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Wheat: Oversold but No European Weather Threat

by Terry Roggensack on June 22, 2011

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NEAR-TERM MARKET FUNDAMENTALS: Higher than expected yields for the ongoing harvest, improving weather for Europe and expectations that Russia and Ukraine will be aggressive sellers of wheat on the world market for the new crop season are all seen as short-term negative forces. The market gave back all of yesterday’s gains with increased selling pressures overnight as the strong US dollar and another sharp break in European milling wheat helped to pressure. Before the Russia drought last year, nearby wheat was trading near 450 and while the market has already dropped from over 825 late last month, traders do not see 670 wheat as “cheap” and this is keeping commercial traders as more active sellers. July wheat closed moderately higher on the session yesterday and managed a late new high for the day despite a sell-off in Kansas City and Minneapolis wheat into the close. July KC wheat pushed to a new low for the move this morning to 788 3/4 as compared with yesterday’s high of 814. The sharp break in the US dollar and strength in the other grain markets helped to support the market early. Ideas that the harvest pressures will continue ahead with Kansas just 27% harvested helped to limit the advance and there is still talk of better than expected yields. Talk of heat for the northern plains for early July was seen as a mixed issue for recently planted spring wheat crops as the crops have seen a steady dose of rain which left to crop only 91% planted as of Sunday vs. the 10-year average of 100% complete. The crop is rated 72% good to excellent condition. Talk of the oversold condition of the market and ideas that wheat feeding will boost global usage this year helped provide some support yesterday. Better weather in Europe has been a factor to limit the advance. The head of the weather forecasting center in Ukraine believes the grain harvest this year is set to rise to 42.5-44.5 million tonnes as compared with 39.2 million last year. Wheat exports from Ukraine for the 2010/11 season (which ends June 30th) are expected near 3.7 million tonnes from 9.2 million the previous year. European milling wheat futures pushed to a new six-week low this morning as better weather and speculative long liquidation selling helped pressure. G-20 Agriculture ministers are meeting in Paris and discussing proposals from France to tackle the surge in global food prices. Ideas range from data base sharing to increased regulation of commodity trading. Tunisia is tendering to buy 75,000 tonnes of optional origin wheat.

TODAY’S GUIDANCE: While oversold and in a position to see increased feeding usage, traders see the lack of a serious weather issue in Europe as a key and this has helped keep fund traders as active sellers.

TODAY’S MARKET IDEAS: Short-term support for September wheat is at 691 and then 681 3/4 but the technical action is bearish. However, futures are oversold and July wheat has already reached the some initial downside objectives. Bears might be cautious given the potential production issues for the northern plains and Canada.

USDA: Supply & Demand Update – 2011.06.09

by Terry Roggensack on June 9, 2011

CORN:

The USDA report this morning was considered bullish with the market called 10-20 cents higher on the opening. US ending stocks were pegged at 730 million bushels, unchanged from last month and compared with expectations near 705 million. For the 2011/12 season, ending stocks are pegged at just 695 million bushels as compared with 900 million bushels last month and trade expectations near 770 million. This is a 5.2% stocks/usage ratio which would be the second tightest on record. Yield was left unchanged at 158.7 bu/acre but planted area was revised down by 1.5 million to 90.7 million acres and harvested acres down by 1.9 million to 83.2 million. As a result, production is expected to come in at 13.2 billion bushels which is down 305 million bushels from last month and 55 million below expected usage. Feed usage for the new crop season was revised down by 100 million bushels. World ending stocks for the 2011/12 season came in at just 111.89 million tonnes, as compared with 129.14 million tonnes last month and 117.44 million this year. This is a 12.8% world stocks/usage ratio which is the third tightest on record and the tightest since 1973.

WHEAT:

The USDA Crop Production and supply/demand report this morning was considered slightly bearish but the market is called 5-10 higher. US ending stocks for the 2010/11 season came in at 809 million bushels as compared with trade expectations near 845 million. For the new crop 2011/12 season, ending stocks came in at 687 million bushels as compared with 702 million bushels last month and trade expectations near 657 million. For the 2011/12 wheat production report, the USDA all wheat production at 2.058 billion bushels as compared with trade expectations near 2.010 billion. All winter wheat production came in at 1.45 billion bushels, about 60 million above expectations. Hard red winter was near the high end of expectations at 776.9 million, 34 million above expectations. Soft red winter was 433.7 million bushels, 17 million above expectations. For the world report, 2011/12 ending stocks were pegged at 184.26 million tonnes from 181.26 million tonnes last month. While production was revised lower by about 5 million tonnes, beginning stocks were revised higher to 187.12 million tonnes, up 4.92 million from last month.

SOY COMPLEX:

The USDA Supply/demand report was considered bearish for soybeans but the market is called to open anywhere from 5 lower to 5 cents higher for the opening. Corn numbers were bullish. US ending stocks for the 2010/11 season were pegged at 180 million bushels as compared with 170 million last month and trade expectations of near 175-180 million. The USDA lowered exports by 10 million bushels for this season and 20 million bushels for the 2011/12 season. New crop ending stocks were pegged at 190 million bushels which was about 20 million bushels higher than expected and compared with 160 million last month. Total demand for the new crop season was revised to 3.290 billion bushels, down 20 million from last month and down 25 million from this year. There were no revisions in acreage or yield. World ending stocks for the 2010/11 season were revised higher to 64.53 million tonnes from 63.81 million last month and 60.94 million two months ago. Brazil production was revised to 74.5 mmt from 73 million tonnes last month. China import demand slipped to 54 million tonnes from 54.5 million last month and 57 million two months ago. For 2011/2012, world ending stocks are pegged at 61.59 million tonnes. China demand is pegged at 58 million tonnes.

Bounce Has More of a Technical Feel; US Planting Behind; Saudi’s Up Crude Production

by Dave Hightower on June 7, 2011

Little more of a positive physical commodity track. However, it has more of a technical bounce than a change in fundamentals. Some disappointing GM sales out of China but positive Retail Sales data out of the Euro-Zone. Energy upside may be limited unless energy stock figures show a tightening in stocks with expectations of Saudi Arabia will increase production. US planting progress, while advancing, is behind last year especially in Ohio.

Commodity Outlook – 2011.06.06

by Dave Hightower on June 6, 2011

Below is an excerpt from The Hightower Report’s most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

The outlook for commodities as of the beginning of June is somewhat suspect, as the world is concerned about slowing growth in the US and China and many economists are disappointed with the lack of rebuilding signals from the Japanese economy. But as strange as it may sound, it is possible that the evidence of slowing from inside and outside of the US over the last month might hold a silver lining for some commodity markets, as enough slowing could give credibility to the talk of extending QE2 or even implementing some form of QE3. As the September US Treasury Bond chart indicates, the fear of slowing is being widely embraced in the interest rate markets, and that has tempered the bid for several physical commodities. The ongoing burden on the US economy from negative reverberations in the US housing sector probably has the Administration and certain members of the Fed on edge again, especially if the recovery becomes even more suspect in the weeks ahead.

However, talk that high energy prices are crimping consumer spending should begin to moderate slightly, as nearby RBOB prices were recently as much as 32 cents a gallon below the April highs. But while the bullish buzz from the energy complex might be temporarily under wraps, US heating oil and gasoline stocks are at relatively tight levels (see chart) and US refinery operating rate recently showed that almost 17% of US refineries were idled. The spring demand lull is over now, and that means tightening product stocks will likely remain a threat throughout the coming US summer driving season. With the US government recently warning against price gouging, we also think that some US refinery operations will be idled more quickly in the face of slumping margins or almost any sign of weakness in demand, as most companies don’t want to risk being attacked by the Justice Department for charging more, especially if they are facing thinner profit margins.

Even the grain markets started the month of June on a slight corrective track, as a break in the pattern of unrelenting rain events throughout the US Midwest allowed planting progress to play some catch-up. That probably served to shift the focus away from delayed planting progress and toward weather conditions going forward. In addition to the potential for reduced US yields because of the later plantings, the market is also seeing a threat against European feed wheat production due to drought, as well as from dryness in China. While US weather conditions could become more conducive to planting, it should not be forgotten that as of May 29th Ohio still had almost 3 million corn acres unplanted. In North Dakota, only 55% of the spring wheat crop was planted as of May 29th, a record low for that date. The 10-year average is 90%. With initial forecasts for June calling for an entrenched hot and dry pattern, the grain trade is concerned that the weather is poised to go from one extreme to another. This could be detrimental to the crop if the pattern lasts more than two weeks. Still, one also has to wonder if a large contingent of fund longs will be content to stick with their long corn positions in the face of a favorable weather pattern and in the face of slack to weak expectations for the economy in general.

In the face of global slowing evidence and noted price recovery efforts in sugar and cocoa during May, traders might look to attack the short side of both of those markets. Facing a period of rising supply and potentially suspect demand ahead, it wouldn’t be surprising to see them fall down to their lowest levels since the 4th quarter of 2010.

The commodity markets need to see an improvement in scheduled data flows, a fresh downside breakout in the Dollar, or a significant threat to physical oil supplies to fully reignite the commodity bull market. In the meantime, we suggest that traders wait for a return to the May lows, in some cases to the 2011 lows, before entering back into the long side of the market. Aggressive traders might actually look to sell cocoa, sugar, crude oil and natural gas, as those markets appear to be poised for a correction.

Wheat: Downside Limited Until Europe & Canadian Situation Better Known

by Terry Roggensack on June 2, 2011

NEAR-TERM MARKET FUNDAMENTALS: Rains in the forecast for central Europe into the weekend and for next week was seen as the primary bearish force for the market yesterday. European wheat prices were firm overnight as traders take a more wait-and-see attitude on near-term price direction. In addition, crops are still stressed and many traders see damage in France as irreversible. The quick pace of wheat prices dropping in the US and Europe and rallying in Russia has traders thinking the wide spread is narrowing very quickly and this has traders second guessing about calls for a massive movement of Russia wheat onto the world market beginning July 1st. The Russian government appears a bit concerned with surging wheat values and the Russian Grain Union suggests that the government could introduce limits on grain exports after lifting the ban on July 1st. News of good rains for parts of Europe and continued talk of tough export competition from Russia this year was enough to spark more speculative selling and the lowest close for July wheat since May 16th yesterday. News of increased chances of rain in France into the weekend and next week helped to pressure the market early. Record slow plantings in the US for the spring wheat crop and fears that Canada may also lose significant acreage this year helped to provide some underlying support. In addition, traders see the Russia and China dry weather outlooks for the next few weeks as a concern. The best rain in months should help revive the wheat crop in many areas of Europe but some traders believe that part of the crop damage done so far is irreversible. The weekly Spring Wheat Planting report showed that just 68% of the crop is planted compared to 93% as the 10 year average for this time of year. This is a new record slow pace compared with the previous low of 73% in 1995. North Dakota is just 55% planted vs. 90% normal and Montana is 59% planted from 94% as the 10-year average. In addition, these areas look to receive more rains in the coming week. The EU granted export licenses this week for 237,000 tonnes which pushed the cumulative total for the year to 17.7 million tonnes from 16.4 million last year.

TODAY’S GUIDANCE: Ideas that Russia will be a major exporter for the new crop season was seen as a force to drive the market sharply lower this week so far. Traders are now wondering if losses in Europe, Canada and the US will more than offset this new supply. The downside appears somewhat limited until we know more about Europe and Canada.

TODAY’S MARKET IDEAS: The technical pattern looks weak for July wheat unless the market can move back over 777 and 793 1/2 resistance. There is some light support at 749 1/2. July KC wheat support is at 892 1/2 and if this fails, 864 1/2 becomes key support. It will take a move back over 920 to regain the short-term uptrend. Consider buying set-backs.

Concerns About Global Economic Slowing; OPEC Talking About Increasing Production

by Dave Hightower on June 2, 2011

Concerns about global economic slowing continue. US stock market seems to be factoring in a disappointing jobs number this Friday. OPEC is talking about increasing production by one million barrels per day at an upcoming meeting. US crops face uncertain weather over the coming weeks.

Weaker US Dollar and Improved Global Equity Markets Support Commodities

by Dave Hightower on May 31, 2011

Generally positive tone off the holiday weekend. This is attributable to a weaker US Dollar and favorable international equity market action. Forward look at improving Japanese manufacturing is supportive as well. US weather is still questionable. The short-term benefit to planting of a hot-and-dry forecast may turn into a problem for the crop if it settles in for a longer term.

Wheat: Uncertainty Continues; Moved Over 100-Day Moving Average Overnight

by Terry Roggensack on May 19, 2011

NEAR-TERM MARKET FUNDAMENTALS: While the US weather problems appeared to be center stage in the sharp range up move yesterday, concern for dryness in Europe resulted in some follow through gains in wheat prices in the very early US Thursday morning wheat trade. News of an increase in insurance payments to wheat producers in hard winter wheat crop areas is also adding into the bullish vibe this morning. While Indian price action overnight wasn’t as strong as might have been expected in the wake of the US action yesterday, India isn’t as concerned about global supply side threats as other producers because their domestic wheat output jumped up to 84.2 million tons from just 80 million tons last year. In a slightly negative development, the Ukraine appears to be set to expand export quotas for wheat, which suggests that market mechanisms are doing their job in pulling out supply. In a positive demand side story, the Japanese were found to be purchasing wheat and barley from Australia. More than likely the wheat market only gave passing interest to forecasts of higher world wheat output for 2011-2012 year from a private source overnight. That news has surfaced before, and with the fresh threats against supply in Europe and the US, those views might have to be adjusted later on. For the US export sales report this morning, the trade is looking for an improvement on last week figures. As of last week’s report (for data as of May 5th), the cumulative old crop sales had reached 101.7% of the USDA forecast for the year versus a 5-year average of 96.4%.

TODAY’S GUIDANCE: One shouldn’t fight the uptrend right now, as uncertainty on the crop continues and the market moved above the 100 day moving average overnight at $8.22 1/4, which could foster technically orientated follow through buying today. The next upside target in the July Chicago wheat is $8.43 1/4, with similar upside targeting in KC wheat seen up at $9.68 and perhaps up at $9.76 3/4. So far short term technical overbought readings aren’t excessively overdone and that could allow the bulls to push prices up to the highest level since late February.

TODAY’S MARKET IDEAS: The range up day yesterday for July KC wheat and its subsequent move above key round number resistance at 9.50 overnight provides more encouragement for the bulls and that leaves the April high of 976 3/4 as the next upside target. July wheat support moves up to 800 with 850 and 865 as resistance and upside targets.

USDA Supply & Demand and Crop Production Summary – May 2011

by Terry Roggensack on May 11, 2011

CORN:

The USDA report this morning was considered bearish with the market called 15-20 cents lower on the opening. US ending stocks were pegged at 730 million bushels which was up from 675 million last month and up from trade expectations near 665 million. Exports were revised lower by 50 million bushels. For the first look at the 2011/12 season, ending stocks are pegged at 900 million bushels as compared with trade expectations for near 810 million. Yield was revised down to 158.7 bu/acre as compared with the Outlook conference trend yield from March at 161.7. However, while production is lower than expected, the demand outlook came in well below trade expectations. Exports were revised down a further 100 million bushels from this year and feed demand was revised down by 50 million bushels from this year. As a result, total usage is pegged at 13.355 billion from 13.450 billion this year and from 13.5 billion as last months estimate. World ending stocks came in at 122.19 million tonnes, down slightly from 122.43 million tonnes last month. For the 2011/12 season, world ending stocks are pegged at 129.14 million tonnes.

WHEAT:

The USDA supply/demand report this morning was considered mixed for wheat with the market called down 10-15 cents. US ending stocks came in at 839 million bushels, unchanged from last month but lower than trade expectations near 845 million. For the new crop 2011/12 season, ending stocks are pegged at 702 million bushels as compared with trade expectations near 675 million. For the 2011/12 wheat production report, the USDA pegged production at 2.043 billion bushels as compared with trade expectations near 2.040 billion. While domestic demand was revised higher, US exports are pegged at just 1.050 billion bushels as compared with 1.275 billion this year. Winter wheat production was pegged at 1.424 billion bushels as compared with trade expectations near 1.39 billion. For the world report, ending stocks were pegged at 182.2 million tonnes from 182.8 million tonnes last month. For the 2011/12 season, world ending stocks are pegged at 181.26 million tonnes.

SOY COMPLEX:

The USDA Supply/demand report was considered negative for old crop soybeans and slightly positive for the new crop season. The market is called 15-20 lower on the opening. US ending stocks were pegged at 170 million bushels, which was well above trade expectations and compares with 140 million last month. The USDA lowered exports by 30 million bushels. New crop ending stocks were pegged at 160 million which was down some from trade expectations. Total demand for the new crop season was down 15 million from this year to 3.31 billion bushels. World ending stocks were revised higher to 63.81 million tonnes from 60.94 million last month. Brazil production jumped to 73 million tonnes and more importantly, China import demand slipped to 54.5 million tonnes from 57 million last month. For the 2011/12 season, however, China demand is pegged at 58 million tonnes and world ending stocks at 61.85 million tonnes.

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Grains Look at USDA Report and Energies to EIA Stocks

by Dave Hightower on May 11, 2011

The grain markets will be looking at today’s USDA Supply & Demand report with particular focus on the first numbers for the new crop year. Energy complex will be paying close attention to the weekly energy stocks report from the EIA. If gasoline stocks get below the 200 million, it signal some significant tightening.

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