- Seasonal price trends for wheat are generally down into the first half of December. It is possible, but seasonally rare that US wheat futures would bottom in late October. Funds are heavy short wheat futures, which makes the market subject to short term rallies. However, we would argue that it will be mid-December before a more lasting rally effort can unfold. Note that any rally in US wheat futures has to be tied to reduced Russian exports, which also concurrently occurs in December.
- Following firm overnight trading, soybeans were able to extend gains through Thursday in technical trade. Fundamental there was nothing new in the market, rather January soybeans willingness to hold at the 200 day moving average over the last two weeks, along with limited hedge selling on the decline has triggered fund short covering. Chinese soymeal stocks continue to decline, after reaching historic levels late last summer. At the peak, meal stocks were thought to be over 1.2 million mt, but have since been cut in half. Stocks last week were estimated at just 664,000 mt. Note that over the last several years, estimated crush margins and meal stocks have had a near inverse relationship, with margins turning positive, as meal stocks began to decline back in August. Heading into the end of the week, the soybean charts look more supportive with January stopping just under $10.00. However, we expect that much improved hedge selling will develop on a recovery back to the October high near $10.10.
- December corn rallied 2 cents on decent export sales, but mostly due to fund money flow. Managed funds earlier this week could very well have held a record net short position, and we mention that the spec short has exceeded the commercial short, and so a rally was due. Fundamentals, however, have changed little in recent weeks. US corn prices are stuck between rising world feed prices and ongoing cheap S American offers, and a general lack of early season weather threats in Brazil and Argentina. Export sales through the week ending October 26 totalled 32 million bu, down roughly 20 million from the prior week but still right at the pace needed to hit the USDA’s forecast. We would note that feed wheat and barley prices continue to rally, and maintain sizeable premiums to world corn offers. This is positive for US corn, but to sustain such a pace of export demand into mid-2018 requires adverse S American weather, which is not evident as of now. Much of Argentina’s crop is rated as good or excellent. Funds short position is viewed as excessive, but trading above $3.75 basis March, will be tough without major declines in S American surpluses.
- Chicago wheat futures are now flat on the week following a flood of short covering today, and as Iraq looks to have secured 400,000plus mt of US HRW this week, vs. a reported 100,000 mt on Tuesday. EU cash prices rallied quickly by $4-5/mt, Russian wheat is firm at $193-196/mt through early 2018, and the market still lacks a bullish or bearish story in the near to medium term. Weekly US export sales through last Thursday totaled 13 million bu, down fractionally from the period week and a bit below the pace needed to hit the USDA’s forecast. There is nothing yet to suggest a lasting boost in US demand is imminent, though S Hemisphere harvest data is awaited. Argentina’s harvest is just beginning, and this week reached 3.5% complete. Yield so far is pegged at 1.3 mt/ha, vs. 1.6 mt/ha on this week a year ago, but the Buenos Aires Grain Exchange maintains a production estimate of 17 million mt, vs. the USDA’s 17.5 million. Such a harvest will allow for exports of 10.5-11.0 million mt, down from last year but still large. Funds’ short position is sizeable and futures were again nearing oversold levels, but rallies will struggle amid a still rather loose major exporter balance sheet.