U.S. Economy
After rallying off a better than forecast jobs report and the $23 billion takeover of Wm. Wrigley Jr. Co the S&P appears to be headed below the 1400 mark. Selling pressure comes in early due to Microsoft’s abandonment of its bid for Yahoo which sent the internet behemoth’s stock lower and also Berkshire Hathaway’s reported earnings coming in below analyst’s estimates. The Federal Reserve announced that it was acting in coordination with the ECB to expand credit and will increase the emergency reserves it offer to banks to $150 billion in May. Retailers are anxious to get their piece of the stimulus checks that started landing in consumer bank accounts to end April, but the general belief seems to be that people will be using most of that to being relief, not stimulus, and retailers who put the cart before the horse on their estimates will be setting up for disappointment. The long road ahead of us will be bumpy and I am looking at last week as a blip on the screen and the markets will find little support when fear returns.

Currencies
The euro bounced back from its two day decline as traders gamble the ECB will keep interest rates at a six year high this week in its effort to fight inflation. On April 29th, the European Commission said that his year will be the tenth straight year inflation will exceed the central banks ceiling of 2%. However technically the 15- nation currency is poised to fall as its daily moving average convergence/divergence chart is showing a sell sign. The Australian and Canadian dollars are poised for advance as commodity prices rebound from last week’s sell off. Canada’s dollar looks to maintain resiliency, at least until the Bank of Canada shows signs of additional rate cuts, as the Canadian economy looks stronger than the U.S. at the moment. Forgetting that the U.S. is the destination for most of their exports, the strength in this currency gives us the opportunity to pick up some puts.

Positive economic news and a strengthening dollar brought a lot of selling pressure to commodities last week. Noted rains in major cocoa producing countries also sent longs packing as the mid-crop might get a boost from the moisture. It might be too early to celebrate as there is still a forecast for deficit in the world cocoa supply and since the mid-crop has been questioned for quality lately, this recent sell-off might present us with an excellent entry opportunity for a long position in cocoa. Premium subscribers check for this incredible trading opportunity in my instant messenger alerts this week!

Coffee fared little better than cocoa, staying in the low range of the recent channel. This sideways trading may continue as we are almost a month away from the official start of the Brazilian coffee harvest and uncertainty after the decline in Vietnamese exports. Agriculture Ministry officials in Vietnam have also asked provinces to refrain from expanding coffee growing areas until 2010. This brings some uncertainty to the overall supply picture and if the dollar displays any weakness, we should be back to the top side of this trading range.

Bearish news for the Florida orange crop continues to pair with weak demand on the retail side to bring selling pressure to orange juice. Although the peninsula state is a major U.S. source for the breakfast beverage, Brazil is still tops in the world and a recent statement by their state Agriculture Secretary regarding a reduced forecast for the Sao Paulo crop might bring the bulls back. The drop in orange output is being blamed on dry weather and since Sao Paulo is the source for over 90% of Brazil’s orange juice, all eyes will be on the official estimate which is likely to be released on Thursday.

Sugar remains under selling pressure and has little in the way of bullish fundamentals although strong crude oil prices to end the week might bring some interest to this embattled market. Cotton still feels like a sleeper as weather issues and planting reductions could keep us poised for a nice rally.

There was strength in the U.S. dollar last week and that sent gold back down below $900 to end the week. A deadly accident in a South African mine and people looking for a bargain entry price in this market kept a large selloff from coming and ultimately this market should hold these levels. The inflation risk continues to be there and as long as there are doubts about the U.S. economic situation, people will want to be long gold. Silver rode the same selling last week and continues to look more vulnerable to strength in the U.S. dollar. Silver demand in India may increase on lower prices, but this metal has an overall bearish look to it. Possible higher mine output and increases in Peru, Mexico, Australian and Canada as forecast in the CPM yearbook could keep silver from running up.

Platinum and palladium both fell against the stronger dollar last week but look to recover as the lower output from mines keeps traders long platinum. Substitutive palladium keeps pace with platinum but as the less expensive option for the auto industry. Copper fell sharply to end the week but looked to push higher as the mining strikes in Chile keep this market up. This should be short lived as any break in the strike will bring people back down to earth. The latest ICSG forecast calls for a small surplus of this metal this year and noted that 2007 production was up 3%. This market is due for a correction and we want to be there when it happens……. Premium subscribers check for this incredible trading opportunity in my instant messenger alerts this week!

The market overall remains at the whim of a very volatile US dollar and weather. There are plenty of fundamental factors to watch with corn planting remaining a major influence this past week as well as the upcoming week. We saw plantings at only 10% last week with the upcoming planting pace expected to be around 30% (out on Monday afternoon) versus 63% on a 5-year average. This is due to excessive rains across most of the Midwest with more rains forecast for the upcoming week. This will further stall corn planting with northern states (ND, SD, MN and MI) at risk for losing significant corn acreage as we progress past May 1st. Another major factor this past week has been the farmers and port workers strike situation in Argentina. Heading into the weekend there was no consensus agreement reached concerning bean and corn export taxes. This is the main sticking point between farmers and the government. There is a meeting scheduled this upcoming Tuesday offering another possible upside catalyst if an agreement is not reached. This factor, like corn planting delays, are short term inputs with the long term input remaining a very tight new crop balance sheet for both corn and beans.

On a macro front, the US dollar rallying has eliminated some of the early year momentum we saw in commodities. The drop in gold and the relatively stable US equity market offers perceived potential for speculators with some feeling the commodities boom is all but over. I feel these people are very shortsighted and will be left in the dust if they are not involved before the first drought scare that is inevitable this summer. We have little to no room for error this season and with talk coming from long term meteorologists stating a very wet spring like we have had may lead to a hot and dry summer, the upside remains the path of least resistance in spite of the current breather the market is undergoing.

Looking at options, we have seen good protection plays recently with funds taking advantage of lower volatility, buying puts to protect established longs. Every time we drop this market we are seeing put selling, not call selling. This is a good signal for long term growth. Continue to favor the upside in all three (Corn, Beans and Wheat) markets with value out there for the savvy option player.

Looking at spreads, the SN/SX spread is heavily traded and talked about with the front end looking to gain heavily in the coming weeks. This spread, currently under $1.00 (inverse) has potential to move right back out to $1.40 by the end of May. This is a trade for risk tolerant traders looking for good return on their risk assumption. Another spread worth nothing in WN-CN. This is back under $2.00 making farmers interested in feeding wheat instead of corn due to relative cash values. Interested traders should look to own wheat against corn with this looking for 40-50 cents this month.

Weekly outlook: Looking to the week ahead, the market will first react to weather and crop progress out on Monday afternoon. With the current 6-10 day offering no major threat to plantings I expect corn to falter late in the week following any early week bounce. I maintain a very bullish stance for corn, as subscribers can tell, with both a short term and long term trade already on the books. In beans the market needs to wait for information out of Argentina with macro markets a heavy secondary influence. If macros hold ground or rally, beans will look to recover recently lost ground with the upside the path of least resistance. In wheat the market needs to find demand. If this comes from domestic feedings, all the better. There is nothing on the international front to immediately offer upside momentum but technicals offer massive support with last week’s activity hitting and holding the 200-day MA.

Overall the markets are very shaky at current levels with corn at risk due to improving weather and a threat from Washington of a change in the ethanol mandate, beans at risk with Argentina sure to reach an agreement soon and wheat praying for some fundamental support to help spur the upside technical pounce. Remain bullish long term in corn and beans with continued questions concerning production heading through the planting season.