Feed Ingredient Markets Weaken

VANCOUVER - Oct 10/08 - SNS -- International feed pea markets followed the general weakness in livestock feed ingredient markets lower on the week.

North America's internal markets was little changed, with growers still able to obtain better prices from food consumption markets when they try to sell product.

However, the pace of exports is slower than last year in that sector. This raises the prospect that a larger part of the crop may need to be sold as livestock feed to prevent stocks once the pave of grower selling improves.

Looking at the situation for major grains and oilseeds, Alaron Trading Corporation's Tim Hannagan remains optimistic there will be an opening quarter rally in 2009, but sees the potential for this to be driven bey cash more so than futures markets.

"The $3.50 (per bushels drop in corn) 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.

"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 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."

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