December futures fell to a three year low as the dust settled from Monday’s report and traders realized the large carryout number and likelihood of the crop getting bigger going forward. A large part of a bigger crop outlook comes from the methodology behind the USDA’s yield calculation. They use the 5-yr. avg. on ear weight combined with surveyed ear population/acre. The argument can be made that last year’s lower avg. ear weight, as an outlier, should be tossed out- doing so, and using the same calculation for 2007-2011, brings the national yield estimate up to 160.4 bpa. This is the formula used on the Aug. report due to lack of maturity/data for actual ear weight for the upcoming crop. Funds were sold an estimated 12,000 contracts. U/Z traded as low as 6 ¾ before settling at 7 ¾ inverse. Basis levels remain firm, Decatur at +155 CU, Hereford @ +205 CU. Coverage remains thin for Sept and those managing a DP short should still have majority of longs in the September. Z/H traded 13 ½, this is an excellent level for locking in carry on anticipated ownership. If a customer wanted to push 80% coverage at 13.5 (little extreme to make a point), I am not sure I could come up with a good argument against it. With a projected SON demand, historically low farmer marketing, and uncertainty of harvest timing, I am willing to risk 2-3 cents of full carry. Worst case scenario is the spread widens- this should reflect at least the equivalent value in basis weakness for fall ownership opportunities and wider carry in the H/K and K/N.
Beans had a two sided trade today closing down double digits for August while Sept through March were up 1-2 cents. Tomorrow is the last trading day for August and OI started the day at 405 contracts for beans. Weaker cif values did impact August futures and the likelihood of deliveries along river terminals with beans does make sense. Cif at approx. +170X is equal to +38Q and freight for 3rd week of August when barges would be place is 60 cents along Pekin rate base or over 30 cents light of DVE. Central IL processor bids are more in the 1.80 to 1.90X area and costs to stop and truck out of these areas would be more than that. No beans have been registered up to today, but that may change this evening. Argentine crush workers in Rosario will start a 24 hour strike at midnight in hopes for improved working conditions and more health care centers. SAFRAS estimates that S.A. bean production could reach 160mmt in ‘13/’14. This would be an increase of 10% if achieved. Deferred spreads tightened heavily today with X/H narrowing over 2 cents and X/K came in almost 6 cents. New crop export basis offers remain solid but with so little elevator ownership and strong sales on the books, it feels like there is more risk than reward to short values this early.
Wheat tried to stay even on the day however the pull from corn was more than the wheat bulls could take. Funds sold around 2k contracts on the day pushing wheat lower by the end of the day. News was limited today — Bangladesh bought 200K Ukrainian wheat to help replenish states reserves. The French wheat crop continues to grow in size however harvest is slow and late thus helping US demand. Australia is picking up some moisture helping that crop but expect light exports thru the 2013 yr. Gulf values for 12.0 pro stay firm with lack of ownership and decent export demand. Moisture continues to bless HRW country, with a decent fall crop on the horizon elevators will be challenged to move more wheat to make space with the lack of ownership. If you can logistically move the HRW wheat then the Sept is ok to keep what little hedges you do have. If you plan on holding wheat then talk with your broker about getting to the Dec. Biggest question remains how long will this export demand hang around? Wheat planting is right around the corner, and if this weather pattern holds we can expect large amounts of wheat acres in the rotation. Plenty of field work to be done between now and then however the moisture is by far more of blessing than a hindrance. KC protein scales were mostly unchanged 12.0 thru 12.6 were up 1c as the “protein inverse” remains strong giving the shuttle shippers and warehouses incentives to blend low pro and high pro wheat.
This data is provided for information purposes only and is
not intended to be used for specific trading strategies without
consulting Advance Trading, Inc. No guarantee of any kind is
implied or possible where projections of future conditions are
attempted. Past results are no indication of future performance.
All information is based upon data that is believed to be reliable,
but its accuracy is not guaranteed. Please see
http://www.advance-trading.com/index.php/disclaimer for full disclaimer