Cattle Feed Results: December 1st On Feed Totals Lowest Since 2004

Conway, Ark.(AgriMarket Buzz)-- This week's USDA cattle on feed report is viewed as neutral to next week’s live cattle futures market, with the lowest on feed totals since 2004. Numbers were near average of pre-report estimates and should not provide much of an impact to the board.

Early next year, the market is still expected to see slaughter supplies running close to levels seen more than a year ago, which could keep pressure on prices in the near term, but the placement pattern continues to point toward tighter slaughter supplies by late first quarter and early second quarter--helping to support back month futures.

As we have seen in the past few months though, this may all depend on actions in the financial markets, as the cattle market has not divorced itself from the swings in these outside markets.

Jim Daven
Commercial Grain Inc
1-501-505-8000

Rice Market on Pause

CONWAY, Ark.-(AgriMarketBuzz)--The January-March spread regained its inverse this week, as futures paused following the rapid upside correction that began in early December. With the current lack of deliverable receipts, the January contract may continue to go its own way as first notice day approaches at the end of the month.

USDA is scheduled to release its December 1 stocks estimate and its final 2008/09 production estimate on January 12. Many in the rice industry expect a substantial downward revision in USDA’s production estimate, making the report a potential market mover.

The rice trade appears to be waiting for the calendar to turn to see how the delivery situation against the January futures plays out and to see whether the January 12 reports redefine the U.S. supply situation to any great degree.

We also are awaiting new input and have made no new changes to our supply/demand balance sheets or our price expectations this week.

Jim Daven
Commercial Grain Inc
1-501-505-8000

Rabobank: Cotton Prices Expected To Rise in '09-'10

SINGAPORE-(Dow Jones)--Sugar and cotton prices will be under upward pressure in 2009-10, as the global supply and demand balance is moving towards a price-supportive situation, according to a Rabobank report.

Sugar prices will continue the recovery starting this year, after two years of pronounced surplus production, as the global supply and demand balance moves towards a balanced or even deficit market, it said in the report Wednesday.

The bank said the supply-demand situation in 2008 has set the tone for higher prices in 2009 and 2010, referring to sugar's multi-year cyclical price movements.

However, "it remains to be seen whether the financial market turbulence and its impact on global economic growth will have a significant impact on growth in demand for sugar in emerging markets, which are the principal drivers of rising consumption."

Asia, which accounts for 44% of global consumption, has been leading the global demand growth in the past decade - with an annual rate of 3.2% versus 2.3% worldwide.

Rising populations, higher real incomes and the growth of urban populations are cited as the major drivers, which are expected to sustain the steady growth, it added.

The report also said the "relatively small changes in the allocation of cane to sugar or ethanol production can significantly impact the availability of exportable sugar from Brazil," or in turn world sugar prices, but added it is impossible to draw simple conclusions regarding the effect of energy price trends on sugar prices.

On the agricultural commodities outlook for 2009, Rabobank forecast a decline in both output and consumption of cotton for the upcoming year.

The bank projected the global output to fall by around 5% for 2008-09, with most countries expected to see a decline in production as a result of acreage competition, given more attractively priced grains and oilseeds.

Global consumption is forecast to fall for the first time in a decade in 2008-09 due to the global economic downturn and more attractive prices of polyester versus cotton, it said.

"A global decrease in cotton acreage over the next year will likely eat into stocks enough to place some upward pressure on prices," though that may be at least a year away, it said.

"Should production start to show a reasonable decrease in China, or if the U.S. should have a higher-than-expected level of crop abandonment, prices could demonstrate a bullish response."

AUDIO: Weekly Market Commentary w/ Jim Daven (Dec. 15-19)

We're talking with Jim Daven, market analyst with Commercial Grain Inc.

Jim, has the movement to buy acres for '09 already started?

Taking a quick look at rice and cotton. Jim, are there any new developments for those crops producers should be aware of?

Moving lastly to livestock. Jim, why did the feeder cattle markets go up this week even though demand is still down?

Thanks, Jim! We'll look forward to talking with you again next Friday.

U.S. Cash Grain Outlook: Cold Weather, Hot Corn Basis

CENTRAL CITY, Neb.-(Dow Jones)--Soybean and feed-grain premiums appreciated once again on the U.S. cash grain market Wednesday - holding fast to an ongoing cold-weather rally - although wheat basis had weakened. Grain futures continued a week-and-a-half-long rally, which now has farmgate prices for all commodities residing at 20-40-day highs.

National-average spot basis gains of 1/4-3/4 cent per bushel were seen in cash corn, soybeans and grain sorghum Wednesday. Premiums paid for corn at a number of terminals monitored by Dow Jones Newswires rose by a full 2-7 cents.

"Country movement of grain remains non-existent," said Iowa commodity trade advisor Karl Setzer Wednesday.

Domestic wheat markets had diverged from the basis rally seen in other grains, though, with differentials dipping by an average of 1/4-3/4 cent for winter wheat, and a full 2 cents per bushel for hard red spring wheat entering Wednesday's day-trading session.

"[HRS] basis feels very toppy at this point, as wheat is showing up and causing bids to retreat," said Country Hedging. "Look for slow trade into the New Year due to adequate (flour) mill coverage."

U.S. grain futures stepped higher overnight, accruing cash-contract Globex gains of 2 cents for HRS wheat, around 5 cents for corn/oats, 7-9 cents for winter wheat and 14-15 cents for soybeans/rice.

"Tight farmer holding is keeping hedging pressure at bay," said the Hightower Report in an analysis of the corn market. "Farmers may have been encouraged to hold, by the vigor of the bounce [93 1/2 cents in March CBOT corn futures], over the past week and a half."

Average cash prices for U.S. corn stand at a six-week high, with elevator bids also marking four-week tops for wheat and a 2 1/2-week peak in soybeans.

National cash price indexes maintained at the Minneapolis Grain Exchange stood at $8.09 1/4 for soybeans at the close of business Tuesday, indicating an average basis of -49 1/4 cents relative to the days final settlement of January CBOT soybean futures. Domestic cash prices also averaged $3.56 for corn (-38 cents basis March CBOT corn), $4.93 1/4 for hard red winter wheat (-71 3/4 cents basis KCBT March wheat), $3.87 1/2 for the soft red winter wheat (-$1.56 1/2 basis CBOT March wheat) and $6.36 1/2 for hard red spring wheat (+29 1/4 cents basis MGEX March wheat futures).

Rain was falling in the Delta and Southeast, while snowflakes fluttered in the Northeast, Pacific Northwest and a small section of the southern Plains Wednesday. Subzero cold still gripped the northern Plains and upper Midwest.

"Weather systems have been traversing through the nation's midsection with great regularity as of late, and that looks to continue into next week," said Freese-Notis Weather. "The next storm system, set to impact the Midwest tomorrow and Friday, looks to be a real doozy, putting down heavy amounts of rain, ice, and snow ... depending on your exact location."

The service said although precipitation will be confined to a steady rain in the Ohio River Valley, colder temperature gradients could produce a major ice storm along the Interstate 80 corridor; targeting southern Iowa, northern Illinois/Indiana/Ohio and Lower Michigan with ice accumulations at least one-half inch thick. The service warned that up to a foot of new snow may fall just to the north of that area.

"All of this fun-and-games gets started for areas west of the Mississippi River tomorrow afternoon and will already be as far east as Ohio by Friday morning," said Freese-Notis.

Wintry weather can significantly hinder the movement of cash grain from farm-to-market by truck and disrupt shipments from interior terminals to end-users or export terminals by train and barge as well.

AUDIO: Weekly Market Commentary w/ Jim Daven (Dec. 8-12)

We're talking with Jim Daven, market analyst with Commercial Grain Inc.

Jim why did grain markets rise despite a negative USDA report?





Moving to rice and cotton. Jim, should producers expect the cash basis to improve with rice prices on the rise?





Finally, looking at livestock. Jim, by all accounts we're in a depressed cattle market. What actions can producers take?




Thanks, Jim! We'll talk to you again next week.

Outside Market Influence Can Be Good!!!

CONWAY, Ark.-(AgriMarketBuzz)--Positive macro market developments coalesced to push the grain markets to strong gains. The moves came as equities and crude oil catapulted higher and the dollar slid.

The U.S., China and India are all discussing huge infrastructure projects which should bolster world raw material demand. Not only were ag commodity futures sharply higher - so were ag/industrial stocks – a sign that the commodity bear market is mature.

The U.S. dollar index is now appearing technically vulnerable with a “head and shoulders” pattern in the making. The question of whether it is technically and fundamentally overvalued is irrelevant. We have maintained a turn lower in the dollar will function to stanch the selling pressure in the ag complex.

Export inspections released early in the session for the week ending Dec 12th were strong and above the upper end of trade estimates at 40.6 Mil Bu. The U.S. is enjoying a record sales pace

With U.S. export demand stout, a cash led rally should unfold in late December. Look to be buyers later in the year.

Jim Daven
Commercial Grain Inc
1-501-505-8000

U.S. Commodities: Economic Data Cuts Corn Prices

CHICAGO-(Dow Jones)--The bearish U.S. economic outlook battered corn futures Friday, sending the December contract below $3 for the first time since October 2006. Chicago Board of Trade December corn ended down 24 3/4 cents at $2.93 1/2 a bushel.

Weak demand, and little hope that it will rebound soon, is driving corn lower, analysts said. The key piece of the puzzle for Friday's trade was payroll data.

The U.S. Labor Department reported a decline of 533,000 nonfarm payroll jobs in November, the largest decline in a single month since December 1974. Corn's close below $3 adds psychological pressure to the market, traders said. Prices are down from a high near $8 in late June, when many were predicting corn would climb even higher.

"Everyone was drinking the same Kool-Aid, and now they're spitting it out," said Joel Karlin, an analyst with Western Milling. Karlin said the only potentially bullish factor in the market is that it "may be difficult to get an increase in corn acreage" given current prices.

Other than that, there's little positive news, he said. Analysts say corn will continue to draw inspiration from other markets such as the stock market or crude oil futures in the near term.

Activity In Other Key Commodity Markets:

CRUDE OIL: Futures ended near a four-year low as economic data reinforced fears about shrinking oil demand. New York Mercantile Exchange January crude fell $2.86 to settle at $40.81 a barrel. Oil prices came within 25 cents of a four-year low, as the U.S. recession showed signs of deepening.

COPPER: The payroll data took a toll on copper futures as well, sending prices sliding more than 6%. March copper on the Comex division of Nymex fell 9.6 cents to settle at $1.3735 a pound. "This is really recessionary," said George Gero, vice president with RBC Capital Markets Global Futures, with regard to the payrolls data. "It does not look like you're going to be using copper for any infrastructure in the near term."

AUDIO: Weekly Market Commentary w/ Jim Daven (Dec. 1-5)

We're talking with Jim Daven, market analyst with Commercial Grain Inc.

Jim, are livestock markets fundamentally oversold at current levels?





Do you see any new developments in the rice and cotton markets producers should be aware of?





Finally, Jim, how will this week's downside pressure in the grain markets affect trading next week?





Thanks, Jim! We look forward to speaking with you again next week.

Grain Concerns

Outside macro markets have ruled today's market movement with corn, soybeans and wheat falling sharply on the opening as the U.S. and world economic outlook worsened. Selling has been widespread as the bulls are just simply “giving up."


Crude oil futures have fallen to $40.85/barrel with a host of other markets sharply lower on liquidation and new selling. The fear of failing future demand is widespread - and that government stimulus has not done enough to alter prevailing recessionary economic trends. That has been the theme today.

The U.S. Census Dept reported that 533,000 lost their jobs during November, a much larger than expected decline. Worse yet, October and September job losses were revised upwards. The November job losses were the largest since 1974 ad are going to place acute pressure on the new Obama Administration to produce an economic stimulus package of at least 4% of U.S. GDP – say some $600 billion.

Moreover, for farm clients where cash basis levels are $1.20 or more under for corn in the far Western Plains or the upper Midwest, LDP offers may again be available as county posted prices near the loan rate.

Livestock Markets Still Quiet

Cattle and Feed

Mostly a quiet, choppy market as the futures continue to have trouble holding rallies and expectations that the live trade could be lower this week only adds to the weakness. The overall volume was light with the estimated number around 17,000 contracts. With first notice day just around the corner look for the December to gain back some of the ground it has lost versus the February market.

The flat price action remains very weak as the board gave up its early gains and eventually broke through the $85.00 support area for the February.

As bad as this market acts there is still opportunity. Producers need to be purchasing their feed at this market level. I project feed cost will escalate from January to March. For the moment we continue to price in a weak beef demand scenario by holding such large discounts to the live market.
-------------------------------
Jim Daven
Commercial Grain, Inc.
501-505-8000

Agriculturals To Lead Commodity Rebound In 2009

LONDON-(Dow Jones)--Agricultural commodities are expected to outperform metals and oil in 2009, benefitting from a secure demand outlook and tight supplies, after the dust settles from the selloff across commodities triggered by the global financial crisis.

Unlike oil and metals, agriculture is more resilient in an economic downturn; regardless of the gloomy macroeconomic outlook, people still need to eat.

"Demand for agricultural commodities tends to be less elastic, less responsive to economic factors, more responsive to population," said Lawrence Eagles, a commodities analyst at JPMorgan.

But tight credit markets and lower agricultural commodity prices could mean farmers will struggle to finance food production to meet growing demand, pushing prices upwards.

"You have to have funding available, you have to have trade," Eagles said.

Scarce and expensive credit is hindering farmers' ability to borrow, which could delay expansion plans and cause cuts to fertilizer use, resulting in smaller crops.

"Agricultural commodities are best placed to outperform: funding issues, high fertilizer costs and low stocks create yield and planting risks, while weather is an ever-present variable," said JPMorgan in its 2009 Commodities Outlook report.

After a roaring start to the year, most agricultural commodity prices have roughly halved in recent months, acting as a disincentive for farmers to invest in production.

The already tight supply outlook for wheat will be compounded by the 2009 world harvested area being expected to contract by around 1.6% as a result of smaller plantings, while consumption is expected to rise by 3.6%, according to the International Grains Council.

Cocoa, coffee and sugar are all close to having balanced supply and demand, leaving the markets vulnerable to any supply shocks over the coming year, with minimal buffer stocks available.

Analysts are already saying that the world could run out of coffee, were 2009 to be a bad crop year.

"Production destruction should be quite severe," said Shawn Hackett, President of Hackett Financial Advisors.

"With frozen credit, inputs like fertilizer and insecticide will not be bought and applied, (coffee) trees will not be cared for as fewer workers will be hired and acreage expansion and tree rejuvenation programs will be put on hold," he said.

Input costs including fuel and fertilizer, soared during the first half of the year, triggering more sparing application of fertilizer in particular.

While these costs are now falling, they're not falling as fast as commodity prices.

Already Brazil, one of the world's largest exporters of agricultural goods, has seen a dramatic fall in its farmers' use of fertilizer.

Brazilian fertilizer deliveries were down 35.5% in October compared with the same month in 2007, according to the National Association of Fertilizer Distributors.

Reduced fertilizer application will likely shrink yields; as a result, downward revisions to world production of many foodstuffs are expected next year.

Low stocks and fears of future price spikes, as seen earlier this year, are also likely to support the market, as governments act to ensure higher inventory levels.

"We've had a number of food scares which may encourage countries to build stocks," Eagles said.

However, with confidence in capital markets plummeting in the wake of the demise of some of the world's largest banks, the agricultural markets may yet fall further, before staging a recovery.

The strength of the U.S. dollar has been weighing on the prospects for US export demand next year, putting downward pressure on grain prices and other dollar-priced commodities.

While some analysts have said the dollar has peaked in the past week, Macquarie Bank said it expected the dollar to continue to strengthen in the short term, keeping downward pressure on agricultural commodity prices.

Fund activity is also expected to influence the direction of the markets. Forced liquidations and redemptions have caused funds to bail out of commodities in recent months, with a lack of fresh interest in such uncertain times.

According to a report published by asset manager and research company Bernstein, the markets are only half way through the hedge fund deleveraging process.

The DJ AIG commodity index has fallen almost 50% since its peak in July and, if Bernstein's estimate is correct, it could still fall further.

Eagles isn't convinced, saying there's great potential for agricultural commodities to lead the way in a commodity market rebound.

"Prices are not going to be dictated by funds and fund flows next year, it's going to be about the availability of trade finance and demand and supply," said Eagles.