Market Watch: Fundamentals in wheat market remain weak
By: Brian Hoops, president, Midwest Market Solutions, Inc.
Tuesday, November 18, 2008 5:48 PM CST
11/18/08
CORN
Corn closed the week of Nov. 14 $.04-3/4 lower. The weekly export sales report showed net sales of 355,500 MT were down 25 percent from the previous week and 46 percent from the prior four-week average.
Increases reported for Japan (193,600 MT), Mexico (116,000 MT), South Korea (57,300 MT), Taiwan (16,500 MT), Panama (9,000 MT, including 7,500 MT switched from Guatemala), and Egypt (6,000 MT), were partially offset by decreases for Colombia (42,600 MT) and the Dominican Republic (17,300 MT). Net sales of 2,300 MT for delivery in 2009/10 were for Canada.
Despite corn values trading well below $4.00 per bushel, export demand remains weak. However, the USDA reported a 103,632 mt corn sale to Japan on Nov. 10.
Harvest delays look to increase as a mixture of snow and rain has hit the western Corn Belt. Corn harvest is only 71 percent completed, well behind the average pace of 88 percent as indicated by the USDA on Nov. 10. This means 3.48 billion bushels of corn remained in the field. Eventually, the market will need to recognize associated with this late harvest.
Technically, corn is finding major support from commercials at $3.72 on the weekly charts. it will take a close above $4.09-1/2 to change the trend on the daily charts.
Recommendations
Hedgers: Hedged 40 percent of 2008 production at $7.30. Re-own 20 percent with March 440 calls once the trend changes.
Cash marketers: Sold 40 percent of 2008 at $6.70.
Traders: Buy December corn at market on a close above $4.09 1/2.
SOYBEANS
Soybeans closed the week $.33-1/2 lower. The weekly export sales report showed net sales of 478,300 MT were down 47 percent from the previous week and 53 percent from the prior four-week average.
Increases reported for China (207,800 MT, including 55,000 MT switched from unknown destinations), Mexico (82,000 MT), the Netherlands (65,500 MT, including 60,000 MT switched from unknown destinations), Spain (55,000 MT), Syria (39,100 MT, including 36,400 MT switched from Egypt), and Taiwan (27,600 MT), were partially offset by decreases for Egypt (36,400 MT) and unknown destinations (22,400 MT).
Despite the slowdown in this week’s exports, overall demand for U.S. soybeans is strong. The NOPA crush for October was 143.39 mb, well above the September crush of 120.40 mb. China remains the number one buyers of U.S. soy products.
With China investing over 586 billion dollars in their economy as part of a stimulus package, we have to believe that Chinese demand for high protein soy products will remain strong. This strong demand trend should continue throughout the winter as the U.S. is the only port of origin for the world’s soy needs.
Seasonal trends remain higher for soybeans. Commercials remain strong buyers of soybeans on any breaks.
Recommendations
Hedgers: Hedged 50 percent of 2008 at $15.20. Long March 1400 calls on 25 percent of 2008 production.
Cash marketers: Sold 50 percent of 2008 at $13.80.
Traders: Buy January soybeans at $9.23 stop; use $8.80 stop loss for protection.
WHEAT
For the week, Chicago wheat closed $.33-1/4 higher; Kansas City wheat $.25-1/4 lower and Minneapolis wheat $.15-1/2 higher. The weekly export sales report showed net sales of 248,300 metric tons were down 32 percent from the previous week and 40 percent from the prior 4-week average.
Increases reported for Nigeria (80,000 MT), Egypt (64,900 MT), Taiwan (54,300 MT), Mexico (43,700 MT), Morocco (20,000 MT), the United Kingdom (12,500 MT), Colombia (10,200 MT), and Venezuela (10,100 MT), were partially offset by decreases for Canada (34,000 MT) and unknown destinations (12,500 MT). Net sales of 5,000 MT for delivery in 2009/10 were for Mexico.
Ratings for the winter wheat crop is now near a record for this time of year at 68 percent g/e as of the last report on Nov. 17. This is well above the 49 percent that was reported at this time one year ago.
Heavy moisture last week should be excellent for the newly seeded wheat should keep ratings high before wheat enters into dormancy. World supplies should become tighter as the Argentine wheat crop is expected to be the smallest in two decades.
Technically, wheat has tested support at $5.10 on the December Chicago contract. Funds remain net short which has given the market a short-covering bounce. The fundamentals remain overall negative, which will limit the upside potential.
Recommendations
Hedgers: Hedged 55 percent of 2008 production at $11.05 Kansas City and 30 percent of September Minneapolis $11.90. Hedge 15 percent of 2008 at $11.34 KC and/or $11.30 Minneapolis. Hedge 10 percent of 2009 production at $10.30 Kansas City.
Cash marketers: Sold 55 percent of 2008 production at $8.50 Kansas City. Sold 30 percent of 2008 spring wheat at $10.90 Minneapolis. Sell 15 percent of 2008 at $11.34 KC and/or $11.30 Minneapolis. Sell 10 percent of 2009 production at $10.30 Kansas City.
Traders: Long December Chicago wheat at $5.72 1/2. $5.04 stop.
LIVE CATTLE
Live cattle ended the week $2.75 lower, while feeder cattle ended $2.25 lower. The cash trade occurred last week before at lower money, defeating early week cash optimism that cash would be stronger. Cash traded in the North at $143/$144; $1 to 2 lower compared to the previous week. Live trade in Kansas and Texas occurred at $93, $1 lower than the previous week.
Last week, the USDA reported September beef and veal exports up 58.3 percent from last year, but down 10.2 percent from August. South Korea was up 28.3 percent for the month and up 245.1 percent from last year. The USDA also reported weekly beef export sales at 18,300 tonnes, up from 4,700 tonnes last week. Export shipments were put at 8,000 tonnes, down from 20,700 tonnes, which were the best exports since Dec 2002. The Oklahoma City feeder auction steady to up $2 per cwt this week on good demand for limited supply.
Recommendations
Hedgers: Hedged 50 percent of December marketings at $107.20. Covered December hedges at $92.70.
Feed costs: Producers need to have coverage in the cash market or at the money March corn call options.
Traders: Buy December at $92.25 stop. Use $2.00 stop for protection.
LEAN HOGS
Lean hogs closed the week $.17 higher. The hog market is similar to the cattle market in terms of anticipating the sluggish economy will have a negative effect on consumer demand for pork. The USDA estimated September pork exports down 11 percent from August pace but up 41 percent from last year. China posted largest decline of nearly 500 percent from last year but was up 28 percent from August.
Technically, weekly charts indicate long-term support is holding, indicating prices should rally off of these lows. If the stock market can stabilize, this support level should hold and provide a tradeable bottom.
Recommendations
Hedgers: Hedged 100 percent of fall marketings at $75.85 December. Lift hedges on a close above $56.55.
Feed costs: Producers need to have coverage through harvest in the cash market or at the money March corn and meal call options.
Traders: Buy December at market if there is a close above $56.55.
VISIT OUR WEBSITE AT www.midwestmarketsolutions.com.
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