Daily Grain / Hogs Marketing Outlook Written by: Jim Gerlach … · 1929 and 2000". If Congress fails to deliver Trump's tax and regulatory agenda or screws up any other way, the

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Early Call 8:45am EST: Corn up $.01, soybeans up $.03, wheat down $.01. The

biggest loss in equities in weeks and a 3-week low in crude oil yesterday, spilled over

into the grain markets yesterday and much of the overnight session. However, a turn

around in Dow futures and the U.S. dollar index this morning also turned grain futures

lightly mixed.

Grains: Grain and soybean futures fell Thursday as disappointing U.S. export sales and

projections for a bumper Brazilian harvest stoked concerns of a loosening U.S. grip on

global demand. Projections released by private analytics firm Informa Economics

showed Brazil's soybean crop rising to 108mmt for the 2016-17 crop year, up

significantly from the year prior, analysts said. Informa raised estimates for the South

American giant's corn crop to 91mmt from 66.5mmt last year. Lackluster U.S. export

sales for the week ended Feb. 23, released by the USDA Thursday morning,

exacerbated the strain. Net corn sales of 713,100mt came in below a survey of analyst

estimates by The Wall Street Journal, which projected a minimum of 750,000mt. Wheat

and soybean sales of 452,000mt and 427,700mt, respectively, hung in the lower range of

estimates. Informa's estimates sparked brief selloffs in corn and soybeans before prices

stabilized, though analysts said grain markets still had a premium to shed after two days

of aggressive buying on the back of rumors about changes to federal biofuels regulation.

Conflicting information about potential alterations to ethanol and biodiesel policy by

President Donald Trump sparked frenzied buying and selling on Tuesday and

Wednesday, before many traders put aside hopes that changes were forthcoming. Now

that this rumor is being clarified a little more, we are taking premium out of the market.

Most actively traded May wheat futures on the Chicago Board of Trade fell 0.9% to

$4.52 3/4, while May corn futures sank 0.7%, to $3.79 1/2. May soybean futures

dropped 1.4%, to $10.37 1/4.

Showers are picking up in the drier parts of center-south Brazil, with dry spots reduced

by next week. Showers will lessen a bit in the wet areas of center-west Brazil, which

will aid soybean harvest, while adequate moisture will keep the recently planted

Daily Grain / Hogs Marketing Outlook Written by: Jim Gerlach

3/3/2017

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safrinha crop in good shape. Northeastern Brazil will trend driest, but recent rains will

help to finish out the soybeans crop there, with stress focused on sugar and coffee.

Frequent rains in the southern ¼ of Brazil will slow harvest this month, but excess

moisture will be localized. In Argentina, rains were more than expected in central

Buenos Aires yesterday but will ease going forward. The northeastern ½ of the belt will

be wettest in the 6-15 day period. Rains will slow early harvest at times in mid-late

March, but any excess amounts look localized. In the U.S., Plains wheat rain will be

lacking the next 2 weeks, but Midwest wheat looks to improve with upcoming rains.

Wetter trends beginning next week though much of March will pose early corn seeding

delays for the Delta/southern Midwest.

The Buenos Aires Cereal Exchange left their 2017 Argentina corn/soybean crops

unchanged at 37mmt/54.8mmt, respectively. Russian farmers increased corn production

16% in a record harvest that confounded forecasters and may boost exports already

running at their fastest ever pace. The nation reaped 15.3mmt in the 2016-17 period

from October, the Federal Statistics Service said Friday. ProZerno and the Institute for

Agricultural Market Studies, or IKAR, had forecast 14.2mmt. Harvesting, typically

completed in December, extended into the start of 2017.

The trade is getting somewhat nervous over U.S. winter weather extremes, including the

California monsoon and extended Midwest warmth. The latest drought monitor shows

drought starting to re-intensify in the southern Corn Belt and the South. Dr. Elwynn

Taylor has us watching Arkansas during March to glean the moisture conditions that we

can expect in the WCB during panting season as he says those two things correlate. If it

is wet in Arkansas during March, we can expect it in the WCB in April. It appears that it

may be a little drier there this year, which may mean the WCB could be dry, which

wouldn’t be a problem given full soil moisture conditions, but it does mean the crop

may be more reliant on summer rain. There is also talk of a potential early development

of El Nino, which hurts production in southeast Asia, Australia and South Africa, but

normally helps the Midwest and South America. This month for the first time, El Niño

is the most favored scenario over neutral or La Niña conditions starting in July or

August, according to the International Research Institute and the U.S. Climate

Prediction Center. The probability for El Niño between August and October stands at

51%, while the chance of neutral is at 38%. But some models are calling for El Niño’s

arrival a bit earlier based on the progression of the sea surface temps in recent weeks. In

a special report by World Weather, Inc. this week, Drew Lerner noted, "A complete

absence of El Nino during the growing season would result in the most stressful summer

crop scenario, while the more El Nino intensity and involvement that El Nino has and

the earlier that it occurs, the less threatening the weather will be toward production."

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However, the trade is predisposed to latch onto any bullish excuse to extend ag longs,

especially as the premium of equities vs. the CRB index widens.

Speaking of that, I hate to beat a dead horse, but it still amazes me the number of clients

I talk to who aren’t in tune to what is really driving the grain markets (and commodity

markets for that matter). I’ve spoken about “relative vs. absolute value” quite often of

late, but this piece from my friends at the Powerline Group (www.powerlinegroup.net)

does a good job of explaining the motivation behind capital movement into

commodities. In analyzing market action so far in 2017, an import point we must

concede is that regardless of how we slice/view the fundamental make-up of the

corn/bean/wheat markets at present (i.e. bearish lean), it rather obvious that the

spec/fund/outside capital element of the mix is looking to play from the long side! This

week’s RFS rumor/story is a good example, as even if a change were instituted via an

executive order from the White House, the subsequent congressional approvals, likely

lawsuits and court challenges, and EPA’s drafting of new regulations, etc. would take

months, if not years, to

implement (or said differently,

would probably not change

things all the much foreseeable

future). Not to be bothered by

such details, capital came

flowing in anyway. To a large

degree, this ‘appetite’ for

commodity exposure by

‘investment capital’ can be

explained from the attached

chart. A relentless charge higher in U.S. equity indexes to new record high after new

record high has largely been met by sideways-to-lower action in the commodity space.

This has resulted in a record spread between the equity and commodity index values, as

illustrated clearly on the chart. Throw in growing concerns/expectations for an uptick in

inflation and interest rates and a desire to diversity out of equities, and to large Wall

Street portfolio managers this effectively makes commodities look ’cheap’ or

’undervalued versus other financial assets.

Such types care little about balance sheets and export demand, they need a place to

park capital and they seek to move capital out of asset classes they feel are overvalued

(stocks, bonds), and into assets they feel are undervalued, or may provide a hedge

against inflation and we’re not talking about chump change, either. Our point here

revolves around the incredible amount of money that could come into play. Analysts

observe that investor inflows pushed multiple trillions of dollars into the bond market

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since 2010, dwarfing the "relatively paltry" $300 billion that is at work across the CME

and ICE. A perceived turn in the bond market, or "more robust inflation hedging" could

push large sums of money onto commodities this year. Noteworthy to this line of

thinking is the fact that all ag commodities up after 2 months of trade in 2017. Soy

markets are trending higher despite a tidal wave of negative fundamental news. Corn

and cattle are now among the other contracts enjoying updrafts thanks to fund

buying/support. Funds appear to be opting to trade from long side ahead of growing

season and mounting lag in commodities vs. equities. At some point, that money needs a

story to follow. Whether or not we get that story (i.e. a weather issue during the growing

season) remains to be seen. In the meantime, the ‘drag’ from the equity space appears

supportive to commodity and ag contact values.

As the battle continues between fundamentals and monetary flow, we’re likely to see

markets chop sideways leading up to U.S. spring planting. Corn could draw support in

the coming weeks given the sub-par start to the 2017 U.S. HRW crop on lower planted

area and the overall dry winter in the southern Plains that will likely persist through

March. Record 2017 South American crops and ample U.S. carryovers are largely

discounted with an uncertain growing season just ahead, but the upside appears limited

given likely overstated U.S. old crop soybean exports on higher South American crops,

an already bloated managed money long and increased U.S. farmer corn sales if/when

spot futures approach the $4.00 level. While the perceived undervaluation of ag markets

relative to equities will be supportive, funds could exit quicker than they entered once

corn and soybeans are planted and reach their yield determination phases in mid-late

summer. Economist Robert Shiller, best known for his widely-used indices, says that the

Case-Shiller Price/Earnings index that measures the S&P 500 value relative to earnings

was trading at 25, "the highest level in 130 years excluding the two anomalies of the

1929 and 2000". If Congress fails to deliver Trump's tax and regulatory agenda or

screws up any other way, the market is poised for a historical crash that would likely

drag commodities/grains down with it.

On the demand front, Asian crude palm oil future prices ended largely flat Friday as

weakness in the Malaysian ringgit offset the broader bearish sentiment in the market.

Key for Asian palm oil prices is the release of the Malaysia Palm Oil Board data on

Friday next week, as the market looks for evidence that production is picking up and

stocks have started to build. Chinese soybean futures fell to a 3-month low on poor

crush margins and fund selling amid expectation of sales from state soy reserves,

according an a report by China National Grain and Oils Information Center. More

Chinese soybean crushers are likely to shut down during March-April for overhaul,

which may reduce soymeal supplies and support domestic physical prices, according to

CNGOIC. The pace of crushing may fall to 1.5mmt/week from 1.8mmt/week at present.

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Brazil February soy exports were 3.5mmt vs. 2.04mmt last year, with corn at 487,000mt

vs. 5.37mmt last year. The Black Sea region’s burgeoning grains industry will boost

exports even more in the coming years and require a “strong” expansion of ports,

according to Rabobank International. Grain and oilseed shipments from the Black Sea

and Danube River region will reach at least 141mmt in 2030, 26% more than the

average of the last three years, Rabobank estimates. Investment will be needed to

expand infrastructure to deal with an additional 15-40mmt of supply in the period,

mostly in Romania and Ukraine, it said.

Truck traffic to Brazil’s northern arc of ports remains stuck in the mud, with vessels

starting to report delays in loadings. Brazilian soybean offers continue to be $2-$3/mt

above the U.S. Gulf, which will limit the downside at the CBOT. At least 11 ships are

facing delays in loading soybeans at

Brazilian northern ports after rains

washed out roads and disrupted the flow

of trucks carrying the beans from the

center-west region, Brazilian officials

said on Thursday. Brazil's Agriculture

Minister said some commodities traders

might have problems fulfilling soy export

contracts due to the transportation

problems. Much has been made about the

muddy road leading north out of Mato

Grosso, Brazil to the one port up north,

but the fact remains that most crops are exported out further south, with the massive

Paranagua port the largest. The shortfall in March Brazilian soybean exports tied to road

conditions up north is unlikely to exceed 400,000-500,000mt according to reliable cash

sources, an amount readily offset by record loadings from southern ports, which are

enjoying record fast load times (see chart courtesy of www.agtradertalk.com. Brazil

FOB soy basis reportedly softened Wednesday and Thursday, indicating no major issues

with loadings.

U.S. farmers, who have built a tremendous amount of on-farm storage over the last

decade, are seeing Brazilian farmers follow suit as the world’s grain-trading

powerhouses are starting to lose some of their leverage over Brazilian growers who are

picking up the hoarding habit. Grain silos and storage bins are popping up all across

Brazil. The expanded storage is giving producers more flexibility on when to sell, which

means it’s getting harder for global crop merchants and processors like Archer-Daniels-

Midland Co. and Bunge Ltd. to extract supplies from the hands of growers. Big buyers

tend to have more market power in Brazil because they buy in bulk to feed vast

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networks of trucks, barges, elevators and processing plants. Greater farm storage may

tilt that balance, threatening earnings growth for grain handlers that are now trying to

revive slumping profits. While U.S. growers have been adding storage for decades,

Brazil had far less capacity until recently, which meant many farmers had to sell shortly

after the harvest. Farmers are finding ways to better manage sales even on medium-

sized farms, not just 200,000-acre operations, as South American producers may be just

five years behind U.S. practices. The squeeze from increased storage is already

impacting the traders in Brazil, where farmers recently delayed sales. Not only are

farmers gaining some negotiating power, but their reliance on capital borrowed from

grain companies also has fallen. Over the past decade, the share of trading companies’

funding for crops in Mato Grosso has been cut in half to 24%. At the same time,

banking credit and farmers’ own capital accounted for 62% of last year’s crop funding,

up from about 39% in 2008. Still, gains in farmers’ negotiating power are limited

because their storage capacity isn’t keeping up with production growth, said Renato

Rasmussen, an analyst in Brazil for Rabobank International. While exact figures are

hard to find, most of the storage space in Brazil is still owned by the large traders, he

said. Total storage capacity in Brazil, including space used by grain handlers and

farmers, rose to 152mmt in 2015, while the country is forecast to produce 219mmt of

grain this year, according to government data.

Hogs: Cash hogs are called steady. While market hog numbers have been declining, the

same can be said of processing margins, which has turned packers more defensive.

Though pork processing margins may still be slightly profitable, the spread between

carcass value and the cash index is now a shadow of it former self and still shrinking.

Saturday's hog slaughter is now estimated to total right at 130,000 head. The national

bid yesterday gained $.26 to close at $67.65, while the IA/MN bid gained $.57 to close

at $68.67. The CME Lean Hog Index for 2/28 was at $74.77, down $1.12 vs. 2/27. With

futures at a sharp discount to cash, any strength in cash will quickly translate into

futures strength. Cut out values lost $1.46 to close at $80.16 on slow movement of 218

loads. Bellies were off $9.41. Estimated packer margins were $18.66/head for non-

integrators and $38.49/head for integrators vs. $20.90 and $40.92 the previous day.

Weekly kill is up 3.51% vs. last year. According to the University of Missouri, sow

slaughter for the week ended Feb 18th, was up 2.6% vs. last year, with gilt slaughter

down 8.2%. For the 4-week period, sow slaughter was up 3.4% while gilt slaughter was

down 3.2%. Going forward, there appear to be more bullish certainties regarding the

second half of 2017 (i.e., significantly expanded pork processing chain speed) than

bearish certainties (i.e., expanded market hog numbers).

Lean hog futures for April delivery edged down by 0.2% to close at 68.275 cents a

pound, as cash prices were mixed in the morning but well off the peak hit last week.

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We've put on a peak, but we're not breaking hard as it seems the market has accepted

our record pork supply reasonably well. Solid exports are a major reason why prices

have rallied and why they’ll likely consolidate the gains. Yesterday’s weekly USDA

pork export data showed that for the week ending February 23rd, exports of pork muscle

cuts were 23,907mt, 30% higher than the previous year. On a monthly, carcass weight

equivalent basis, pork exports in January were around 476 million pounds, 93 million

pounds or 24.5% higher than a year ago. February exports are currently projected at 465

million pounds or 20% higher than last year. Demand from Mexico remains excellent,

with January and February exports projected at 27% and 22% higher than last year,

respectively. Exports to China so far have been under year ago levels, but demand from

other Asian destinations, including Japan, is firm. With exports about 20-25% of total

demand, if exports can continue to run 20-25% higher than last year, that equates to

about a 4-5% increase in total demand, or about all of the projected increase in U.S.

supply.

Live cattle futures came under pressure on Thursday as improved margins for beef

packers raised concerns over a slowdown in buying interest from meatpackers. CME

live cattle futures for April fell 1.2% to settle at $1.1615 a pound, despite steady to

higher prices reported in cash transactions. Packer margins have been gradually

climbing in recent days, and came in at $9.6 per head on Thursday, compared with a

minus $3.05 a day earlier, according to the Hedgers Edge. It represented the first

positive reading since mid-January, thanks to higher wholesale-beef prices. Choice beef

cutouts prices are at the highest level since July. Meatpackers will also try to raise

wholesale prices for their products, which will eventually have some negative impact on

demand--another factor that is likely to be bearish for cattle futures.

Weather: Today's U.S. and European models are in fair to good agreement early in the

outlook period, fair agreement later in the period. Today's U.S. model is favored as it

concerns the end of the period. The main difference between the models during the 8-10

day period is that the European model features a significant surface low forming over

the southeast Plains and moving through the south and east Midwest region. This

suggests moderate to locally heavy precipitation for the areas mentioned. The U.S.

model has a much weaker surface low further north and east and is preferred. The

European model ensemble run does not support the operational run in this regard. The

mean maps at 8-10 days do not show these differences much mainly because this is a

mean of a 3 day period and its more a surface feature than an upper level feature. The

U.S. model shows a fairly strong upper level vortex centered over northern Hudson Bay,

Canada and held in place by a strong ridge between Siberia and Alaska and a moderate

ridge from the north Atlantic to Greenland. Cold weather associated with this trough

would be mostly in Canada as the below normal heights are mostly in Canada. A fast

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west to east flow underneath this trough implies mostly below normal precipitation

through the middle of the U.S. The slightly above normal heights shown over the

southern U.S. supports above normal temperatures that might be enhanced by the strong

nature of the jet stream located north of this area. The European model also features a

trough over Hudson Bay and strong ridging between Siberia and Alaska. The north

Atlantic ridge shown on the European model is weaker than the one on the U.S. model

and also noses west across Greenland to northern Canada. The above normal heights in

the U.S. region are now mostly over California and the eastern Pacific on the European

model, near normal otherwise in the southern U.S. region.

A cold front moved into the southern Argentine growing regions yesterday and brought

rains of .25-.75” to Buenos Aries and southern sections of Cordoba/Santa Fe. Things

remained dry elsewhere. High temps were in the 80’s and 90’s in most cases. The front

will continue to work north and bring moderate rains to remaining areas in the next 12

hours. Things then look to quiet back down for the weekend and most of next week,

with moderate to heavy rains seen by the end of the week. Temps will run above

average in most areas for another day or two and then readings for the weekend and

next week look to be in the 80’s. Rains of .10-.50” fell with coverage of around 85% in

most of the Brazilian growing areas from Parana north, with things fairly quiet in RGDS

and Santa Catarina. Highs were in the 80’s and 90’s. Off and on showers and

thunderstorms will bring moderate to heavy totals to most of the Brazilian growing

regions in the next 4-5 days. The 6-10 day sees close to average rains to fall in most

areas, with widespread coverage.

Things were dry in the Plains yesterday. Other than a few snow showers in IA, IL, MI,

IN and OH, things were quiet in the Midwest as well. Temps were average to a bit

below in the Plains and Midwest, with highs in the 50’s and 60’s in the southern Plains

and lows in the teens and 20’s. Fairly limited precip is seen for the Plains in the next

week to ten days. There is a chance than an area of low pressure by late next week could

bring some light precip (rains/snows) to much of KS, but that is a long way off to have

much faith in. The Midwest will see fairly quiet weather occur through the weekend. An

area of low pressure will then bring moderate rains to most of the Midwest by Tue-Wed

of next week and the potential exists for some moderate rains/snows in the Midwest by

late next week. Temps will be running above average in most of the Plains, with average

to a bit below average readings in most of the Midwest the next few days and then

temps in the Midwest will warm to above average by later in the weekend and early

next week.

Global Weather Highlights: Favorable conditions continue for developing and filling

corn and soybeans in the major growing areas of central Argentina, with some

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improvement in rainfall in the double crop soybean areas in the south. Wet weather in

Mato Grosso, Brazil has raised concerns about quality of the soybeans being harvested.

This pattern of above normal rainfall looks to continue during this period. Wet weather

favors development of second crop corn in central Brazil areas, with generally favorable

conditions for filling soybeans in southern Brazil. Recently concerns have increased in

France over mid-winter dryness, especially as crops have broken dormancy about a

month ahead of normal. However, this week it has begun to rain and this should help

ease concerns somewhat. Also, periods of cooler weather should slow development of

crops. Crops in South Africa will benefit from a warmer period with only scattered

shower activity after recent heavy rains hit the region last week. Recent warm weather

in the FSU has melted much of the protective snow cover and even lead to some

greening of crops in extreme south areas. The crop would be more vulnerable in the

event of a turn to colder conditions. The weather patterns over the next 10 days appear

to feature more warm or very warm weather, with no significant cold threats on the

maps during this period of time. This may push the development of the crop even

further ahead of normal. A significant rain event spread needed moisture to the winter

wheat areas of Pakistan and India late in January. This should supplement irrigation for

the crop likely jointing to possibly early reproductive at the time and will be considered

favorable. Mid-summer hot, dry weather increased stress to sorghum and cotton crops in

Australia after a favorable start to the growing season during the spring months. Recent

rainfall and cooler conditions have helped to ease stress to crops and will favor late

development, especially for cotton.

North American Weather Highlights: The WCB/northern Plains will see no significant

weather impact the transport of hogs or increase stress to livestock during the next 5-7

days. There should be mostly favorable soil moisture for the crop in the southern Plains

when it breaks dormancy in the spring due to heavy rains in early January and additional

rain during the winter favoring southern areas. Soil moisture has been recharged this

winter in the ECB/Delta after drought conditions in southern areas last fall.

Macros: The macro markets were mixed as of 8:45am EST, with Dow futures

unchanged, the U.S. dollar index is unchanged, crude oil is up 0.4% and gold is down

0.2%. The S&P 500 on Thursday closed 0.59% lower, the DJIA lost 0.53%, while the

Nasdaq lost 0.51%. Bearish factors included long liquidation in stocks after hawkish

comments from Fed Governor Powell increased the chances of a Fed interest rate

increase at this month's FOMC meeting when he said the case for a rate increase at this

month's FOMC meeting has "come together," and weakness in energy producing stocks

after crude oil prices fell 2.27% to a 3-week low. On the positive side, U.S. weekly

jobless claims unexpectedly fell 19,000 to 223,000, better than expectations of +1,000

to 245,000 and the fewest in 44 years. The markets will be carefully watching Fed Chair

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Yellen's comments today to see whether she takes the opportunity to either dial-up or

dial-down market expectations for a rate hike in less than two weeks at the March 14-15

FOMC meeting. Ms. Yellen is scheduled to speak today starting at 1pm EST on the

topic of the U.S. economic outlook at the Executives Club of Chicago. After today, Fed

officials will be in a black-out period where they will not make any comments about

monetary policy ahead of the March 14-15 meeting. That means that after today, the

markets will not be getting any new rate-hike guidance from Fed officials. The main

event that could still shift Fed expectations is next Friday's Feb unemployment report. If

payroll growth is around 180,000 and wage growth is above the Jan level of 2.5%, the

coast would be clear for a Fed rate hike. With the markets now almost fully discounting

a rate hike at the March meeting, the Fed in our view might as well take advantage of

the market's effective blessing and go ahead with the rate hike. The Fed is clearly

chomping at the bit to get on with the interest rate normalization process while

economic times are relatively good. The Fed may have lost its QE tool with President

Trump now in office and so the Fed is back to battling any new crisis mainly with

interest rate cuts. Interest rate cuts don't work if the funds rate is barely above zero to

start with. The market is expecting today's Feb ISM non-manufacturing index to be

unchanged at 56.5 following Jan's small 0.1 point decline to 56.5. Regarding potential

leading indicators for today's report, Markit's U.S. services PMI in early Feb fell by 1.7

points to 53.9, which was negative for today's ISM report. The Markit services PMI is

expected to be revised slightly higher today by 0.1 point to 54.0 from the early-Feb

level. Also on the negative side, the Feb ISM index for the manufacturing sector fell

mildly by 0.3 points earlier this week to 55.7 from Jan's 2-1/4 year high of 56.0.

Overnight, Dow Jones News reported that global stocks edged lower Friday ahead of

key speeches from Federal Reserve officials that could crystallize expectations for a

March rate rise. Futures pointed to a 0.2% opening loss for the S&P 500, after major

U.S. indexes pulled back from record highs in their biggest daily decline since January.

The Stoxx Europe 600 edged down 0.2% late morning--echoing a decline in Asian

markets--but remained on track to end the week over 1% higher. Investors said they

were focused on speeches from Fed officials later Friday including Chairwoman Janet

Yellen, Vice Chairman Stanley Fischer, Richmond Fed President Jeffrey Lacker and

Chicago Fed President Charles Evans, which mark their final appearances before the

U.S. central bank meets in mid-March. Fed-fund futures tracked by CME Group suggest

investors currently price a 77.5% chance of an interest rate rise this month, more than

double from the start of the week. As expectations have grown for higher borrowing

costs, the dollar has risen for five straight trading days while short-dated U.S. Treasury

yields have climbed back to 2009 levels. Stocks have been relatively resilient, however,

as investors continue to expect rates to move only slowly as the economic outlook

brightens.

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On Friday, commodity-linked companies were among the worst performers in Europe

and Asia, tracking earlier declines in the price of oil and metals. Iron-ore futures were

down sharply in China amid growing skepticism about whether a rally in prices can

sustain as housing sales taper, while gold prices fell 0.4% to $1,227.90 an ounce as

expectations grew for U.S. rate increases. Brent crude oil was up 0.4% for the day at

$55.29 a barrel after slumping to a three-week low in the previous session. Prices have

come under pressure recently amid an increase in U.S. stockpiles and production.

Declines in energy and electronics companies sent Japanese shares down 0.5% earlier

Friday, but the Nikkei Stock Average still closed the week up nearly 1%. The yen was

little changed after data showed Japan's consumer prices rose for the first time in more

than a year. Hong Kong's Hang Seng Index fell 0.7% and Australian shares shed 0.8%,

in their second straight weeks of declines. In government bonds, 10-year U.S. Treasury

yields edged up to 2.506% from 2.489% Thursday, following two days of gains. The

WSJ Dollar index was flat, with the dollar off 0.3% against the euro, but up 0.1%

against the yen.

Summary: For the week to date, corn is up $.07, wheat is down $.01 and soybeans are

up $.15. The markets all closed on their highs Wednesday and yesterday’s overnight

session maintained those levels, but after the morning break there was no follow

through and we saw all the grain markets give up. Yesterday’s weekly export sales were

disappointing and surely contributed to the weakness across the grain complex. Soybean

sales were the 4th lowest of the year, while corn sales were under expectations and also

the 4th lowest of the year. Corn sales have gone down for 5 straight weeks. Another

bearish input hit the market as Informa increased their estimates for Brazilian

production. They increase soy

production from 106.5mmt to

108mmt. The USDA feels way behind

now at only 104mmt. They also

increased corn production from

89mmt to 91mmt, with the USDA

again lagging down at 86.5mmt. They

kept their Argentina estimates

unchanged from last month. The

USDA will update their figures next

Thursday. Old crop soybean sales are doing fine, but being so front loaded they are way

above any and all flat line pace lines. New crop is really a difference story as new crop

soybean sales were pegged between 0-200,000mt this week, with the actual number a

big zero. The pace of new crop sales should be very concerning to the market. At just

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under 1.5mmt, sales are over 2mmt behind the 5-year average and only 100,000mt

ahead of last year’s weak pace.

May soybeans sank on Thursday. Trading activity over the last two sessions has held

within the wide-range bar session that formed on Feb. 28. Short-term action is choppy

between resistance at $10.56 1/4 and support at $10.23 1/4. The bulls and bears are

battling for short-term trend control. The minor trend pattern off the Jan. 18 high

remains negative, with a minor series of lower daily lows and lower daily highs seen. A

sustained rally above initial resistance at $10.56 1/4 would be needed to improve the

near-term trend bias, with a stronger ceiling at $10.74 1/2. On the downside, major

swing low support is seen at $10.17, hit on Feb. 27. May corn slipped lower Thursday

as backing and filling emerged after the recent spike higher. Corn bulls control the

short-term trend bias as the market trades above its 10-day and 20-day moving average.

On a multi-week basis, corn is trading within a well-defined range between major

resistance and the recent high at $3.87 1/4, hit on Feb. 16 and the latest swing low from

Feb. 27 at $3.67 1/4. It would take a rally through the range-top to signal a new rally

wave in corn. Conversely, on the downside, if swing low support were to crack it would

weaken the near-term trend and open the door for a fresh selling wave. In the very short-

term corn is vulnerable to choppy action within that roughly $.20 range. Bigger picture,

a base is seen on the daily chart and the intermediate-term trend bias is positive, but a

strong rally and close above the recent high at $3.87 1/4 is needed to signal a

resumption of the intermediate-term uptrend. A longer-term bullish target lies at $3.91

3/4, the spike high from mid-July.

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