PFGBEST Grains and Oilseeds Comment

CHICAGO - Mar 16/10 - SNS -- Following is the grain and oilseed futures comment from PFGBEST Trading Corp.

Mid-Month

MID-MONTH

                              Wednesday's USDA monthly crop report was viewed by most as a 'yawner' and would be forgotten 10 minutes after the open.   Reason, the changes from the month prior were so small you wonder why the government bothers.   That is when trader analysts like me come in and put the report under a microscope and look for the hidden message.  

With wheat, there was no message other than ending-stocks got fatter.   They raised wheat's ending-stocks come the start of wheat's new marketing year June 1, to 1.001 billion bushels versus 981 m.b. last month and 657 m.b. a year ago.   The ending-stocks remain a bearish fundamental for at least a year or more but market strength will still come from time to time as trend-following funds build record short positions held, then buy them back.

Soybean production for 2009 was lowered 2 m.b. to 3.359 b.b.   Why did they bother, that much falls off the truck on the way from the fields.   Our 2008 production was 2.967.   They raised export projections   and cut ending-stocks 20m.b. come the start of bean's new marketing year, Septemeber 1, to 190 m.b. versus 210 last month and down for the third consecutive month and the fourth consecutive year of under estimating world demand for beans and high protein crops.   This is the hidden key.   Even with all the talk of record South American production and potentially more bean acres seeded this year, demand continues to out-pace production.   The 190 m.b. number is still far too high considering Asian and European protein needs.

Corn production was pegged at 13.131 b.b.; down 20 m.b. from the last report; and they raised ending-stocks 80 m.b. to 1.799 b.b. by cutting export projections.   Don't be fooled by that perception.   The government for the first quarter was too high on demand prospects even though demand is over the year prior.   Here's the hidden key in the report.   They left China's production on corn unchanged at 155 M.T. for the second consecutive month, while drought in China's key corn area has private local groups with corn production no higher than 140 M.T. and dropping.   This sets up China to go from being an exporter of corn to surrounding Asian neighbors and becoming an importer.   China has set for 2010 a sharp increase in hog and chicken populations in need of more corn.   They intend to top off their strategic corn reserve as billions were spent to build grain storage to insure corn needs are met and they have an increase on ethanol production on the year.   This all sets up exports to China and their neighbors filling needs by turning to the U.S.   The last three quarters of the year will reflect this.   Asian markets have increased the U.S. corn imports for the fourth consecutive week as of our last weekly export sales report, suggesting the switch over has begun.   Remember, the government does not project trends.   They begin the marketing year with a thought process on production and ending-stocks due to useage, based on 5 and 10-year trends.   Then each month they make adjustments based on current news reality.   This is where I come in.  I project the trend before the government reports reflect the reality.  

The next big report comes with the March 31, planted-acreage report.   This may be considered the biggest in many years.   Trade guesses as to acres being planted of each crop should have wide ranges creating great fear ahead of the report's release.   This at some point will have shorts buying back positions and speculators entering long as prices are down.   Question is:   At what point does a near-term low set in and strength follow?  

Technicals read like this:

May corn finds support at 3.60; a close under and we push to 3.50; and then 3.34 worst-case scenario on a break.   Resistance is 3.74.   A close over and 3.88 is next stop.   Follow these chart selections closely when putting on new positions.  

May beans entered this week with major chart support at 9.30; a close under and 9.10; then 8.90 worst-case scenario before the March 31 report.   Resistance is 9.65; a close over takes us to 9.75; then 10.00

May wheat needs a close over 4.94 to turn chart-friendly. Support lies at 4.72.

Tim Hannagan

PFGBEST Research Team

800.563.9510

thannagan@PFGBEST.com

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