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Tim Hannagan: A push to buy
As demand will be the driving force for futures prices after the U.S. crop is in and known and the final eastern European winter wheat plantings are finished, it's important to look at this week's first demand report.
Mondays Weekly Export Inspection report came out telling us how much of each grain was asked to be inspected by the USDA for near term shipment.
Corn sales were 31.1 million bushels versus 44 the week prior, 45 a year ago and four week average of 36 m.b. Friendly exports are 30 to 39 m.b. and over 40 bullish. They were on the low end of what’s considered good export demand.
Two issues come to mind for the pull back on the week. One, some importers see the seasonal time of year to back off as early southern Delta corn harvest begins September 1st and their used to seeing lower cash prices as harvest pressure gets underway. Two, we had our highest closing weekly price on Friday since January. High prices tend to cure over buying. But, as you know, worries over foreign feed grain production and potential for demand to increase could have this week’s number one aboration.
The bean exports were reflective of an increase in China purchases recently. In fact, China was in for 220 t.m.t. of U.S. beans this Monday to start the week. Sales were 13.4 m.b. versus 7.2 the week prior, 6.7 a year ago and our strong four week average of 6 m.b. Like corn, beans too had a weekly high close for the entire year but foreign growing issues in Russia and India where high protein palm oil competes against soy oil. That had China rushing in for coverage of needs in case these other countries enter as well pushing prices even higher.
Wheat sales were 20.8 m.b. versus 14.7 the week prior, 16 a year ago and strong four week average of 18 m.b. It’s all about declining wheat production on foreign exporting ports having a level of panic buying on the U.S. ports as we sit in a unusual position, as the number one shipping port in the world for quality and quantity of wheat.
As long as foreign production numbers continue lower, U.S. demand will remain in a strengthened cycle. Note, what is coming to harvest from the spring and summer crops, here and abroad, is all the wheat there is until winter crops, now going to seeding, break dormancy, grow and then harvested late spring.
After the close Monday, our crop condition report showed corn was 69% in good to excellent condition down 2% from the week prior and 1% above a year ago. The only Midwest state not to come in lower was Nebraska. The common thinking now is conditions may further decline as the USDA seems to be behind the weathers effect. This week's number was the lowest of the year but not such a revelation to change trading patterns. Beans came in at 66% G-E, unchanged on the week, and equal a year ago. I suspect, like corn did this week, beans too see lower ratings ahead, as the government catches up on a difficult weather year.
The market now has to decide if it wants to take the current and old bullish news and push prices to new highs, at a time when seasonals see grains turn lower into the beginning of harvest. Or, the seasonals will pull more profits out before they re-enter at the end of harvest for our late fall buying period into December. What pulled prices lower Monday was wheat breaking on talk that rain could enter the drought-stricken areas of eastern Russia. One rain does not not change the situation allowing growers to begin planting the winter wheat crop, but it does have the market starting to wonder.
It only takes one person to yell fire in a theater and everyone runs for the exit. It is the same with weather. If you have ten weather gurus saying hot and dry and one says wet , they all sell and run for the exit. The reason is they all know the drought will end but not when. So, the fear is this rain could be the beginning of a chance for another rain then another. A drought ends with the first drop. That’s fear trading.
A lower close Tuesday or Wednesday under Mondays low would suggest a near term pre- harvest high is in. A close over 7.60 on December wheat suggests were on track for a test of old highs. New lows from Monday and 6.40 is next. November beans have support at 10.24 Tuesday and 10.30 Wednesday. A close under and 10.12 then 9.95 is next stop. December corn support Tuesday is 4.14 and Wednesday at 4.18 . A close under and 4.00 is next support .It is wait and see now as to what the trend following and index funds are going to do. Technicly, you should buy support but a close under get out and go short.