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Tim Hannagan: Mixed grain market news

By Tim Hannagan

PFGBest.com Market Analyst

Thursday’s weekly export sales
report came out putting wheat exports last week at 382 t.m.t. up 24%  from the  previous week. This suggests that some buying for insurance
against falling world production may be beginning. 

With 950 million bushels
sitting in U.S. storage there’s no threat of running out the next 12
months  but fear of continued world
production declines may lead more end users to move from hand to mouth buying
as needed to buying 10% more to lay aside as were still at fair value on
prices. The 2008 record high prices are not far removed from trader’s thoughts.
For now, the number is neutral to demand but suggests future weeks could come
in higher. 

Wheat’s current production short-falls on foreign port producers is
long from being known. Production numbers, or lack thereof, won’t come to light
for another month as these countries lack the sophisticated tabulation system
of the U.S. what we do know is, Russia was a monster wheat exporter this past
season, under cutting U.S. prices dramatically and cutting our exports sharply,
especially to number one world wheat buyer Egypt, once a reliable U.S. wheat
buyer. Russian wheat fields are suffering from their worst drought in 30 years. 

This week they announced they would trap into their meager wheat reserves, as
they sold about all they had, and started moving it into their domestic market
to cover needs. This certainly suggests a ban or slow down in their exports are
coming. The European Union, made up of 27 countries, is also in the grips of
drought. Canada’s crop, down 19% and 6 million less U.S. wheat acres this year,
sets up a potentially dramatic reversal in world production and the trader
trading psychology. 

As you know trend-following funds were short a record 77
thousand contracts four weeks ago and entered this week short 37 thousand. This
short covering took December wheat futures from 4.84 four weeks ago to 6.28
entering this week. On the surface, the charts look overbought. But, with world
wheat production set to take a dramatic turn around, its possible funds may buy
back the remaining 37 thousand short positions. This would not mean they have
turned bullish but means they are no longer bearish. Whether they turn bullish
and buy long or build a long portfolio are several months away. But, going to a
neutral portfolio could take December to 6.40 to 6.80 easily. 

If you buy
futures use 6.00 as major support to get out of it doesn’t hold as 5.82 is next
support. A close over 6.34 sets up 6.60 as next stop. Option players wanting to
control risk can buy the September 6.00 call and sell the 6.70 call for 17
cents or $850, plus commissions. You have 70 cents profit potential or $3,500
and the options don’t expire until the third Friday in august, giving more than
enough time for a continuation of the short covering move yet a near term top
and drop in prices will allow the option to hold value enough due to time
premium to cut your risk.  

Corn
export sales were 614 t.m.t. for old crop year and 540 t.m.t. for new crop year
delivery. With the new grain marketing year so close now beginning September 1st
the trade combines old and new numbers to get a total to gauge demand. Corn’s
total of 1.155 m.m.t. is a bullish export numbers in the big picture especially
with Asia and China in as buyers. But, demand news is somewhat muted now as
weather is 90% of our pricing influence. 

Soybean exports too were bullish in
the big picture with old and new crop sales of 1.115 m.m.t. with China in for
341 t.m.t. with 35% of our corn crop yet to enter pollination and 82% of our
beans soon to enter the key pod setting stage, weather reports control  the pricing. 

This past week brought a
very uneven weather pattern. It wasn’t as bad as hot and dry all over but a
little too much or too little of each. The nation’s grain belt is broken into
thirds. The western Corn Belt of Iowa and Nebraska. The eastern Corn Belt of
Illinois, Indiana, Ohio, and finally the southern Delta states. 

This week
brought too much rain to wide areas of the western grain with flooding and
ponding in low land areas. The eastern Corn Belt rains were lighter than
needed while the southern Delta was just hot and dry. 

This looks to make
guesses prior Monday's 3:00 p.m. crop condition update, to be all over but I
suspect were looking at lower ratings. The 6 to 10 day outlook keeps above too
much above normal temperatures all over the Corn Belt states. The southern Delta
looks the driest but only account for 10% of our grain production. Southern
Illinois, Indiana, and all of Missouri with light showers at best while the
western Corn Belt and upper Plains above normal moisture. It’s much the same
as this week. 

Because of the continued high heat, were set to get another
period where they call for the heat dome in the south to move in to the Midwest
again, but when. September corn as of Friday’s opening has support at $3.70 then $3.62. Buy in this area. Resistance is $3.98. A close over $3.98 and $4.08 is next
resistance. A close over $4.08 sets up $4.40.  November beans have first support Friday at $9.70 then $9.64.
Resistance is $9.90. A close over $9.90 and $10.24 is possible. 

One wildcard in
the weather news is the potential hurricane that may enter the Gulf Coast, over
the weekend. If big enough and strong enough, it could push badly needed rains
into the dry southern Delta. With western Corn Belt rains for next week and
some in the eastern Belt, this would be psychologically bearish to start the new
week.

 

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