Alaron Grains and Oilseeds Comment

CHICAGO - Oct 10/08 - SNS -- Following is the grain and oilseed futures comment from Alaron Trading Corp.

Thursday's weekly export sales report showed 957t.m.t. of corn was sold last week up 69% from the week prior.   Well, that is what a 1 dollar drop in prices will do as well as harvest underway leaving the U.S. as the primary port of plenty.   The 3.50 drop since our summer highs into the beginning of harvest is just what the doctor ordered for importers and feeders of cattle and hogs.   Everyone wants their share of this crop as stocks will be tight again next year and any planting or growing problems in 2009 could take grains to lofty highs again.   It is harvest season so expect good demand.   Before we get to the USDA crop report let's talk cash futures relationship.   The last several years we have seen the futures at a fairly large premium to the cash prices offered for grain at local elevators.   The reason is cash paid at the farm gate level is 90% based on demand or need for usage.   Whether you're buying corn for ethanol or beans to crush to get the soy meal for the feed lot populations- Cash prices are the common sense price of reason.   Futures reflect the fear or potential thoughts of the future needs of the grain and with large index funds and billions of trading dollars they simply far over bought the supply demand fundamentals.   With the grain stocks tight again into next year we expect a continuation of strong cash price demand as harvest continues.   The futures prices may reverse their premium to cash and actually trade sharply under if the current poor U.S. economic outlook continues to have large index funds reducing their risk buy selling more of their large long corn, bean and wheat positions.   Before index funds, the cash futures relationship was very close as the cash trader was the same as the futures trader.   Now, the index funds essentially do not know a bushel of corn from a phone booth and do not care.   They can buy wheat futures from $4. - $25. and take corn futures from 8. to $1. per bushel if they liquidate all their longs.   What we need to watch for is another potential sharp downward move in the futures while cash strengthens setting up a potential huge upward swing in futures regaining their premium roll to cash when index funds re-buy what they sold.   Okay, how about the USDA crop report out ahead of today's open.   They put this year's corn production at 12.200 billion bushels up from the September report by 128 million bushels, hardly enough to mention.   Yield rose to 154 bushels per acre vs. 152.3 last month.   They came to this conclusion by seeing early yield results in the central Midwest Corn Belt offsetting lower eastern belt results.   This could change next month as the best corn is being harvested first and the eastern belt may yet unveil poor results.   They raised ending stock for next year 16m.b. to 1.154b.b. While lowering world ending stocks 2m.m.t.   The ending stock number remains long term bullish into next spring's planting and growing season leaving no room for production error.   The markets pricing action is totally based on outside markets.   When we come in Monday and the stock market is recovering and dollar index down and funds stop selling we may have our low and the massive selling is over only to draw buyers back.   Yet, if Monday sees the continued trend of a higher dollar indexes, lower crude oil and stocks indexing corn will close under 4.00 with potential of 3.25 being next stop for December corn.  

Thursday's weekly export sales report showed 602t.m.t. of beans were sold last week up 28% from the week prior, with key world buyer China in for 168t.m.t.   Like corn, beans too see great demand as harvest supplies are flowing in at prices 7.00 under our summer highs creating a good seasonal value for importers to buy beans to crush for the high protein soy oil and the meal for the feed ration.   The cry is get it while it is cheap as low ending stocks projected again for 2009 sets up a potential significant spring summer rally if planting or growing problems arise.   Friday's crop report put production at 2.983b.b. up 49m.b. from last month but raised ending stocks appreciably buy 85m.b. to 220m.b. next year.   The market shrugged off the yawner of a report and pushed limit down 70 cents on the open as index funds continued to cut risk by selling more of their big, long position.   Like corn, beans too come in Monday and look for an exhaustion bottom to buy if stocks stabilize and economic worries subside, after all that has to happen eventually but if the index fund liquidation is to continue a bottom on the month could be 7.75 basis November futures.

Thursday's weekly export sales report shows 512t.m.t. of wheat was sold last week off 22% from the week prior but equal a good four week average. The softer week came as Egypt bought the majority of their wheat from other foreign ports leaving the U.S. with only a token sale of 62t.m.t.   Wheat sales overall remain good; but foreign competing ports have plenty of wheat leaving us to compete largely with lower prices and demand a non-driving upward force.   The USDA crop report unveiled a surprise when they put ending stocks for next year at 601m.b. up from 574 last month and well over the average pre-report guess of 552m.b.   Traders thought feed usage of wheat had lowered ending stocks, but the government saw differently.   It just adds to the bearish mindset on supplies.   December has resistance at 6.00 and support 5.25.

End.

Tim Hannagan

Alaron Research Team

800.563.9510

thannagan@alaron.com

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