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Wheat is not hard to find

12/10/2011 @ 7:52am

The USDA surprised the market with a bearish report this morning. The government put the U.S. ending stocks at 878 million bushels. This was 50 million bushel increase from last month estimate. The increase in the carryout was caused by decreasing exports by 50 million bushel. The fact that the government cut exports was not a surprise. The past few months’ exports have been disappointing as we are having a hard time competing with other countries due to the price of our wheat. The trade was surprised by the extent of the cuts as the trade was looking for ending stocks to increase by 2 million bushels. As for the world numbers, the USDA raised world production by 5.7 million tonnes. Higher production translates to a current ending stock reading up to 208.5 mt. The increase in the world production numbers should not have been a surprise as Australia, Argentina, and Canada all raised their production forecast in the past few days. Today’s report has not changed out mind as we still anticipate wheat will continue to trade in a sideways to lower range due to the amount of wheat in the world. We do need to be careful and not get too bearish as with the funds carrying a near record short position (short 42,200 coming into today’s trade). Any positive news about wheat or the macro economy could cause a short-covering/profit-taking rally as we wrap up the trading year.

Not Hard Finding Wheat Around: Stocks to use, the measurement of “tightness of supply”, tells a clear story here. The wheat situation has been at well-stocked levels for each of the past three years…Rich Nelson


Working Trade:

(12/7) Bought 1 Minneapolis March wheat 815 ½, risk 799 ½, objective 844. Closed 827 ¼  

In case you have missed our commentary in recent weeks, there has been a clear change in direction for wholesale beef prices. Not only did it show no concern with last weekend’s forecasted snows in the Plains, but it continued to move lower this week. Exports have fallen down to equal last year’s level instead of the accelerated levels from this past summer and fall. Today, cash cattle traded actively in the Plains at $120. That was down $4 for Kansas through Texas and $6 for Northern areas. Futures are implying cash will get down to $117 at the end of the month. This market could stay at these lower levels for another couple weeks before the tight 2012 situation refocuses the trade northward…Rich Nelson


Working Trade:

(09/07) Sold 2 April 118 puts 2.57 each, risk to 3.00, objective 0. Closed 2.17.

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