TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS ANDMAY NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.
Monday Market Thoughts
The internet is full of Russia, Russia, Russia and its not political this time. Its about wheat and its worth noting that the mighty Russians have firmly secured the crown of the global wheat market. Not a great headline to read after a USDA gut punch to the corn market last week. However, one of the bright spots of the corns WASDE report was exports. Increasing by 75 million bushels, the USDA also raised feed and residual to help keep the balance sheet from posting a massive 2.5XX ending stock. After beating up the corn balance sheet, the USDA gave a friendly pass on wheat. Not only did US ending stocks fall but so did global wheat stocks; unlike corn and soybeans which saw growing global balance sheets.
Then came Monday. The wheat complex started the Sunday evening session under pressure throughout the night and didnt get much relief after the morning break. Re-opening at 8:30am, central time, selling pressure remained strong. Pitiful export inspections of only 301,039 metric tonnes (MT), wheat requires 513,275 per week to meet the USDA target of 27.22 million metric tonnes (MMT) or 1 billion bushels. Another line item the USDA raised in its November WASDE. US domestic use of hard red spring wheat was raised as well as exports for hard red winter wheat.
The greater sadly is if these export increases are justified. After export inspections today, soybeans stand at 27.7% versus the five-year average of 28.7%. Corn is at 12.6% versus 16.3% and wheat is at 44.2% versus 47.1%. Trailing their 5-year averages by 1.0% in soybeans, 3.7% in corn and 2.9% for wheat. Export sales are dragging along as well with soybeans behind their five-year average by 14.0%; corn behind by 4.7% and wheat behind by only 0.6%. Now, the wheat outlook is appearing better, however sales can be canceled or delayed.
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Since 1990/91 the US has been losing, on average, 70,000 MT in export demand. Unlike corn and soybeans which gained on average 187,000 MT per year for corn and a massive 1.707 MMT per year for soybeans. Even more concerning for wheat; like corn and soybeans, the US is losing its place as dominating the global production scene. Thus, making the world less reliant on US crops. Then add in surprisingly high yields from the Dakotas to Iowa, mid-summer weather premium might be hard to come by, not only for wheat but corn as well. Both markets continue to be each others anchor and while the hopes of a heavily short managed money could spark a short covering rally, that might be the worst case as it would re-position them to lean into the short side again. Rallies, albeit limited, may be a gift for bushels sitting around collecting storage fees. In the event of a short covering rally, the Dec17/Dec18 spread has been stretched far; given slacking exports, deferred contract months may continue to make new contract lows as we they approach. Dec18 is currently trading near 386 with March19 near 395.
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While the USDA offered longer term hope to the markets with increasing exports, the global landscape is much less dependent on the tried and true stability of the US production line. With the US dollar appearing to be heading higher, exports are likely to struggle in the near future. However, all of this is known and has been known for some time now. Russian headlines today didnt create new contract lows and even corns ability to hold 340 in the face of record yields was able to hold its ground. The best cure for low prices are low prices in the sense of either more demand or less production. Global demand continues to rise while our competitive edge fades.
Producers concerned about next year may be interested in several option strategies being used. Give me a call to talk markets, strategies, construct a marketing plan or even to chat farming. I can be reached directly at 312-277-0119 and dont forget to sign up for our Ag Hedge newsletter as well as our other featured items. Just follow the links and sign up today!
Brian
Brian Grossman
Market Strategist
Zaner Group, LLC Ag Hedging
(312) 277-0119
@AgHedgeGrossman
www.zaner.com
Forover 30years, Zaner has been helping futures, commodity and forex traders trade smarter, faster and easier. Zaner is an established, highly regarded award-winning execution and brokerage firm known for providing clients with exceptional service. Zaner covers a broad range of commodities with individual divisions which include agricultural, energies and metals. To learn more, sign up:
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