March 9, 2009

External markets rather than fundamentals will continue to influence grain prices in the week ahead as investors watch crude oil's recovery.

Summing up the influences working on soybean prices in the near-term, commodities brokerage Alaron's analyst Tim Hannagan said, "If crude can bottom, it will offset the stronger U.S. dollar and the never-ending bearish Dow (Jones index)."

Crude oil futures and U.S. dollar direction also hold the key to price movements in the week ahead for corn.

Hannagan said Asian demand for U.S. corn remains strong, signaling that demand will remain a positive factor in the short term.

Chinese buying of U.S. soybeans has slowed, however, as Brazilian soybeans have started to enter the global market. Harvests in Brazil and Argentina are likely to pressure global soybean prices.

For wheat, ample global supply continues to overwhelm demand, but speculation continues that India's federal government might allow exports in the next few weeks, ahead of general elections on April 16, in which farmers are likely to play a key role in electing the next government.

In other news, the International Food Policy Research Institute released a report over the weekend, noting that speculative activities might "have been influential" in increasing agricultural prices in 2007 and 2008.

Highlighting the negative effect of futures market speculation on global food prices, the study said, "The excess price surges caused by speculation and possible hoarding could have severe effects on confidence in global grain markets, thereby hampering the market's performance in responding to fundamental changes in supply, demand, and costs of production."