- Wednesday started on a weak note following the lower closed yesterday, and we thought that an early market overview would be appropriate in the absence of any fresh news of note. As far as wheat is concerned, there are many winds blowing; there are concerns over the Australian, US and Russian crops as well as a lack of export licences from Argentina but on the other hand there are still large exportable surpluses in Europe and the Black Sea. Additionally, the weak Black Sea currencies also hold a twin position with lack of farmer selling (using his grain as an inflation/currency hedge) on the one hand and attractive face value prices on the other. From a US perspective, their wheat is too expensive, by some way, and the influence of the funds appears to be dissipating – at last.
- From a corn perspective, as we have stated for some (considerable) while, it has been hard to be bullish when looking at the fundamentals. In the face of a much talked about big crop and massive carryout the US market should be looking at a number of issues including declining domestic feed complex (corn, wheat and soybean meal), negative blending margins, overpriced export levels and what appears to be a developing favourable S American weather pattern. These issues, when combined, suggest the USDA’s end stock figures could well be understated – possibly by some way.
- In soybeans, everyone is now fully briefed on the old crop tightness and consequent squeeze on cash soybean meal prices which pushed the soybean price rally.. Monday’s interpretation of the soybean crush and export data in a bullish manner has now segued into a more realistic realisation that the soybean meal pipeline is being filled, and rapidly, and the market is adjusting accordingly. We approach first notice day on the Dec contract a week on Friday and cash deliveries are not expected but the large speculative position still remaining in the Dec contract could well give us a good firework display.
- In the US heartlands temperatures plummeted 12-25 degrees below average last week as has been well reported. The good news is that next week is forecast to warm up considerably with improved precipitation in the coming fortnight. The cold snap is likely to have stopped growth in wheat; winterkill is not expected to be an issue in the Great Plains, the US breadbasket, where wheat was planted on time and has developed adequate hardness. Potential issues are being discussed in Midwest soft red wheat where some planting was delayed reducing the growing period and autumn pre-dormancy hardening period. In some crops emergence had not occurred by November 11, and there is a historic correlation between such conditions and reduced yields. Soft red wheat accounts for around 30% of the US winter wheat crop.
- As we approach today’s close CBOT prices remain deeply red, fund selling and a reduction in Chinese soybean pricing appear to be key. It is reported that some EU importers are awaiting lower levels before committing to fixing prices, and it feels as if they may well get their wish before long. US cash soybean meal continues to weaken, and talk of cargo switching to S America is strangely absent today.
- Corn fell under its 20 day moving average tipping prices still lower as some traders exited stale longs and switched to the short side. In soybeans, the front month Jan ’15 contract has been close to testing $10.00/bu support amid active fund selling. Wheat is following corn and approaching support levels, which have held today, but look as if they will be tested – maybe later in the week.
- One active spread trade is featuring at present, that being long soybean oil/short soybean meal and feels as if it has “legs” and a potential profit looking forward. Short term price targets are $9.95/bu basis Jan ’15 soybeans, which is the Nov 5 low, followed by$9.83, the 50 day moving average. Dec ’ 4 corn has a target price of $3.50/bu whilst Dec ’14 wheat appears to want to hold support at $5.25-$5.31 – for now!
- At the close tonight it feels like a “heavy” market with further pressure to come.