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Wheat holds important support price

10/19/2012 @ 4:19pm

The week started with more waves of fund liquidation, much like we ended last week. The new regulations that will require swaps trades to be counted as part of total futures positions and subject to position limits have prompted funds to liquidate positions, even though the actual rules implementation was given more time.

Chicago wheat slightly broke the range lows while KC and Minn held. Once the blood-letting was over, prices picked up quickly with wheat actually leading the way higher. Demand perked up once it looked like the selling pressure had subsided with several countries issuing tenders – some for quick delivery. 

World export activity has definitely surged the last week or so, and the US is capturing a respectable piece of the business. Sales the previous week at 410 TMT were the highest in a month and above even the trade estimates. But the biggest sales news was China’s purchase of Canadian hi-pro spring wheat; quantity was unknown for sure but estimates ranged from 300 TMT up to 1.0 MMT.

There was a sale of 233 TMT of US wheat sold to unknown, which helped push wheat prices higher early on Friday; unfortunately, those gains slowly faded throughout the day.

Ukraine’s announcement early Friday that they were banning exports as of Nov. 15 also helped support wheat early, even though it wasn’t much of a surprise. The bigger question still remains if Russian exporters can fulfill their commitments as those contracts come due through late November.

Wheat was also supported by the ongoing weather issues in the Southern Hemisphere. We’ve watched Australia’s crop deteriorate through much of the growing season, and now as it matures yields are pretty much set. It’s been a disappointing year for many Australian producers, with total production estimates in the ballpark of 20 MMT, a 30% drop from last year’s whopper of 29 MMT.

Argentina could also be barreling toward troubles as well with just the opposite problem of Australia. Persistent rains throughout the growing season have led to disease issues and their government is acknowledging that yield declines are likely if the rains continue. With harvest just around the corner, more rain is the last thing they need.

Adding to the mid-week rally was the Argentine’s government issuing new requirements from their exporters to ensure taxes get paid and the request for several years of documents. All exports out of Argentina have effectively been shut down while those doc’s are rounded up and any back taxes get paid. Needles to say, exporters aren’t happy and are resisting the new requirements.

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