit surprised how weak we were overnight given what looks like a mostly dry forecast to me and the strength in the outside markets. We could have a wide swinging, back and forth trade today with a lot of evening up tomorrow ahead of the 3-day weekend. Remember, tomorrow is first notice day for September deliveries.---Vic Lespinasse

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Higher Crude Oil, Lower $ Bullish for Grains

A higher to sharply higher start is expected this am, 2-4 wheat, 5-7 corn and roughly 20 beans. Crude oil is higher and the $ lower, a potent bullish combination for the grains. Malaysian palm oil jumped 93 ringgit despite more talk of buyers defaulting on recent purchases. Dalian, China grain futures were higher today with the exception of palm and bean oil, which were lower.

Turkey will be in the market Sep 4 for a total of 300,000 tonnes of optional origin wheat. Hurricane Gustav is now expected to go into the Gulf of Mexico and possibly threaten oil installations around the Gulf coast. This could drive crude oil higher, indirectly supporting the grains. If this storm brings rain into the midwest next week, however, it would be negative for the grain market so traders will keep watching its progress.

The weather according to Meteorlogix: scattered rain in the western corn belt today/tomorrow, up to .75". Dry Fri-Sun. Rain possible Mon-Tue with warmer temps. The eastern corn belt will see light rain in Ohio today with scattered rain in the rest of the region Thur-Fri, up to 3/4". Dry conditions expected Sat-Mon with warmer temps. The 6-10 day calls for warmer temps with above normal rain in the west and below normal in the east. Meteorlogix also says there is more rain in both the near and long term outlook for the midwest than predicted yesterday, favoring the west and north. They do not see any threatening cold temps but there is a better chance of cold temps over the next 10 days than predicted yesterday.

The Canadian prairies will be on the wet and cool side the next several days, slowing early harvest efforts, which are already behind normal. Argentina will have rain in eastern and northern Buenos Aires province today, which will be welcome by the wheat crop. Scattered rain the next several days in northeast and central China will benefit crops there. Australia will have welcome rain the next 3-5 days, light in the west and central areas, moderate in the east. This rain will keep wheat prospects favorable, according to Meteorlogix. However, an Australian firm, Australian Crop Forecasters, warned they will cut their 24 million tonne wheat forecast to 22.5-23 million tonnes if rain doesn't come to northern New South Wales soon. New South Wales is Australia's largest wheat producing state. ---Vic Lespinasse

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Wetter Forecast May Open Grains Lower

A sharply lower start is expected this am, down roughly 25 in wheat, 10-15 corn and 35-40 beans, following steep overnight losses in these pits. The $ is higher but so is crude oil, sending mixed signals to our grain market. Dalian, China grain futures were sharply lower except corn, which was higher. Malaysian palm oil fell 91 ringgit amid talk of more Chinese buyers defaulting on import contracts, which is linked to talk of lower Chinese veg oil import taxes.

Yesterday afternoon's weekly crop ratings showed a drop of 3% in the good to excellent catagories for corn and a 1% drop for beans, roughly as expected. Corn is now rated 64% good to excellent with beans 61%. Beans setting pods advanced to 88% vs 94% average. Corn in the dent stage of development hit 26% against 47% average. Corn in the dough stage is now 68% vs 82% average. Spring wheat harvesting is now 61% done vs 72% average.

Yesterday afternoon the market sold off following the wetter late morning forecast compared with the early morning outlook. This morning this wetter forecast is being given as one of the main reasons for the sharply lower prices. However, I have seen two forecasts this am and neither one seems very wet to me, calling for only light, scattered rain in the midwest in both the near and longer term outlooks. The belt was dry the last 24 hours. Only light, scattered rain is indicated the rest of this week and the 6-10 day calls for mostly warmer than average temps with below normal rain except for the northwest part of the belt, where normal rain is forecast. The updated late am forecast could be important again this today in determining our direction the second half of the session. Generally good harvest weather is expected in the spring wheat belt the next several days.

The Canadian prairies are not expecting any significant freeze threat the next 7 days. Scattered, welcome rain is expected the next few days in northern and eastern parts of Buenos Aires province, the largest Argentine wheat producing province. Rain is most needed in the western part of the province, however. More welcome rain is forecast for China's main grain areas the next several days. Australia will see light rain in western and central parts of the wheat belt with moderate rain in the eastern area the next 5-7 days, which will be welcome.

We could easily have another very volatile session today. Keep an eye on the updated weather forecast late this am. ---Vic Lespinasse

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Bullish Weather Influences on Grains Today

A higher to sharply higher start is expected across the floor this am, around 10-15 in wheat, 15 in corn and 35-40 in beans following similar overnight gains. Crude oil is higher and the $ lower this am, a bullish combination for the grains. Dalian, China grain futures were mixed today while Malaysian palm oil was 115 ringgit lower.

Weather is a bullish influence for the grains this am with mostly dry conditions forecast for the midwest this week along with warmer, drier weather predicted in the 6-10 forecast for the weekend into next week. This will increase stress on the corn and bean crops, potentially reducing their yield, especially beans, which are still in the late stage of their most weather-sensitive period. There was some beneficial rain in the eastern midwest this past weekend but not nearly enough to meet moisture needs.

Elsewhere the weather looks better with favorable monsoon conditions continuing in the oilseed region of India, good growing conditions in China's northeast and central regions and widespread rain forecast mid to late this week in Australian wheat areas, especially in the east. Some much needed rain is even forecast in parts of Argentina's wheat belt the next few days. There is no frost threat in the Canadian prairies the next 7 days, giving their crops more time to develop, which they need. Hot and dry weather is forecast for the eastern Ukraine/southern Russia area, depleting soil moisture ahead of the upcoming winter wheat planting season. Russia's agriculture minister was quoted as saying their harvest will total 95 million tonnes this season vs their previous guess of just 85 million, athough quality will not be as good as last year due to adverse weather conditions earlier in the season.

Nearby meal ended higher Friday despite sharp losses in most other pits. Concern about tightening domestic meal supplies helped support the nearby meal late last week vs the deferred months. Some western parts of the corn belt saw cash meal offers jump as much as $10 a tonne due to tightening supplies. The Sep/Dec meal spread tightened up as a result, going from about a $2 carry (Sep $2 under Dec) mid week to a 10 cent inverse (Sep 10 cents over Dec) by Friday's close. Some areas of the midwest could see more tightness in meal supplies before new crop beans become available for crushing. This could produce more strengthening in the nearby meal vs the deferreds.

Not much other news of note at this time. Look for a strong start, especially if the crude oil and the $ keep pointing the grains higher. ---Vic Lespinasse

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Tentative Opening Call Ahead of Pro Farmer Crop Tour Estimates

The calls are somewhat tentative this am ahead of the Pro Farmer crop tour estimates release at 9am US Central time. For now, we expect a lower start, roughly 10 in wheat, 5 in corn and beans. The $ is higher and crude oil is lower, a bearish combination for our grain market. Dalian, China grain futures were higher except corn, which was lower.

Stats Canada estimated their all wheat crop at 25.43 million tonnes, durum 4.9 million, oats 4.1 million, canola 10.4 million and barley 10.9 million. The oats number was a bit higher than expected while the durum figure was a bit lower. All the other estimates were about as expected.

Argentina's agriculture secretary cut their wheat planting area from the previous guess of 4.8 to 4.5 million hectares for the 2008-09 year. Their initial corn guess is 3.7 million hectares vs 4 million last year. (1 hectare = 2.471 acres) Argentina also ok'ed 1.44 million tonnes of wheat exports from the 07-08 crop. The 4.5 million hectare wheat planting would be the smallest planting for 16 years. The Ukraine said they will have over 20 million tonnes of grain available for export this year vs their previous guess of 17.5 million tonnes. They are guessing their grain harvest at 43 million tonnes vs just 29.3 million last year. Ukrainian wheat harvesting should reach 26 million tonnes vs 14 last year and the current USDA guess of 22 million.

There was a meeting yesterday at the CBOT to address what can be done to improve the convergence problem in the grains, especially wheat. Usually, as a contract comes toward expiration, the cash and futures markets converge, meaning the two prices come together. However, this hasn't been the case recently in the wheat market. For example, the cash wheat market is over $2 a bushel below the Sep futures price in some locations in the midwest. It should be coming closer and closer to the futures price as we move toward the start of the delivery period starting next month. One prominent solution would be forced loadout, whereby anyone taking delivery of the cash wheat via delivery would be forced to load it out of deliverable position. The issue is far from resolved for now, however.

Weather: Less rain than expected fell in China's northeast bean belt yesterday so more moisture will be needed soon to keep bean production prospects high. There is little rain in the Australian wheat belt forecast for the next several days or longer. Only light rain fell in the US midwest the last 24 hours, mainly in the eastern half of the region, including Illinois with up to 3/4". Only light, scattered rain is likely in the belt the next few days with mostly dry weather early next week. There is a fair chance for better rain mid next week, however.

Watch the results of the Pro Farmer tour for a better idea of our opening direction this am.---Vic Lespinasse

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