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05 Sep 2008 15:53 EDT DJ US Cash Grain Review: Fundamentals Should Support Cash Prices
By Rebecca Townsend
Of DOW JONES NEWSWIRES
CHICAGO (Dow Jones)--Preparations for a new hurricane - Ike - forecast to hit the Gulf next Wednesday are causing additional headaches for export shipping at a time when merchants are already grappling with Gustav-related shipping delays.
Prior to an announcement midday Friday that barge traffic shouldn't move south toward the Port of New Orleans, basis levels for export-bound grain and soybeans were steady, but cash prices were down.
"Since we're not quite into harvest, we don't see much change to basis," said JC Hoyt, director of risk management services at Cash Grain Bids, noting that the delayed maturity of 2008 crops was holding off the type of harvest pressure that typically would be evident at this point in the growing cycle.
"You'll see a little change (in basis) - and cash prices will follow suit," Hoyt said. But, he noted, the market's much more focused on the potential for frost damage, adding "don't be surprised if the hurricane passes and the market tries to move on fears of frost."
Corn, wheat and soybeans all finished at bearish week with double-digit losses on U.S. futures exchanges. In line with the week-long trend, soybeans led the declines, falling 54 cents per bushel to $11.80 for the nearby contract at the Chicago Board of Trade.
CBOT slid 17 3/4 cents per bushel to close at $5.31 1/2, while U.S. wheat losses ranged from 25 1/2 to 31 cents.
Despite the volatility fueled by dipping crude oil, a strengthening U.S. dollar and hedge funds bailing out of their commodities positions, fundamental supply-demand ratios provide significant support for U.S. grains and soy.
The most recent 110,000-ton South Korean purchase provides "an early warning that dropping prices are encouraging world demand," said Joe Victor, vice president of marketing at Allendale.
"We would not believe cash markets would go much lower," Victor said, adding the caveat that corn futures are highly correlated to crude oil with not a great degree of separation in soyoil, Malaysian palm oil and soybeans.
With Allendale estimating a crop of only 2.8 billion bushels of soybeans, current price levels inspire a bit of nervousness.
"We know that even though the U.S. dollar is increasing, we still have to service the international market and meet domestic feed and food and fuel needs," Victor said.
"We'll start to see larger volumes being bought as prior to harvest we hits ideas that 'OK, we've reached our lows. By the end of September and October we should see larger purchases coming in."
In the near-term, though, Victor and Hoyt agree that most purchases will be piecemeal as long as a technical downtrend and price uncertainty is evident.
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