CHICAGO: The US grain harvest, the world's largest, is winding down, and that typically benefits prices as the flow of corn and soybeans into the supply pipeline ebbs as more of the crops goes into storage.
Farmers are already reluctant sellers of their freshly cut corn and soybeans because prices are well off recent peaks and they have sufficient cash flow to meet expenses for now.
While fundamentals lay out a rather supportive scenario for grain prices, investors' decisions on whether to buy or sell futures at the Chicago Board of Trade could well depend on what leaders in Europe do to resolve the region's debt crisis.
Risk trading, which was a minor factor in grain markets last week, is widely expected by analysts to make a big return as Europe grapples for a cohesive answer to its debt crisis.
European leaders will meet on Sunday to hammer out a comprehensive strategy to resolve the crisis that began in Greece, spread to Ireland and Portugal and has now raised the spectre of contagion in the Euro zone and beyond.
The leaders will have a second meeting on Wednesday in the wake of a conflict between France and Germany, the euro zone's two largest economies, over how to scale up a bailout fund.
"It's going to depend on what they come up with," grains analyst Mike Zuzolo of Global Commodity Analytics in Lafayette, Indiana, said, adding that the direction the dollar moves following European action would have an impact on grain prices.
The dollar index, a measure of the greenback's strength against six major currencies, fell for the third straight week last week amid optimism that European leaders would be able to reach a decision to the debt crisis. The euro rose.
"The biggest issue (this) week will be currency technical. Does the 200-day moving average in the dollar serve as a resistance," Zuzolo said. "If we stay below that level, we'll see some risk-on trade (in grains)," he added.
The negative correlation between the dollar index and corn was 60 percent last week, 49 percent for wheat and 70 percent for soybeans, according to Reuters data.
The soybean harvest in the Midwest grain belt was winding down, with analysts expecting the US Department of Agriculture to peg the harvest at 80 percent to 85 percent complete. The corn harvest was seen to be 65 to 75 percent done.
"Farmers will be finishing up the soybean harvest in the western Corn Belt this weekend," said grains analyst Dax Wedemeyer of US Commodities in West Des Moines, Iowa.
He said corn was expected to be supported this week on continued talk that exports in the 2011-12 season (Sept-Aug) would be higher than the 1.6 billion bushels forecast by the USDA this month, down by 50 million bushels from September.
China, the world's second-largest consumer of corn, last week alone bought 900,000 tonnes of US corn.
The USDA has projected US corn exports to China in 2011/12 at 2 million tonnes, but private estimates have the country buying five times as much through next year.
Wedemeyer said corn also should be supported by strong demand from profitable ethanol producers.
"Ethanol producers' margins are still very good at this point, and they are not looking to pull back demand even at these or even higher prices for corn," he said.
FARMERS NOT SELLING
Grains analyst Shawn McCambridge at Jefferies Bache in Chicago said farmers have not been selling much of their crops even as the harvest is beginning to wind down.
"They are not in the mood to sell. There is no interest to sell at these prices and would rather put away as much of the crop as they can in storage," he added.
CBOT corn futures are down nearly 19 percent from the all-time of nearly $8 per bushel set in June. Soybean futures
He said farmer selling may pick up if prices improve, but added that there could be a risk if farmers do not sell a good portion of their grain as it comes off the field.
"They have misjudged before. There is a risk from a price standpoint and on the quality standpoint," he said.
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