June: Week One — All commodity prices remain sensitive to stock market volatility. Grain, oilseed and fiber pricing reflect economic news.

Commodity prices are in an unusual situation, rising with stock market prices and falling with stock market prices. Normally a rise in commodity prices is inflationary and will initiate a fall in stock market prices. Stock market pricing normally reacts inversely to commodity pricing.

In the current economic environment, commodity prices fall and rise with stock prices over concerns that a weak world economy will demand less grain, beans and cotton. Expect this scenario to continue until Asian, European and U.S. stock markets stabilize and become less newsworthy.

Another factor affecting U.S. commodity exports is the relative dollar value. As dollar value rises relative to other world currencies, U.S. products become more expensive for other countries to import. It the dollar value drops, U.S. commodities become more price competitive in other countries.

Soybeans

Soybeans have made six consecutive resistance price breakthroughs. China’s supply of soybeans, soy oil and soy meal are increasing. China has recently started exporting soy meal to other countries that traditionally buy soy meal from the United States and South America. This is negative for soybean prices.

The current market sentiment is supporting an uptrend in soybean pricing because the current carryover stocks have decreased to historically low levels. The new crop production prospects could set a world record. Market fundamentals of supply and demand are at play in current pricing.

The short-term trend is influenced by tightening supply. The long-term trend is influenced by the potential of ample supply. Near-term soybean contracts are biased to the long or buy side of the market. More buyers than sellers push prices upward.

As we approach next harvest, if production potential is high, prices will drop quickly. Soybean acres are already exceeding USDA estimates and market expectations.

Consistent rainfall has kept soil wet in the Delta and the Corn Belt. Less corn has been planted. Those acres are switching to soybeans. Keep an eye on weather in the Corn Belt. If planting intentions are met, soybean production will be as expected. If soils remain wet, we could have an additional 5 million acres planted to soybeans. Wet soil conditions have already caused intended cotton acres to move into soybean production. Eventually the price will begin to reflect increased production potential and pull back. Poor crop conditions have the potential to support prices.

Soy meal and soy oil prices have lagged behind soybean prices. If meal and oil prices do not increase, soybean prices will move lower. Soybean export inspections of nearly 17 million bushels were bullishly above market expectations. April soybean crush is expected to drop by 6 million bushels, having a bearish market price effect. Soybean planting is only 50% complete where 61% is normal. Weekly export sales of 464,000 tons were well below market expectations near 900,000 tons.

Corn

The controversy over ethanol and biofuel production is important because the winner of that argument will have the most influence over corn and bean prices. California and environmentalists claim increased biofuel use will incite additional clearing of jungle land for production of corn and beans. The acceptance of this assumption makes biofuel look environmentally negative. In reality, it is doubtful that the pace of deforestation in South America can be increased beyond the current rapid pace.

The use of biofuel will help increase jobs in rural communities in the most economically disadvantaged area of the nation — the Mississippi River Delta.

Biofuel use will reduce dependence on foreign oil and help improve the environment because they burn cleaner than gasoline. The oil companies are supporting the environmentalists that do not want to increase biofuel use. Why would they do that?

Corn planting is nearly complete in the western Corn Belt. Planting remains 50% or more behind from Illinois to Ohio. Only half of the nation’s corn crop has emerged. These factors will be price bullish if production potential is jeopardized. Farmers in Ohio are catching up this week. If Illinois and Indiana remain too wet for corn planting past the first of June, then we could have 7 million acres more soybeans.

Recent increases in oil prices support corn ethanol and soy diesel use, causing prices to rise. Corn has been trading in a consolidation pattern. When commodities trade within a range, price volatility is reduced until additional news triggers a breakout up or down. A major reduction in corn acres could trigger prices to break through resistance and increase to a new level.

Weekly corn export sales were over 1 million tons, above market anticipations and bullish for prices.

Wheat

Wheat planting in the Wheat Belt, at 80%, is behind and some acres will switch to oilseed crops. Winter wheat condition is good to excellent in the Delta but terrible in the Southern Plains. U.S. production will be down because of low yields. Normally these factors would cause a big increase in prices, but world wheat supplies are ample and weigh heavily on prices. Fundamentally, world wheat supply exceeds world wheat demand and that is price bearish.

Wheat is more sensitive to relative dollar value than corn or soybeans. Traders expect wheat prices to fall as dollar values rise because world demand will decrease as U.S. wheat prices become less competitive with wheat exported from other countries.

Weekly wheat sales were below 332,000 tons. This met market expectations but is too low to support a price rally.

Rice

Rice market prices are pressured because of increasing world supplies. India and Vietnam have lifted export bans and resumed rice exports. Thailand announced 3.7 million tons of available rice exports. These countries are major rice exporting nations that compete with the U.S. for export sales.

USDA predicts rice prices between $9.50 and $10.50 through harvest. Rice markets are beginning to trade in a consolidation pattern and could drift lower. U.S. rice production is already expected to decrease. Fewer acres are planted than intended and much of the rice is planted late. Excess rain has caused some damage and replant which tend to reduce production potential.

Weekly rice exports declined 26% to 39,000 tons. Mexico and Central America remain the major buyers.

Cotton

China has offered 1.5 million tons of cotton held in their strategic reserve for export. This has put pressure on cotton market pricing. India has also increased planting intentions for cotton by 4 million acres. Cotton markets are technically overbought and vulnerable to price correction. Profit taking from traders selling buy contracts can drive prices lower.

Cotton planting has fallen far enough behind that 10% of intended cotton acres may switch to soybeans.

World economic conditions determine cotton demand. Clothing purchases have been postponed due to recession. Pent up demand will likely increase cotton demand as 2009 Christmas shopping begins. Cotton prices are more closely tied to stock market pricing than grains or oilseeds.

Rain in west Texas is favorable for production and bearish for prices.

Cotton exports were not as low as markets expected. Traders expect cotton demand to increase as the world economy recovers driving prices higher.

Annual domestic cotton use for the past 12 months was 3 million bales, the lowest in 60 years.