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In Position to Push Higher with too Much Rain in Forecast

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The wheat market was able to hold on to gains after the release of the USDA report. All wheat production was pegged at 1.820 billion bushels compared to trade expectations for 1.858 billion. This is down 490 million bushels from last year. Winter wheat production came in at 1.246 billion bushels versus the average estimate of 1.308 billion. The Kansas crop was estimated at 289.9 million bushels with a yield of 42.0 bushels per acre. Kansas abandonment rate was 16% or roughly 1.3 million acres and that number should grow. Winter wheat production is down 25% from last year at 1.246 million bushels and could move lower if the damage in Kansas from the snow/freeze event two weeks ago is more pronounced. Old crop ending stocks were pegged at 1.159 billion bushels with new crop at 914 million bushels vs. 930 million expected.

World ending stocks came in at 255.4 million tonnes and the world 2017-18 ending stocks came in at 258.3 million tonnes. At first glance, the 2017-18 world ending stocks are a bit surprising until you see China’s ending stocks went up 17.2 million tonnes from last year to 127.99 million. On a percentage basis, China is 49.5% of the world wheat ending stocks. As we know, China does not compete on the world export market and the accuracy of these stocks is uncertain. If you strip China out of the world ending stocks figure for 2017-18, world ending stocks went down 14.26 million tonnes. If the wet weather continues and yield and quality concerns become more prevalent, a 5% drawdown in yield would pull ending stocks down to 812 million bushels. For the weekly export sales report, traders see wheat sales near 300,000 to 650,000 tonnes.

TODAY’S MARKET IDEAS: July wheat put in an outside day higher close yesterday. Chicago wheat acted better than Kansas City wheat, but that’s most likely due to the managed money short in Chicago compared to the KC contract. We feel there is enough uncertainty in yields and harvested acres going forward that there should be support in the July contract against the 419 1/4 level. The real question is will the managed money short of 130,000 contracts cover the position or roll to the September contract. July wheat close-in support is at 429 1/4 and 419 1/4 with 439 1/2 and 443 3/4 as resistance. July KC wheat support is at 435 1/2 with 449 1/2 and 454 1/4 as support. Look for higher trade ahead.

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