Sunday Night Grain Outlook
By Duane Lowry
Sunday, February 5, 2012

OPENING CALL:
Corn= lower;     Wheat= lower;     Soybeans= lower.

Weather offers generally favorable/acceptable conditions/forecasts for the vast majority of South American acreage during the next two weeks.                                                 

News> Greece remains in a precarious position, as demands to cut wages and benefits threaten to derail debt swap plans, possibly leading the country towards bankruptcy. The European Central Bank, European Union and the IMF appear to be completely unwilling to sign-off on any deal without firm commitment and actual results from Greece politicians that they have moved to lower the minimum wage, end holiday bonuses and reduce the public sector workforce. With the demands of the ECB, EU and IMF, it will be extremely difficult to get Greek political leaders to produce a satisfactory response. Leaders of Greece's political parties must respond to proposals by international lenders by noon Monday. Negotiators and global investors hoped for a solution during the weekend, but talks have been extended into Monday. At this point, there is growing doubt in the international community as to whether Greece has the domestic political ability to legislatively enact measures that will satisfy international lenders. Thus, it seems as if the global marketplace will have to begin pricing in higher odds of a Greek bankruptcy? Greece's two major labor unions plan a 24-hour strike on Tuesday to protest austerity measures and reforms demanded by international lenders in exchange for a new bailout package. The two unions represent approximately half of Greece's workforce. Rhetoric regarding Iran continues to be very elevated, but not necessarily greater than Friday. Israel's President Netanyahu's office said today that he will visit the US in early March and likely meet with President Obama. This may ease concerns about an imminent Israeli strike against Iran. Also in an apparent attempt to ease tensions, Netanyahu told cabinet ministers today, "I ask you not to comment on the Iranian issue, neither publicly nor on background." Also, today Israel appointed a general to be chief of Israel's air force who has previously warned of Israel's inability to deliver a knock-out blow to Iran and therefore a general who is believed to have great respect for risks of broader regional conflicts and therefore believed to be more cautious in its plans towards Iran. Thursday USDA will issue their latest monthly S&D data with updated South American production projections.                                                       

Wheat quickly rejected Wednesday's euphoria associated with European winterkill concerns, with weak performances Thursday and Friday. Whatever the damage has been, prices appear to have quickly discounted it. When looking at the global balance sheet, the abundant supplies seem capable of handling the adversity and still remain poised to argue for cheaper US/global values in the months ahead. Short-term technical conditions also suggest little, if any, additional upside energy should be expected to unfold above last week's highs. Inter-market spreads have well supported wheat since the first of the year, but maybe all that wheat fundamentals will allow is stagnation at historically low valuations of wheat vs corn? Current new-crop July wheat values appear high when considering nearby wheat valuations during the past several months. Overall US/global supply conditions suggest we should be more concerned about potential for significant price weakness to unfold during the next several months than current passive trader sentiment would suggest. It seems to me that wheat producers should be aggressively seeking price protection at current levels, respecting downside risk of $1 or more by harvest.                                                           

Corn has little for new news. Traders expect USDA to lower Argentina's corn production estimate Thursday, but that storyline seems very mature and Informa's estimate last week wasn't quite as low as some expected. Short-term technical conditions offer mixed conclusions, but warn time spent up here should be viewed as selling opportunities, as longer-term conditions warn that downside risk COULD be much more than the market has conditioned itself to believe from current price values. Some believe expectations of lower Argentine production and improved US exports in Thursday's USDA data will be enough to keep values supported into Thursday morning. Maybe that is true, but I don't see either of these items as that significant and they have already been significantly digested by the trade. Longer-term fundamental storylines have a much more bearish baseline and trader embrace of these fundamentals seem poised to increase in the weeks ahead, as traders contemplate total US 2012 crop acreage. Corn's profitability still looks high in relationship to other crops competing for those acres. Even conservative 2012 yield projections in relationship to trend line will lead to a significant jump in US supplies/carryout. There is also a very deep and building concern towards the US ethanol industry's profitability and potential to lead to a slower usage rate. We have experienced some nice recovery rallies in corn since the September debacle, but these rallies have been corrective in nature and it may be that they have exhausted opportunities to develop this correction theme into a sustainable uptrend, at least until/IF a summer US growing season concern develops. Producers need to be much more worried about the potential for a theme/focus on new-crop supplies building and how much damage could be done to prices between now and a successful conclusion to the US 2012 planting season. I am growing increasingly concerned about downside price risk by the first of June. I see no reason for producers to hold any remaining 2011 inventory and I believe producers need to get much more aggressive with 2012 price protection strategies. Current price levels could offer $1 or more of downside price risk by the first of July. As for tonight, I don't see any reason for higher values and even if there is an attempt at strength this week, it seems likely to have a short shelf life.                                           

Soybeans have vulnerable short-term technical conditions, but have managed to push higher than most expected during the past couple of weeks. This led to active short-covering energy during the past several days, but that process should be very mature if not completely finished. While traders expect USDA to lower South American soybean production estimates from last month, many also believe conditions there have stabilized during the past couple of weeks and eventually the recent/current weather conditions/forecasts could lead to some recovery in production estimates. Global soybean supplies remain extremely plentiful and fundamental support for rising price trends seems very questionable. Global stock markets could be uncomfortable with the lack of real progress with the situation in Greece, which could weigh on overall market sentiment early this week. We appear poised to start lower this week. It also appears to me to have the ability to build upon weakness as the week unfolds. Here too, I am becoming extremely concerned about the scope of downside price risk during the next few months. I see no reason for producers to be holding any 2011 inventory and believe fear of lower values is plausible enough that an aggressive stance on new-crop 2012 may also be warranted.                                                            

In summary, short-term price strength i