Grains Analysis

by Tim Hannagan, PFGBEST

1-800-563-9510

thannagan@pfgbest.com

Tim Hannagan is one of the nation’s most prominent grain analysts. His report for Friday, Jan. 20:

Tuesday saw traders buying grains on the drier than expected weekend rains in South America, and dry weather into Thursday. Then traders turned and sold grains Wednesday as the coming weekend forecast called for another system of rain to enter South America. As always, this time of year, when our grains are locked up on the farm and the wheat is dormant, we turn to South America growing season weather for trading psychology. It's all about the next weather report.

WXRISK.COM  sees the driest areas of southern Brazil getting some badly needed moisture this weekend. Far southern Rio Grande do Sul produces 14% of Brazil's beans and 10% of the corn. They already cut corn production estimates by 25%. Argentina looks to see .50 to 2.00 inches of rain with more than 60% coverage. This would be the second timely rain in 10 days.

It could be too late for corn. There's talk it's been the worst drought in 70 years. If so, the 2008 drought cut production of corn to 15 million metric tons. It's currently forecast at 21 million metric tons by the Argentine grain exchange, down from 26 million metric tons last month. Our recent USDA report pegged it at 26 million metric tons although USDA is expected to cut production further in its February monthly crop report.

Wednesday, traders see-sawed buying beans on breaks of 5 to 8 points (twice) bringing prices back up, and the market finally closed unchanged, but no one would buy at the daily highs with a wet forecast  ahead. The Wednesday trading psychology comes as they see the worst of corn's weather damage done – now, it is key yield time for soybeans.

If weekend rains come as expected and more rain enters the region next week, as is currently forecast, March corn futures could pull back to $5.76 (worst case scenario) and March beans could dip to $11.45 to $11.55.  If the rains are much lighter this weekend, and rain is also removed from the forecast for the week ahead, March corn will push back up to the $6.16 area and March beans to $12.20. We're simply trading the next weather report implications. Any breaks to the low end estimates would make a great buying opportunity as demand is returning to more price-competitive U.S. products.

Today’s Weekly Export Sales Report put corn sales at 759 thousand metric tons, well above the 4-week average of 414. China was nibbling again at 132, but drought stricken Mexico was in 438 versus the three prior weeks of 243, 128 and 125. The drought continues and looks to add another downward adjustment to corn ending stocks on the USDA February crop report as they increase our export projections at the expense of U.S. inventory.

Bean exports were 991 metric tons, with China taking 436 versus the two prior weeks of 257 and 136. Last week's price decline from the USDA crop report certainly made for an attractive price to buy beans, down $.95 the 10 days into last Friday (Jan. 13). But China could also be getting ahead on business; next week, they are essentially closed for commerce as they celebrate their lunar new year holiday. If weather this weekend holds to the forecast, expect  a  lower opening Monday, but support will underpin prices and we’ll see it as a buying opportunity since demand will continue at these price levels.

Note that WXRISK.COM sees a potential return to high heat in Argentina the last several days of January into the first week of February.

There is a substantial risk of loss in trading futures and options. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report.