by Tim Hannagan
SHORT WEEK AHEAD
11/20/2009
November 20, 2009
The Thursday weekly export sales report put wheat sales last week at a weak 362,000 metric tons, down 12% from the week prior and 13% below our four-week average. Slow demand comes as record-ending stocks keep importers buying hand-to-mouth as needed and last week’s rally in-priced of $0.40. After another $0.40 rally, this week was surely going to see weaker export sales on our next report as we become a too-expensive port for wheat.
Corn sales were 352 T.M.T. off 28% from the week prior and 15% under our soft, four-week average. 40-year low harvest pace leaves little corn for export, but as harvest progresses, we expect Asian demand to pick up. We need sales to return to 800 T.M.T. or more to turn demand back to a pricing source in the futures. Mexico came in Friday and purchased 733 T.M.T. That will show up on next weeks report. Soybean sales were 1.349 million metric tons up six percent from the week prior and 58% over a strong four-week average. Key world player, China, was in for 724 T.M.T. of the total. The 1.349 were sales for future date shipments. The report also showed 1.724 M.M.T. were actually shipped for a new high on the marketing year. As you now, from reading my weekly updates, as far back as July, I noted that when the bean harvest begins, China will enter as a huge buyer to meet near-term needs, continue to build their strategic bean reserve, and overbook bean purchases as insurance against crop delivery problems from South America as they grow their crop the first three months of 2010.
On November 2, 2009, we were 25% harvested on beans and our export sales came in at 522 T.M.T. On November 9, 2009, we were 75% harvested and export sales came in at 1.272 M.M.T and November 16 , 2009, this last Monday, we were 89% harvested and this week’s exports were 1.349 M.M.T. As more came to harvest, demand picked up in a big way. Prices rose along with demand but nothing extraordinary as ample harvest supplies put talk of running out for later conversations. Once the harvest is complete and the pipeline to the shipping ports run dry, the only beans left are those sitting on the farm to be held out for higher prices later. Demand won’t change, it will still be there until South America starts to harvest next March, then U.S. exports will have competition. Before then, and when the pipeline dries up, we have to expect new highs in prices to occur as cash prices move higher as an incentive for farmers to move grain off the farm to meet demand. We started to see some of the month-end profit-taking that always occurs. Wednesday’s break-off, the high to Thursday’s, low, was $0.30 on beans. Corn broke $0.22 and wheat $0.33 off its Wednesday high. Month-end profit-taking comes in many shapes: The last two months saw several consecutive down days, while some months in strong trends see profit, taking-off, rallies, where you’re “up 18” on beans, pull back to “up 2”, then back to “up 18” and back to “up 2.” All of a sudden, your close is up on the day and yet funds pulled $0.34 out in one day. We could see some of that next week as markets have three days to execute trading as markets are closed Thursday for our holiday, leaving only Friday and Monday remaining on the month. So, we could see some very irregular trading patterns Monday to Wednesday.
On corn basis December futures, if crude oil is up to start the week and the dollar index down, corn will test 4.12 resistance early. The reverse of those outside markets and corn could pull back to 3.82 area. At which point you should be a buyer as we expect to see 4.30 resistance hit off the results of the December 10 U.S.D.A. crop report. If a correction doesn’t occur, buy on a move through 4.12.
January beans look like this. A start to the week with crude oil down and the dollar-index up, could see beans pull down on profit-taking to the 9.85 area and that would be a dream buy as we expect to test 10.70 and possibly 11.10 in December. If crude and the dollar start in reverse for the week, we will test first resistance of 10.70 quickly. 10.20 is strong support on the charts and a close under sets up that 9.82 support. The key is to get long into December and the December 10 crop repo
Last Friday, we said stay long grains into this week, but look for the week’s high to sell as month-end profit-taking enters next. Now we look to buy the low of next week between Monday and Wednesday, as that low will hold through the results of the December 10 government crop report. Wheat has resistance at 5.84. Support today, Friday, was 5.54 then 5.28 if 5.54 taken out.
The weather site commodity COMMODITYWX.COM is taking a real look at South American weather. This past weekend brought large rain totals to key Brazilian bean growing areas of up to 5 inches. Additionally, Argentina’s biggest bean area also saw good rains but area in the south and west are still dry having some crop forecasters beginning to cut their potential crop size while too much rain in Brazil keeps acres unplanted. It’s too early on all these issues to affect the production, but we have to follow weather there closely now as it determines U.S. exports come next March to May. When you look at rain totals in South America, keep in mind it’s a sandy soil in need of double the moisture the earthy U.S. fields need. It also dries out quickly and doesn’t hold moisture.
WXRISK.COM sees Midwest U.S. weather as cold with rain Sunday into Tuesday. The first week of December looks mild. Remaining corn harvest looks to continue slow through to next Friday.
Tim Hannagan
PFGBEST Research Team
800.563.9510
thannagan@pfgbest.com
MONTH-END FEARS
11/17/2009
A few reports Monday to cover. The first was the weekly export inspection report telling us how much of each grain was inspected for near-term export. Wheat inspections were 15 million bushels (“m.b.”) down from 17.7 the week prior, 18.3 a year ago and equal our weak four-week average. It’s a neutral number to demand as record-ending stocks would require 35 m.b. weekly to be sold to attract the futures market. Corn inspections were 21 m.b. down from 27.7 the week prior and four-week average of 24.5. Still slower than needed to be a futures driver. The trade wants 35 m.b. or more weekly to be demand bullish for prices. Beans, as usual, saw another stellar demand number. Inspections were 59.8 m.b. versus 64 last week, but the third highest weekly total ever. Key world buyer, China, was in for 37.9 m.b. of the total as they continue to meet their protein needs and overlook U.S. beans as insurance against potential crop problems in South America after the first of the year. Don’t just take note of China’s business as each week shows the rest of the world is in buying too with 22 m.b. sold to countries other than China. The crop progress report after the close, showed 64% of the winter wheat crop is in good to excellent condition, up one percent from the week prior and off to a great start before we go dormant in December. The only issue in the report that is friendly to prices is that eastern –belt states have many acres unplanted and may never get planted as corn and beans are yet to come to harvest and allow the soft red winter wheat to go in. 10% of the nation’s crop is unplanted. Soybeans came in 89% harvested. Traders thought it would come in over 90%. This could foster talk of abandonment. But, there is time yet to further harvest beans. The last 10% of every crop always come in slow. Corn harvest was put at 54% complete versus the 10-year average of 89%. Illinois and Indiana east see the slowest effort of all the big producers but our upper plains like North Dakota, Minnesota and Wisconsin are setting up to see more acres than wanted go not harvested. We’re set for a big abandonment number on the final crop report in January.
Monday’s higher prices came as traders priced in inflation as crude oil was sharply higher pulling up corn-based ethanol while the dollar-index was lower creating a favorable export exchange rate. Equally as bullish was the weather. WXRISK.com sees rain across the Midwest grain belt the next 48 hours with potential for heavier rains next Tuesday and Wednesday. This creates concerns that corn harvest already far behind will continue to lag. They price the weather in on Mondays, then use it as support on breaks while turning to outside markets to determine daily trends. Turn around Tuesday started us out 6 cents lower on corn, beans and wheat as traders banked Monday’s profits,then turned up at midsession . January beans find minor support at 9.90 Wednesday. A close under and 9.75 is next support. Resistance is 10.20. A close over and 10.70 is our next major resistance.
December corn finds minor support at 3.94 but a close under sets up 3.74. Resistance remains 4.04, but a close over sends us to 4.14 then 4.30. December wheat support lies at 5.50 Wednesday. A close under and 5.18 is next. Resistance on the upside is 5.74 then 5.84
The wild card now is when will funds take those month-end profits. This week late or next week, the last full trading week of the month. The last week of October saw bean drop $0.70, corn $0.53 and wheat $0.89. The end of September saw beans drop $0.25, corn $0.35 and wheat $0.30. If funds begin month-end before we take out first resistance I gave, then we could expect to fall to second support. That would happen this week. But, if we trade thru first resistance to second resistance given, then first support I gave is our pull-back price and this can only accure next week. Just food for thought: always be ready for the month-end mindset funds always experience.
Tim Hannagan
PFGBEST Research Team
800.563.9510
thannagan@pfgbest.com
BEANS LEAD THE WAY
11/13/2009
What a week. We had everything from weather issues to crop reports and harvest concerns. We started the weeks reports with our Monday weekly export inspection report. For wheat it showed 17.2 m.b. of wheat was inspected for near term export up from a weak four week average of 15.5. The trade ignores any improved demand numbers as Tuesday crop report increased our ending stocks inventory to 886 m.b. a record storage. The only thing demand from wheat can do is if it strengthens we could see more short covering by trend following funds short 33 thousand contracts. Corn inspections were 26.8 m.b. up from our four week average of 22. We have seen a slowdown in corn sales to Asian markets that buy 70% of our exportable feed grains, the last four weeks. There are two reasons that account for the slowdown that will soon fade. One, the historic low harvest rate leaves the pipeline of exportable corn pretty empty. That will change the next two weeks as bean harvesting is concluding and combines will attack corn, creating availability of product. Number two, China has been building a large corn reserve. This has had them the last month selling their old corn to surrounding Asian neighbors and key U.S. customers who are more concerned about quantity at value over quality. China will replace what’s sold with fresh U.S. corn then those Asian customers of ours will return to their usual buying pattern. China is like a grocery store who puts on sale goods with expiring dates to make room for fresh goods. In other wards their rotating their shelves. The bean inspection report showed 59.9 m.b. of beans were inspected for near term shipment. This was the second highest weekly number ever. Second only to last week’s 65.9. Key world buyer China was in for half the total as they overbook U.S. beans to meet protein needs and as insurance against a poor growing season coming up in South America. Last year’s drought in Argentina left China to fill their needs entirely on U.S. ports. The grain marketing year for beans began September 1st and ends September 1, 2010. We are nearing sales of beans at 70%of what the U.S.D.A. had expected to sell by next September. Something has to change, either exports level off and or decline or they will continue leaving the government to increase their export projections. Then the price of beans goes high enough to insure we don’t run out. The wild card for demand is weather in South America or Brazil and Argentina the number two and three largest world producer exporters of beans behind us. Currently Brazil is seeing too much rain with planting behind year ago and Argentina looking dry again. With bean planting down 20% from the year prior. They’ll get it in but can they grow it. With the growing season here over, weather goes to the sideline until spring but we now have to look at weather in South America thru to March as funds will trade weather problems there on our exchange. We saw this Thursday as beans opened 8 cents lower with crude oil down and the dollar index up but rallied up over 20 cents on dry concern talk in Argentina. So, as far as demand is concerned it’s a non issue for wheat. We look for a pick up late November into December for corn and bean demand continues at a record pace here until South American weather improves, if at all. If rains come in late December thru to mid February, talk of high yields and production will have china begin to cancel previous U.S. purchases and re-buy on South American ports at cheaper value. No rain and prices here will surge in that period. Corn technical’s read like this.
Support Monday basis December lies at 3.70 with resistance at 4.04. buy support or a close over resistance. Stay long in the big picture. January beans have support at 9.55 and major resistance at 10.20. Buy support or on a move thru 10.20. Stay long. December wheat should be bought on dips to support off the 5.10 area but there’s minor support at 5.28.
Tim Hannagan
PFGBEST Research Team
800.563.9510
thannagan@pfgbest.com
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