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Tim Hannagan: November grain factors build
Thursday's weekly export sales report showed wheat exports, last week, at 604,000 metric tons, up 5% from the week prior. But, that was well under the 1.0 million metric tons, or more, needed to push prices higher from a demand viewpoint. With over 800 m.b. in storage, we need great demand, not just good to drive prices. Key world player Egypt was in for 240,000 m.t. and is a weekly regular, now that Russia won't sell wheat through June 2011.
The weekly sales should remain good enough to continue to lower our ending stocks, but strength in prices this week came from supply-side concern. With crop problems at some major exporting ports, such as Russia and Germany this past summer, all eyes are on the world's greatest wheat producer exporter; the U.S. Dry conditions, as our winter wheat crop early emergence proceeds, had our first crop condition report of the year put wheat ratings at 20 year lows. Some key western Plains producers received even worse ratings. The market, worldwide, will be very sensitive to production problems with key world exporters, regarding the new 2011 crop year.
The crop rating came in at 47% good to excellent condition, versus the ten year average of 64%. If we continue down it will make wheat severely challenged to find better than perfect weather to catch up to normal yields next spring when dormancy breaks. For now, we will grow into late November dormancy with periodic strength in prices, if quality trends decline.
Current forecasts have rainfall in the 6 to 10 day outlook as below normal. These forecasts can change quickly and wheats a crop that needs marginal rain amounts to be healthy compared to corn and beans. Entering Friday, December wheat finds support at 6.85, then 6.60 with resistance at 7.25. A close over 7.25 and 7.40 is next stop.
Corn export sales were about as expected at 550 t.m.t. up from 212 the week prior, but 17% under our four-week average. With China occupied buying beans and corn just off the years high-price bid, sales were soft again for the third consecutive week. The good news near-term is that Asian markets double their purchases from the week prior. And ultimately, it's Asian sales that move the market.
The next bullish news for corn comes seven trading days from Monday with the November 9 USDA monthly crop report. No one will want to be short and speculators will want to be long on fear the report will again lower production and cut ending stocks, already dangerously low. December corn enters Friday with support at 5.62 and resistance at 5.88. Any pullback to support should be bought and if any early week dip occurs consider this option-play prior to the November 9 report. Buying one December 5.60 corn call and sell one December $6.10 corn call for 15 cents or $7.50. It takes you into the crop report and past if needed as it doesn't expire until late November.
Soybean exports were 2 .02 5 million metric tons, equal the week prior with China in for 1.369 of the total and 1.451 the week prior. China continues to overbook US beans as insurance hedge against dry planting conditions in number two world being producer exporter Brazil. WXRISK.COM the weather site sees a chance for a measurable rain in Brazil this weekend and that could kickstart delayed planting in the central and northern regions.
This weekend, into November 1, looks to bring .25 to 2 inches of rain over 70% coverage in general, but 1 to 4 inches with 80% coverage across the previously too dry central regions. If these rains are on the high end of totals and coverage, we could get a early week weather break between Sunday night and Tuesday. This would create a perfect buying opportunity prior the big November 9 crop report. If it occurs, consider buying support, basis January futures, off the low 12.00 area support or call options spreads. Buy one January 12 .00 bean call and sell one January 12 .70 bean call for 15 cents or .75. Like the corn spread it has plenty of time before expire rations and controls risk.