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Wheat jumps as Ukraine exports fall

10/19/2012 @ 4:02pm

Wheat Commentary

Broker Perspective: Wheat finished higher for the third consecutive day today as feed grains found support on news that the Ukraine is going to run out of exportable wheat midway through November. US exporters sold 230,000 tonnes of wheat to unknown destinations overnight. Some were speculating the destination would be announced for export to the Ukraine. Thoughts were they may have overbooked their sales. There was also talk about an Algerian milling wheat purchase for December shipment thought to be from South America. Taiwan’s TFMA is also seeing 104,000 tonnes of US wheat for November/December delivery. From these past two sales it appears the US is back within the competitive realm for wheat exports. One thing we need to keep in mind is we will see an increase in exports over last year by 10% but currently we are 11% behind pace. The USDA has done a great job of already accounting for this situation. We failed to make new highs during the pit session trade which shows the trade may still not believe the severity of the situation in Europe. Now the concern about dryness in South America is supporting wheat on a feed basis. The US winter wheat crop being planted right now could be facing moisture issues if these outlooks are correct. I still think this market is going to continue in its sideways to lower pattern.

Export Offset: Between the dry US Plains, Argentina’s excess moisture during harvest, and Ukraine exiting the export market you would think wheat prices could post a rally. It is too bad that it will take a few more weeks of these problems continuing before they offset how far we are off from USDA’s export hopes.

Trade Recommendation:

(10/15) Sell 820 December put for 18, risk 27, objective 2. 

Closing Cattle Commentary

This afternoon’s Cattle on Feed report can be generally construed as being supportive to this market. USDA indicated September Placements were 18.8% lower than last year. It was the smallest September number since USDA’s data series on all-state feedlot counts began in 1996. That was even better than the 14.9% decline posted from the average analyst guess. This now represents four months in a row of lower than last year numbers.  September feeder placements will be marketed between February and June. This is therefore supportive to the February, April, and June 2013 contracts. Our minimum price expectations before this report were $128, February $134, and April $138. These will be raised with even smaller than expected Placements shown today. September Marketings were weak. They were 11.9% smaller than last year. This number, like the Placement number, was artificially small by 7% to 8% due to the few marketing days in September 2012 vs. 2011. Bears could attempt to say this number means weak marketings and therefore a buildup in available live cattle. In our opinion, even if that is true it would only be a minor hiccup in the general uptrend we will see into spring. On top of the good news from today’s report, cash cattle traded at $127 in Kansas and Texas. That was $2 higher than last year. This is great news. Cash cattle is now back at the mid-September price peak. We find it interesting to see cash cattle is back at its September price peak but December futures are not at their 131.32 September price peak. Whether cattle prices wobble here or there in the short term does not matter. The longer term picture, that of sharply lower available cattle supplies into spring, is THE issue here. 

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