CHICAGO -- The contagion from mounting losses in the U.S. subprime mortgage industry is expected to spread to the grain markets in the United States, but weather factors remain a driving force, analysts said Friday.
"External factors like the financial contagion ... that's going to impact our opening today," Rich Feltes, senior vice president and director of commodity research at brokerage MF Global, told a panel discussion hosted by the CME Group.
Feltes and fellow panelist James Bower, president of Bower Trading Inc., discussed the August crop production issued by the U.S. Department of Agriculture earlier Friday.
"Weather from here forward will have a dominating influence (on the market). We still have weather to trade ahead of us," Feltes said, ahead of the opening of trade at the Chicago Board of Trade, the world's largest grain exchange.
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Bower said he too was expecting weather to be a key trading factor going into the corn and soybean harvest in September.
"I do not think the story is over yet. Northern and western Corn Belt areas had very nice rains but areas east and south of there have been getting very little rain," he added.
Financial markets were unnerved by French bank BNP Paribas freezing $2.2 billion worth of funds on Thursday, citing problems in the troubled U.S. subprime mortgage sector.
The U.S. stock market fell sharply for a second straight day Friday amid concerns over the subprime market.
The USDA pegged 2007 corn production at 13.054 billion bushels, up from its July estimate of 12.84 billion. Soybean production was kept unchanged at 2.625 billion. Analysts polled by Reuters on average estimated corn production at 12.886 billion bushels and soybeans at 2.655 billion bushels.
The USDA forecast 2007/08 U.S. corn ending stocks at 1.516 billion bushels, above trade expectations for 1.463 billion. Soy ending stocks were pegged at 220 million bushels, below trade expectations for 238 million bushels.
The USDA forecast 2007 U.S. wheat production at 2.114 billion bushels, below trade estimates for 2.130 billion.
The agency kept unchanged its estimate of corn usage for ethanol at 3.4 billion bushels for the current 2007/08 crop year which ends on Aug. 31, 2008. Corn exports were raised to 2.15 billion bushels from 2 billion estimated in July.
The USDA raised its estimate of corn to be used in feeding livestock to 5.75 billion bushels from 5.70 billion.
Feltes said U.S. ethanol operations should continue to be profitable into next year amid an increase in corn production in the United States in 2007.
"The ethanol juggernaut still goes on. The profit is still handsome and today's report may buttress ethanol profits into the next year," he added.
Corn prices plunged to a nine-month low of $3.08-1/2 a bushel last month as U.S. farmers planted the most acres to corn this spring since 1944 to take advantage of the run-up in prices to 10-year highs in February this year.
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