Markets find support at long term lows
After inching into a new low for this move early last week, wheat prices stabilized for the rest of the week. Cash pressure will drop sharply now that harvest is done in Kansas, leaving more opportunities for rallies as the selling diminishes.
We don't expect much spillover support from corn or soybeans as the weather in the key regions of the Midwest looks to continue ideal for crops. The forecasts don't offer any threatening weather for the pollination season at this point. Even so, both the corn and bean markets have seen an extended sell-off that is due for a reprieve at least until we get through the pollination season.
The crop report issued on Friday was neutral for wheat, but offered some bearish surprises for corn, which spilled over to the wheat market. USDA projected total wheat production at 2.112 billion bushels, just 5 million more than the average estimate. Hard red winter came in at 903 million, 7 more than the average guess and reflecting the much better than expected yields in northern Kansas. As harvest makes its way into Nebraska, we're seeing similar results as yields are record high in many areas after a near ideal growing season. Recent storms have produced damaging hail and producers are anxious to get these great crops in the bin.
USDA corn ending stocks for old crop were projected to be 1.77 billion bushels, 78 million higher than expected due to a 100 million bushel drop in ethanol usage. Corn production for '09/10 is projected at 12.29 billion, slightly higher than trade estimates. The trade is beginning to expect even higher production for this year than current projections due to the ideal weather in the western Midwest.
The European Union is into its harvest season as well, and recent rains have created delays. So far, quality is not an issue, but they often run into rain delays so this warrants watching. Canada has seen great relief to their dryness issues, offering some hope of recovery after a poor start to their growing season.
India is into an on again/off again export program. Just three weeks ago, they announced that they would resume exports without subsidies even though their prices were well above world prices. And then today, after only 10 days of resuming exports, they announced that they were shutting off exports because the monsoon rains had not materialized as expected. Australia, too, is already concerned about next year's crop because of weather. It appears that El Nino is indeed forming, which some suggest will almost certainly create production problems in Australia. Some also suggest that it could help production in Argentina; with record low plantings amid severe drought, they need all the help they can get.
The CFTC announced last week that they were looking into stricter regulations regarding hedge and index funds, taking public comments on lowering or establishing position limits for traders who are not actually involved with the physical product. That has always seemed like a no-brainer, particularly considering the definition of a hedger is someone who has risk in the cash market. This is creating some concern among the funds, and is not yet implemented so we'll see how far the rhetoric goes.