Traders ponder Wednesday’s USDA report while international investors turn attention to Italy.

November 7th, 2011

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Category: Grains, Oilseeds

(Farm Futures) – Futures could see a cautious open this morning after mixed trade overnight, as traders try to focus on Wednesday’s USDA crop report. With financial markets remaining on edge due to the European debt crisis, that may be difficult to do, however, and headline risk still a very real concern.

Corn could start the week a little weaker, on the heels of choppy trading overnight. Futures were able to climb off lows, after holding key chart support at the 200-day moving average.

The October consolidation looks like it presages a breakout, one way or the other, on the charts after Wednesday’s USDA report. The average trade guess sees production down around 50 million bushels from the last estimate, in line with Farm Futures projections. However, we see carryout dropping around 50 million more than the trade due to better export potential, despite lackluster sale recently.

For more on the potential impact of the report, see my Weekly Corn Review.

A little fund buying helped boost corn Friday, while the latest Commitment of Traders showed money starting to flow back to the market, at least a little. Open interest in the latest week was up almost 20,000, according to the CFTC. Daily volume Friday gained a little over 5% to 283,676, on an increase in open interest of 11,911 contracts, according to the preliminary report from the CBOT.

Storms moving across the Corn Belt this week could slow the last part of harvest. The five-day coverage map puts the heaviest rains from central Oklahoma into southern Wisconsin, with official 6- to 10 and 8- to 14-day forecasts out yesterday calling for above normal temperatures and precipitation for much of the Midwest. The overnight maps were in pretty good agreement, though European runs put a deeper trough over the Plains next week. The latest American model keeps the storm track active, following this week’s track.

Futures brokers were busy over the weekend transferring accounts from bankrupt MF Global, with exchanges lowering margin requirements to avoid liquidations that could increase nerves already frayed by market volatility.

While the Greek debt mess receded from the headlines after weekend agreement to form a new government that backed austerity measures, investor attention turned to Italy, where the government faces its own test of support on Tuesday. That prospect kept markets cautious, though some buying emerged later in the morning in Europe. U.S. markets won’t have much data to chew on early in the week after Friday’s monthly Employment Situation showed fewer jobs created in October than expected but better results in August and September helped the unemployment rate slip to 9%.

The dollar is a little stronger, reflecting the cautious tone, but crude oil is posting modest gains anyway after last week’s rally.

Soybeans could see a little selling on the open today, after avoiding major follow through selling overnight on the heels of Friday’s lower close.

Concerns about increased acreage in South America appear to be limiting enthusiasm, with traders mixed in their views about Wednesday’s USDA report. While the average guess is for slightly lower yields, the trade agrees with Farm Futures’ assessment that weaker exports could lead to a modest increase in carryout. Dry parts of Brazil also have rain in the forecast next week, which could limit moisture concerns.

For more on the price outlook see my Weekly Soybean Review.

The slow pace of sales is reflected in the cash market in the export pipeline. Deliveries against November soybeans rose to 361, while 437 lots are still registered for delivery as basis weakened along the Illinois River.

Volume in soybeans fell off a cliff on Friday, with only 94,325 contracts changing hands. Open interest was up 4,243 on the day due to fund selling. The latest CFTC report showed speculative hedge funds selling both beans and beanoil, though investors were buying beans with index plays.

Vegetable oil prices in Asia were mixed today. Malaysian palm oil gained 1.25%, but soybeans and soybean oil on the Dalian exchange in China gave back just under 1%.

Wheat tries for a firm open this morning, thanks to emerging weather concerns around the world that, while not disastrous, could limit selling enthusiasm into the USDA report. Traders expect the government to trim 20 million bushels off carryout, with Farm Futures seeing potential for a 50 million bushel reduction.

For more on the outlook, see my Weekly Wheat Review.

Volume in Chicago gained 18% Friday to 99,607, and open interest was up 5,024 due to a little fund buying. Funds were buying back some of their short position late in the week though they were net sellers early in Chicago, according to the CFTC report.

Futures on milling quality wheat were mostly lower in early European trading.

Forecasts keep the dry southwest Plains mostly dry over the next two weeks, though eastern areas should benefit from this week’s storms. A dry fall has forecasters in Ukraine fearing the country could lose a third of its fall-planted crops, mostly winter wheat.  Ukraine could see light snow over the weekend as fields go into dormancy. In Australia the problem may be too much rain, with fears rains last week in Western Australia may hurt quality. Storms are welcome in Argentina, with rains linger into midweek there.

Farm Futures Morning Call by Bryce Knorr

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