Soybeans: 78.629
Corn: 88.427

Trade feels bullish corn and slightly bearish beans.

Looking at the market today we see a downside bias with all macro factors pointing to a flushout of weak length. There is no incentive to own commodities this week with weakness seen on fundamental, technical and macro fronts.

Tomorrow’s WASDE report is looking for an increase in S. American production numbers with Brazilian beans looking over 67 MMT with Argentinian corn looking over 20 MMT. Both will add downside pressure on the market. Only small changes are expected to US consumption numbers with Soy and Corn exports always on the move. Old crop carryout is in question following reports that hte remaining 4% of the corn crop left in the field will be tilled under to help expediate new crop plantings.

Outside of this we need to look at increasing reports of BioFuel mandates and increasing Ethanol mandates as we move through 2010. This is a major factor for Ann Frick, lead analyst for Bache. She is calling for July oilshare to reach 51%…WOW. Currently trading at 45%.

MPI

There is nothing pretty about agricultural markets right now. We don’t have any upside incentive from fundamentals and now macros are falling to pieces. With US jobless rates climbing and no real threat of inflation there is no incentive to buy. With prices relatively cheap there is little incentive to sell, thus we are stuck in a range. I still feel we are entering a timeframe dominated by spreads and relationships. Watch the beans corn relationship for best action heading into planting.

Following a break for Kidney surgery I am back…for some reason. There is little excitment on the floor with everyone looking at the USD and crude this week. Start looking at spreads and relationships for best trading opportunities as we move into March with these obvious on my morning wires. Overall do not get excited by the rally until we get above and consolidate above last week’s highs.

No surprises in the USDA grains and oilseeds outlook.Planted Area 2010:A wet fall combined with lower prices and demand will reduce winter wheat seeded areas as follows: HRW -3.2 M acres to 27.8 Ma; SRW -2.4 Ma to 5.9 Ma. Spring wheat is expected to increase slightly. Overall, 2010 wheat plantings will be the lowest since 1913.As reported yesterday, corn plantings will increase to 89 Ma from 86.5 last season. Main factors for the increase will be a higher return per acre due to lower fertilizer cost and higher demand for 2010-11.Soybeans will decline 500K acres to 77. Reasons are lower return per acre this season in comparison with corn, large South American crop, lower demand (exports), and lower double crop soybeans area lost slightly to cotton and corn.USDA estimates that out of the 2.5 million acres that expired from the CRP program in 200c, les than 1/2 will be planted.Production:Wheat production will decrease 12% to 1.945 MB due to lower area and yields. National yield average is projected at 42.6 bpa, 0.9 lower due to expectations of yields coming back to trend.Corn production will decrease 60 million bushels to 14.894 million bushels in 2010. Higher planted area will be offset by lower yields, which are expected to decrease to the trend at 160.9 vs the 165.2 estimated for 2009-10.Soybean production will register a decrease of 100 MB to 3.260 MB due to smaller area and yields. Yields are  expected to drop to trend 42.9 bpa vs the 44 reported for last season.Demand and ending stocks:US consumption of wheat will increase 60 Mb and exports will increase 25 million bushels. This will result in ending stocks falling 40 million bushels to 940 mb. Stocks to use ratio will decrease to 44.8% form 48.9%. Average farm price will be $4.90Corn stocks will decrease 65 Mb to 1.654 bil bushels. This is the result of lower production, higher exports (up 100mb), higher demand from ethanol (up 200 mb) vs lower feed (down 200 mb). Stock to use ratio will decrease to 12.5% and avg farm price wil be $3.60.Soybean crush will decrease 65 mb to 1.655 bb due to lower soy meal exports based on SA competition. Soy exports are to decline 75 mb to 1.325 bb. Ending stocks will increase to 330 mb and avg farm price will drop to $8.80.Soy meal demand is expected to fall domestically due to lower livestock consumption in the US and lower exports. Avg price is expected to fall to $260 per short ton in 2010. Stocks will increase.Soy oil demand will increase in 2010. A trend from manufacturers to substitute bean oil to other veggie oils is expected, partly offsetting the increase in demand from biodiesel. Soy oil stocks will fall.Remarks:Focus this year is more towards sustainability, technology, and social aspects of rural America than biofuels, commodity prices, speculation, and supply/demand. The USDA did not give estimates regarding South America, only that world grain and oilseed stocks will increase as a result.USDA did not answer questions regarding of the impact in demand if Biodiesel tax credit is not passed by Congress or if US ethanol blend is increased from 10% to 12% or more.

Early upside momentun was reversed due to weak macro markets and a strengthening USD. Talk from the EU has Germany balking on the Greece bailout. US gulf news has china taking 4 cargos over the next 12 days pulling front end bean basis through the roof. The interesting factor is they (china) is also loading out of brazil! Consumption continues!

By Siobhan Hughes    Of DOW JONES NEWSWIRES   WASHINGTON (Dow Jones)–The U.S. Environmental Protection Agency on Wednesday gave high marks to Brazilian ethanol and cellulosic ethanol, setting a new direction for the industry as it issued standards for the amount and kinds of biofuels that may be added to the nation’s motor-fuel supply.   The EPA said that some 12.95 billion gallons of biofuels will have to be added this year, as required by law. Some 6.5 million gallons must come from cellulosic ethanol. And 1.15 billion gallons must come from biomass-based diesel over the two years through 2010.   The decision reaches every aspect of the biofuels industry, determining winners and losers from among a host of crops and production processes.Currently, corn-based ethanol is the predominant biofuel, but a 2007 law limitsthe amount of biofuel that may be derived from corn starch. The EPA must write rules to steer the nation into new types of biofuels.   The winners included sugarcane-based ethanol and cellulosic ethanol, which the EPA said were cleaner than traditional gasoline and would qualify as the sort of advanced biofuels that the 2007 law mandates. The EPA also indicated some corn-based ethanol plants may be considered clean, provided that they operate using “new efficient technologies.” That will affect the  construction of new corn-based ethanol plants, which must generate fuel with 20% less greenhouse-gas emissions than gasoline.   The mandate to use 1.15 billion gallons of biodiesel in 2010 could inject new life into the ailing industry. U.S. biodiesel producers were crippled by the lack of implementation of legislative requirements to produce more biodiesel; by the end of 2009, the industry was operating at 15% of its capacity. Total industry capacity–mostly built during the pre-recession rushto produce renewable fuels–is about 2.7 billion gallons a year.   Imperium Renewables Chief Executive John Plaza said that the rules were “the best news we’ve had in a long, long time.”   “We’ve had a rough couple of years as an industry, now we’re back into the light as being a solution to the nation,” he said in a phone interview. Seattle-based Imperium owns one of the largest biodiesel facilities in the country.   The oil industry cemented its status as out of favor with the Obama administration. The new EPA guidelines did not increase the statutory requirement for the amount of ethanol to be used this year. But in the long term, the push for increased biofuel usage threatens the profitability of the already struggling U.S. refining industry, as vegetable-based fuels replace traditional fossil gasoline and diesel. Some refiners, like Valero Energy Corp.(VLO), Sunoco Inc. (SUN)  and Murphy Oil Corp. (MUR) have bought ethanol plants in order to meet blending requirements.   By law, the U.S. must use 36 billion gallons of biofuels a year by 2022,with 21 billion of those gallons in the form of “advanced biofuels.” As part ofan effort to decide which biofuels to promote and which ones to disqualify, the EPA had to set a standard for measuring greenhouse-gas emissions from biofuels.The result was a score card that gave various types of biofuels grades for cleanliness.   The EPA said ethanol from sugarcane–common in Brazil–produces at least 50%less greenhouse-gas emissions than gasoline, the threshold for qualifying as an advanced biofuel. In a boost to algae, the EPA said diesel from algal oils also qualifies as an advanced biofuel and could be used to satisfy biodiesel mandates. Cellulosic ethanol, which is derived from the non-edible part of crops, produces greenhouse-gas emissions that are more than 60% cleaner than gasoline, the agency said.   Verenium Corp. (VRNM) Chief Financial Officer Jamie Levine said that the biggest boost for the cellulosic industry may have come from the EPA’s decision to set a price for the amount of money that blenders would have to pay forcredits in the event that they couldn’t buy cellulosic ethanol. The price appears to be high enough to support demand for cellulosic and encourage investors, he said, though he is still studying the details. Cellulosic ethanol currently isn’t broadly available on a commercial basis.    The EPA picked winners and losers after taking another look at the effects around the world of relying more on biofuels. Environmentalists have warned about the ripple effects as pastures are cleared to make room for biofuels crops. In a worst-case scenario, forests must be cleared in order to create new pastures, leading to deforestation that harms the environment because old-growth forests absorb high levels of carbon dioxide. The ethanol industry has said those claims are overstated.   EPA Administrator Lisa Jackson sided with ethanol makers on that score,telling reporters such indirect effects “were different and lesser than we thought.” She said the EPA’s earlier analyses had focused too little on productivity gains on existing farmland. She also said the EPA had decided to look at effects in 160 countries, up from 40 in its original analysis.   “I don’t agree that we changed the science to fit any outcome,” Jackson said.   Soybean-based biodiesel companies were among the beneficiaries of the review, after the EPA said that soybean-based diesel counted as an advanced biofuel. The biodiesel industry had earlier feared the worst when EPA officials said they would include “indirect land use” considerations in their calculations of greenhouse gas reduction.   But corn-based ethanol companies expressed concern that the EPA had gone too far. “EPA still relied on the disproven theory when all of the data shows that ethanol production continues to improve and isn’t requiring new land,” Jeff Broin, the CEO of ethanol producer POET LLC, said in a statement.   Environmentalists calibrated their reaction. Jonathan Lewis, an attorney with the Clean Air Task Force, said the EPA’s analysis “refutes the common misconception that biofuels are uniformly beneficial by showing that corn ethanol can be even worse for the environment than gasoline.” But he also said the EPA “appears to have bent over backward to allow some highly problematic biofuels to meet the environmental criteria set by Congress.”

INFORMA WORLD PRODUCTION HIGHLIGHTS:  Brazil soybean production 66.5 mmt, up 500 tmt from last month.  Argentina soybean production 54 mmt, up 1 mmt from last month and up 22 mmt from last year.  Brazil corn production 53.3 mmt, up 600 tmt from last month and up 2.3 mmt from last year.  Argentina corn production 18.2 mmt, up 2.7 mmt from last month and up 4.7 mmt from last year

Over the past two weeks we have seen an interesting battle play out on the volatility front instead of the flat price forum. The government of Mexico bought corn straddles and strangles in July-Dec while buying a 7X1 put ratio in wheat in May-Dec. They have inflated volatility in corn by 3-4% while in wheat volatility is up 3-5%. This is an inequity that was reversed today, in a big way. As talked about this morning during the broadcast, wheat volatility between May-July has widened to 5%. (July @ 39%, May at 34%) This was simply too juicy an apple to ignore. Paper sold both July and Dec vol with the latter getting hit hardest. Paper sold 1,000+ WZ 600 straddles starting at 160 with a standing offer at 155 going home. The pit was only bid 151 on the close. This illustrates the opportunity available if you look at markets from outside the box paying attention to abnormal skews in the optioons market.

MPI

Corn inspections at 20.696 million equates to 580 TMT. This is not enough to cause front end concern. I continue to favor bear spreads with subscribers aware of my plays.