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Weekly Overview
As of May 8, 2008
Farmers Fall Further Behind With Corn Plantings, Price Continues to Rise
Each Monday afternoon starting in April, the USDA releases data on the progress of the planting and growing season in the U.S. At this time of year, most commodity traders focus in on the quality of the country's winter wheat crop and the planting progress that farmers are making. This week's report revealed that the planting progress, specifically for corn, is far behind schedule for this point in the growing season. The planting delays shouldn't come as a surprise to anyone that has watched the weather this spring. Frequent rains throughout much of the Midwest have made fieldwork all but impossible throughout many areas of the Corn Belt. However, the magnitude of the delays reported on Monday caught many traders off guard. The USDA report showed that farmers had planted just 27% of this year's corn crop as of May 4th. Last year at the same time, farmers had planted 45% of their crop and over the past five years, on average, farmers typically have 59% of their corn seeds in the ground.
The percentage reading translates into a real-world reading of approximately 10 days behind the average. In any given year, farmers could do a blitz planting and catch up to the average as soon as the weather improves - much like they did last year. Unfortunately, heavy rains were falling in the Corn Belt on Wednesday and Thursday this week with more storms forecast for the weekend and still more for early next week. These delays are going to force farmers to make an important decision in the next few weeks: plant their corn as soon as the ground dries and take a chance on possible yield losses due to a late pollination or plant soybeans, which require a shorter growing season and are planted later anyway. Most traders took Monday's report as a preliminary indication that farmers may not get much of a choice and that a switch to soybeans may be a necessity. As a result, corn futures surged on Tuesday and the rally continued throughout the week. After touching a low of $5.84 per bushel on Monday, corn rallied to a high of $6.31 by midday Thursday, a gain of near 8% and a new record high for corn. On Friday, the USDA is set to release its monthly supply and demand estimates. Though these data are released and updated each month, this week's report is highly anticipated because the USDA is slated to release its first estimates of the 2008/09 crops. Traders will be especially interested in getting the USDA's take on inventory levels after the large shift in plantings this year from corn to soybeans.
This week also saw a new record high price for oil set on seemingly a daily basis. This comes despite the Department of Energy's weekly inventory report that showed a larger than expected increase in oil inventories last week. The fact that crude continues to move higher on a daily basis in the face of bearish fundamental news is a testament to the conviction of many oil traders and analysts. Much of the strength seen this week seemed to stem from short covering and additional speculative buying for all commodities. Also prompting the surge was a report released from Goldman Sachs on Tuesday that predicted oil could hit between $150 and $200 per barrel in the next few years. As of midday Thursday, the new record for crude stood at just under $124 per barrel, set on Wednesday.
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