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Tim Hannagan: Civil unrest
Thursday's weekly export sales report started the day with mixed demand signals.
Corn exports were 414 t.m.t., off 54% from the week prior, 31% under our four-week average and well under a year ago of 902. Key Asian customers were in for 207 t.m.t. versus 197 the week prior, but under the 400 t.m.t. needed to be friendly from a demand perspective. Corn demand continues to be in the future. Exports have been neutral at best for months. Yet, all demand fundamentals long-term into fall remain as bullish as we have ever seen.
Ending stocks, as of the last USDA report are 745 m.b., about a 40-day supply come September 1, 2011 the end of this year's grain marketing year. The last time we had a stocks-to-use ratio this low was 1996. January through February then saw a gradual $.50 rally. Then March to July saw a two dollar rally, over planting and growing concerns. Very little bearish news exists.
We're beginning the new year with a lot of little pieces of bullish news from all over. Floods in South Africa look to have corn planting down 8%. Argentina, the world's second largest corn producer/exporter, as we all know look for a much smaller 2011 corn crop due to a La Niña weather drought pattern.
Early US acreage estimates are coming in with only slight acreage increases expected, setting up 2012 ending stocks to be lower. Meanwhile, the first summer weather forecast of the year believes a strengthening La Niña will bring warmer and drier conditions to the US. So, nerves are frazzled in the corn giving us a very volatile 8 day trading period.
Near term, the question remains will funds match the two years prior, with a price correction into February to re- balance their books before re-entering long for the planting and growing season. Or, will a similar pattern to 1996 and 2008 persist with higher prices into spring?
Follow the charts. Corn technicals read like this. Entered Friday, March support is 6.48. A close under makes 638 then 628 our next support. Resistance is 6.68 then 6.90. If 6.48 holds Friday, 6.50 is support Monday.
Soybean export sales were 780 t.m.t., up 7% from the week prior and 36% over our four-week average, with key world player China in for 395,00 versus the two prior weeks of 493,000 and 217,000. It's a good indication of just how strong demand is as seasonal business turns to South America this time of year. In part, the demand surge could be credited to China's New Year Lunar Holiday, beginning February 3, for one week. China could be loading up on beans before the government goes on holiday.
The recent heavy rains took their toll on Brazilian beans with their ag people cutting bean production by 6%. WX RISK.com, the weather site, sees drier conditions, this past week and next week, allowing for some badly needed drying. But, expect lower production numbers closer to 8 to 9% cuts in production before it's all over. The first private crop forecasters bean acreage estimates for this year came out with planting down one million from the year prior. If true, 2012 ending stocks will fall under 100 m.b.
Many estimates will come out before the USDA farm survey results on planting are released March 31, with estimates between 2 million acres less to 4 million more.
Soybean technicals read like this. March support on Friday was 13.85. If it holds then 13.90 on Monday. A close under and 13.55 is first stop. Resistance is 14.30. A close over resistance buy with both hands.
Wheat export sales were 894 t.m.t., down from 1 m.m.t. the week prior, but 73% over our four-week average. Traders had expected 1.2 or 1.4 m.m.t. but as you can see it's still a very good demand number. When you talk of a smattering of friendly-to-bullish news in corn and beans, we really see a patchwork of bits and pieces of potentially bullish week pricing news. Argentina exported the smallest amount of wheat in 30 years due to drought. Brazil relies heavily from Argentina setting up the US to fill the hole.
The Australian government this week reported that harvested wheat stored was 62% graded for milling use for human food consumption and 38% graded for livestock feed. As more of the poor grain wheat from the flooded areas comes in look for the feed grade percentage to rise as the worst areas are last to be harvested. It's being thought that the current surge in buying is the sensitive to inflation countries stocking up on wheat to store in case the currently dormant world winter wheat crop has growing pains this spring.
Countries like Algeria, Tunisia, Jordan and Egypt have picked up purchases recently as unrest among people over shortages and prices have governments concern. Taiwan plans to cut import tariffs by 50% to ensure a steady incoming flow, while riots broke out in Egypt today.
Understand, food inflation in the US for 2010 was about 3%, as we always carry grain reserves on top of ample production. But countries that don't store grain and live hand-to-mouth as needed see 100 to 200% food inflation. This is setting up 2011 to be the year of importing and exporting countries to store more grain for future needs, creating a much higher demand and price potential.
Careful, funds could take measurable profits at any time in the grains. All of the technicals set next week up to either break out to the upside or downside as the 8-day corn and bean trading range won't continue. Should the Asian lunar holiday, beginning next Wednesday for one week, cut demand into Asia and the heavy snows WX RISK.com predicts next week for the dry Southwest US winter wheat belt and Middle Eastern civil unrest updates, the break will come. Any buying by China during their holiday, continued unrest abroad and new highs will come quickly.
Tim Hannagan is a PFGBest.com senior grain analyst.