8-20-10

After the financial markets were hit with a storm of economic pessimism the previous week, this week felt more like a persistent fog had settled across the trading landscape. Crude oil followed up its down 7% performance last week with a 2.6% loss this week. The S&P 500 Index was down less than 1% after being down 3.7% the previous week. While some indicators and earnings reports are still decent, jobs are the key economic indicator now. There is an unusually high amount of "noise" this summer in the employment data because of the Census workers and the lack of car manufacturing shutdowns, but weekly jobless claims went up to 500,000 for the first time since November on Thursday’s report. The Philly Fed manufacturing index was also below expectations on Thursday. The poor jobs recovery is not unprecedented following recessions, but the light at the end of the tunnel dimmed a little this week. On the crude oil chart, support is seen in the low $70’s, with a rebound likely on any improvement in economic data.

Grains were generally independent of financial markets, with corn gaining on soybeans as production ideas diverge. December corn was up 9 cents for the week, while November beans were down an even 40 cents. The Pro Farmer crop tour estimated the national corn yield at 164.1 bpa, and the bean yield at 44.9, below and above, respectively, the USDA August estimates. Wheat prices corrected lower in active trade as traders continued to take profits and the market digests the fundamental situation. Word that Russia may require imports resulted in a sharp rally on Thursday, but that would likely come from Black Sea region neighbors at this point, limiting the need for higher world prices. For the week, nearby contracts were down 23.5 cents in Chicago, 18 cents in Kansas City, and 14.75 in Minneapolis.

Exports sales were an important source of support for the grain markets during the week. Weekly corn and soybean sales (09/10 and 10/11 marketing years combined) were huge at 2.9 mmt for corn and 2.2 mmt for beans. Wheat export sales were strong at 1.4 mmt. A famous story tells of the world coming to Egypt for grain, now Egypt and others are looking to the U.S. to make up the supply shortfall from Russia and its neighbors. Egypt showed up prominently in daily sales announcements by the USDA for corn, soybeans, and wheat this week. Our current marketing year export estimates for corn, beans, and wheat exceed the previous combined record set in 2007/08. Higher freight values are reflecting the demand for increased movement to export terminals, especially to the West Coast.