Grain futures - Weekly outlook: November 28 - December 2

Forexpros – Last week saw U.S. grain futures post heavy losses as a combination of concerns over the euro zone’s sovereign debt crisis and worries about increasing competition for U.S. grain exports drove prices to multi-month lows.

On the Chicago Mercantile Exchange, corn futures for December delivery traded at USD5.8238 per bushel by close of trade on Friday, tumbling 5.26% over the week. Earlier Friday, prices fell to as low as USD5.8175 a bushel, the lowest since October 4.

Agricultural commodities continued to be affected by outside influences on Friday as concerns over the fiscal health of Italy intensified after the country’s 10-year bond yields spiked above 7%, even as the European Central Bank bought bonds in the secondary market.

The rise in Italian borrowing costs came after a disappointing auction of Italian government debt, adding to fears that the debt crisis in the region is deepening.

The auction came two days after Germany, the euro zone’s largest economy, missed its EUR6 billion sales target at an auction of 10-year bonds, in its least successful debt sale since the launch of the single currency.

Also Friday, ratings agency Standard & Poor's downgraded Belgium's credit rating by one notch, with a negative outlook, citing renewed funding and market risk pressure.

The news prompted investors to shun riskier assets, such as stocks and commodities and flock to traditional safe haven assets like the U.S. dollar.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, rose 0.74% to settle at 79.83 by close of trade on Friday, the highest since October 6.

A stronger dollar reduces the appeal of U.S. crops to overseas buyers and makes commodities less attractive as an alternative investment.

Corn prices came under additional pressure after industry research group ProAgro said that Ukraine’s monthly corn shipments could hit an all-time high in November, following the removal of an export tax in October. 

Shipments of Ukrainian corn rose to 1.01 million metric tons in the first 18 days of November, up 84% from 422,700 tons during the same period a month earlier.

Ukraine is a major corn exporter and competes with the U.S. for business on the global market. A favorable export outlook could potentially weigh on demand for U.S. supplies, which is both the world's largest corn producing nation and the world's largest exporter of the grain.

Elsewhere on the Chicago Board of Trade, wheat for December delivery retreated 3.35% over the week to settle at USD5.7338 a bushel on Friday.

Earlier in the day, prices fell to USD5.7250 a bushel, the lowest since July 1 after the International Grains Council forecast Australian wheat exports to rise to 19.2 million metric tons of wheat in the 2011-12 marketing year, up 3.8% from a year earlier.

The country is projected to be the world’s third biggest wheat shipper this season, following the U.S. and Russia, after harvesting a record crop of the grain last year.

The IGC also cut its outlook for U.S. wheat exports to 26 million tons, down from 35.7 million tons a year earlier, as cheaper supplies from the Black Sea region dampen demand for U.S. wheat.  

Elsewhere, soybeans for January delivery tumbled 5.28% on the week to settle at USD11.0962 a bushel by close of trade Friday. Prices fell to as low as USD11.0288 a bushel earlier in the day, the lowest since October 8, 2010.

Soybean prices came under pressure as favorable weather conditions in Brazil and Argentina were likely to aid the development of crops. Brazil and Argentina are the world’s second and third largest soy exporters, trailing only the U.S.   
 
In the week ahead, investors will be keeping a close eye on developments within the euro zone. Meanwhile, the U.S. Department of Agriculture’s weekly report on U.S. crop progress scheduled for Monday and U.S. export sales on Thursday will also be in focus.

Corn is the biggest U.S. crop, valued at USD66.7 billion in 2010, followed by soybeans at USD38.9 billion, government figures show. Wheat was fourth at USD13 billion, behind hay.