By Julian Murdoch
Corn drives the ag bus. It's the largest crop in the U.S., worth approximately $47.4 billion in 2008. At this point in the season, farmers across the nation are desperately trying to plant some 85 million acres of corn.

At least, that's what they'd like to be doing. Mostly though, farmers are scanning the skies and weather reports for signs that they might be able to close up their umbrellas.

Corn or Soy, you can benefit from its trade

Plantings have been delayed because of wet weather in the South and East, with states such as Illinois reporting only 4% of its Corn crop planted as of April 26. In the previous five years, Illinois had an average of 43% of its corn planting done by that date.

Of course, Illinois is only one state, and corn plantings in the top 18 corn states weren't that far behind the five-year average of 28%, at 22%. But analysts aren't expecting to see much improvement in today's Crop Progress Report, because the Southern and Eastern areas of the country are still behind and the Western region didn't get much done this week.

The market has been reacting accordingly, with corn making steady gains at the end of the week. Now those gains aren't just because of the wet fields. They also come from the fact that there is less producer selling (in other words, actual supply) right now. As Alan Brugler of Brugler Marketing and Management LLC stated on AgWeb.com:

"Producer selling dried up because a) they were busy planting and b) in areas where they couldn't plant they were hanging onto old crop supplies just in case they never get the new crop planted."

Whatever the direct reason, both May and July corn rose 10% on the week, with July closing at 413.750.

From Wet To Dry

On Friday, Wheat took a >6% one-day jump on a little weather-related news, not domestically, but in Russia and Ukraine.

The 6% jump is the largest since Nov. 24 - and it does much to push prices a little closer to those seen this past winter - but whether it has the teeth to stay there depends on traders and the weather picture. On the weather side, Russia and Ukraine are expecting to start their harvest next month, and right now their fields are a little dry - and that's not good news at this point in winter wheat's life cycle.

But analysts are not expecting the rally to continue - no matter what happens in Russia and Ukraine though, they are keeping their eyes on the region. (Hey, a prolonged drought or massive flooding could always change the picture.)

Here's the thing - there is plenty of Wheat globally - last season saw 162 million tons of wheat carryover (versus 116 the prior year), and 2009-2010 carryover stocks are expected to reach 171 million tons - even with production dropping - according to the recently released International Grains Council Grain Market Report. That's grain storage that would make Hamurabi proud, and should keep a lid on prices.

Fun With Uncertainty

Soy had the biggest pop last week - 10.8% - but at the same time, the level of uncertainty heading into tomorrow, and next week, and next month, is intense.

The uncertainty is largely because of what is happening with U.S. corn. On a farm-by-farm basis, there is still a chance for farmers to throw in the towel on Corn and switch to soybeans. They cost less to grow (less fertilizer, lower machine costs because of fewer applications of fertilizer and such) and can be planted later in the season. Here's what the CME Group's Commodity News For Tomorrow said in Friday's newsletter:

"With each passing day that goes without corn planting, the likelihood that farmers will switch acres to soybeans increases. This is particularly true in southern corn-growing areas. Marty Foreman, analyst with Doane Advisory Services, said farmers in southern Missouri are talking about switching to soybeans in order to avoid the extreme summer heat during pollination."

That, of course, would be a negative for prices.

On the flip side, however, you have Argentina. The country is currently harvesting its drought-ravaged crop, expected to be only 34 million metric tons or 12.2 million less than last year. Considering that Argentina is the third-largest soybean grower in the world (behind the U.S. and Brazil), the news is considered quite bullish for soy prices.

The swing trade, then, rests on the corn crop. If the wet weather continues, expect to see corn prices surge and soybean prices fall.

The Bucket: JJA

In the end, though, the general trend for ags is up. iPath's DJ AIG Agriculture ETN (JJA) offers broad exposure to the ag patch, including major weights in soybeans (27.15%), corn (18.58%) and wheat (14.06%). While it doesn't offer you any upside on a corn/soybean swing-trade, the note - which also holds sugar, coffee, Soybean Oil and Cotton - went on a 9.5% run last week, and now stands up 5% so far this year.

While that's not a thrilling return, in light of the overall market, it's pretty good. The broad-based S&P GSCI commodity index is down nearly 8% over the same time frame. Praying for rain, anyone?

Courtesy: www.hardassetsinvestor.com

Post your comment  (0)

Connect:

Post to Twitter

Post to Facebook