Dec 28 6:30 AM CST – Wheat Setting the Stage for Recovery?

Wheat recovered from a five-month low as traders expect a gain in U.S. export sales after the recent sharp sell-off. Soybeans and corn also increased overnight.

Since the first of December, wheat prices have been on a downward spiral, giving up nearly a $1.30 a bushel as nearby March futures dropped to $7.65 yesterday, the lowest level since July 2. However, since that time buying interest has spurred prices back to the $7.78 area. This morning’s export sales numbers are expected to show 500,000 to 700,000 tons for the week. With a declining dollar, relatively cheap US prices, and a stockout situation in much of the Black Sea markets, we would expect to see US wheat export business picking up in the new year. This year’s relatively high protein content of US SRW wheat is seemingly attracting new buying interest.

For corn, export sales are expected to be light this week as high US prices continue to be a driving force for slow business. Weekly ethanol production will be released today by EIA, and is expected to continue to show sub-par numbers in light of tight crush margins. Even though corn prices are off 64 cents a bushel since the first of December, ethanol prices are off 23 cents a gallon over the same time period or 62 cents a bushel corn-equivalent.

In the bean market, next week’s report on Chinese manufacturing is expected to show factory activity in December expanded at its fastest pace in eight months, reinforcing ideas of economic revival and keeping China’s appetite high for U.S soybeans. However, this week’s export numbers will factor in a recent string of announced cancellations, and as such are only expected to total 400,000 to 600,000 tons for the week, but still not too far behind the 629,900 tons last week. Overnight, South Korea bought a 25,000 ton load of US soybeans.

Weekly Export Sales
Wheat: 1,009,000 MT (expected 500,000-700,000)
Corn: 104,300 MT (expected 150,000-300,000)
Soybeans: 87,000 MT (expected 100,000-300,000)

Grain Prices Continue to Sour

Trading overnight was light and mostly directionless as grain prices continue to struggle with limited news to lift prices.

Corn traded as low as $6.90 on nearby March futures but continues to hold key support at $6.88. Yesterday’s export inspections report showed 13.5 MB of corn exported for the past week which was above analyst expectations, but still below par to reach USDA’s annual forecast of 1,150 MB by 78 MB. We would expect USDA to trim their export forecast in the upcoming January supply and demand report. News overnight had Taiwan rejecting all US corn and soybean tenders, citing high prices.

For beans, futures were unchanged on front-month January but weaker on deferred months and new-crop November futures as growing conditions in South America are relatively favorable. Nonetheless, solid near-term export business in the U.S. keeps nearby prices supported above $14. Year-to-date soybean exports and sales continue to be red-hot suggesting final 2012/13 US exports could be higher than the 1,315 MB record that USDA is currently projecting.

In the wheat market, Chicago futures were down 5 cents overnight adding to their 20-cent hit on Wednesday. Traders have expected US wheat to garner more export business in the global market in the 2nd half of the marketing year, but so far nothing significant has materialized. India has stepped up to be a major exporter after the government released more stocks for exports. Bangladesh announced they had bought 50,000 tons of wheat from South Korea. Bangladesh is one of Asia’s top wheat importers, buying close to 3.5 million tons per year. In the US, the large snow storm throughout the Plains and Midwest was thought to have brought much needed moisture to the drought-stricken winter wheat crop, although much of Oklahoma, Kansas and Nebraska received less than 1 inch of moisture.

US Wheat Finding Competition in Global Arena

Grain markets will open at 9:30 am CST this morning after a break for Christmas. Monday’s close saw modest gains as short-covering helped give grain prices a lift.

Overnight, India announced that it will allow an extra 2.5 MMT of wheat for overseas sale, continuing with the export window for the second year in a row. India allowed 2 MMT of wheat for overseas sales in 2012 from government warehouses as part of a strategy to cut huge stocks built due to successive bumper harvests. India, the world’s second-largest wheat grower, produced a record 93.90 MMT of wheat in the crop year through June, leading to an all-time high procurement of around 38 million tonnes of the grain and an overflowing inventory. On Monday, India announced a tender that it was looking to sell 150,000 tons of milling wheat.

Indonesia’s Ag Minister projected 2013 corn output will be higher at 19.831 MMT versus 18.962 MMT in 2012, while soybean output will nearly double from 0.78 MMTY in 2012 to 1.5 MMT in 2013.

Brazil’s weather looks promising for beneficial rains to continue across southern and central areas during the next 5 days supporting developing soybeans. In Argentina, episodes of rain and showers during the past few days likely brought disruptions and delays to the remaining planting with some acreage reductions not being ruled out. Drier weather is likely later this week into the weekend.

Look for choppy and thin trading during the post-Christmas trade. EIA has postponed the normal Wednesday release of the Weekly Ethanol Report until Friday.

Contract Last First Support First Resistance
March Corn (C3H) 704.25 688 707.5
Jan Soybeans (S3F) 1439.75 1403 1443
March Wheat (W3H) 793.75 775 802

Bargain Hunting Gives Grains a Boost

Grain futures were marginally higher in the overnight session as bargain hunting after last week’s slide propped up prices before the holiday. Trading closes early today at noon CST and will resume on Dec 26th at 9:30 AM CST.

Soybeans are trying to find a bottom after last week’s sharp selloff. The combination of improved growing conditions in Brazil and China export business cancellations sent the market on a tailspin, losing 90 cents for the week. Last week, private exporters reported the cancellation of 540,000 tonnes of U.S. soybeans sold to China – the biggest cancellation in at least 14 years. Traders said the cancellations were due to a likely bumper crop in Brazil where China could book supplies at much lower prices. Heavy rains have fallen over Brazil’s southern grain producing states this week. Brazil’s government food supply agency Conab forecast the soybean crop at a record 82.6 MMT, which is above USDA’s latest projection of 81 MMT.

Corn continues to struggle with weak demand. On Friday, USDA’s cattle on feed numbers showed a 6% drop in cattle numbers from this month last year. However, USDA has projected a 9% drop in corn used for feed in the current marketing year. Quarterly stocks information from USDA will be released in January and will be our first indication of how livestock producers have adjusted to high prices. In ethanol and exports, demand has been running at 10% and 48% lower, respectively.

Wheat is underpinned by drought threatening the U.S. winter wheat crop. The first major snow storm of winter did little to ease the drought, which is the worst in more than 50 years in the crop-growing U.S. Central Plains and Midwest. Argentina’s Agriculture Ministry cut its estimate for 2012/13 wheat production by 5 percent to 10.5 MMT, which is still higher than leading private forecasts but reflects damage caused by wet weather.

Basis Levels Inch Higher

Basis levels were up modestly this week with sluggish demand keeping cash markets mostly quiet. On average across the U.S., spot corn basis managed a one cent gain for the week while spot beans were up 2 cents.

In the corn market, ongoing demand struggles for exports and ethanol has kept basis levels mostly stable. While December is a time of usually increasing basis levels, for this year December has seen only a modest 2 cent improvement in US average basis. Weak export conditions have taken its toll on the Gulf where basis levels backed off 6 cents for the week. In the ethanol market, EIA’s weekly ethanol report showed production was down 2,000 barrels per day from last week and stocks of ethanol were sharply higher. Even with falling corn prices, margins continue to be weak for ethanol producers as prices for ethanol have fallen sharply as well. Since Dec 1, corn prices have come down 50 cents a bushel while ethanol prices have fallen 23 cents a gallon or 62 cents a bushel-equivalent, putting pressure on margins. Basis levels at ethanol plants did improve modestly this week, posting a 1.5 cent gain.

For soybeans, slower overall export demand along with news of Chinese export cancellations put pressure on futures markets, and helped slow basis growth. So far in December, US average soy basis is up 8 cents, but this week basis levels were up 2 cents. Soy processors were actually lower on the week as signs of less export business and significantly lower soymeal prices start to cut into crush margins. At the Gulf, export basis was off 8 cents.

Grains Higher After Two-Day Slide

Grain futures managed a minor recovery overnight after two days of significant selling pressure has put markets on the defensive. Soybeans are up 10 cents, while corn and wheat have gained 3 cents.

The recent price slide has brought new interest from international grain buyers. Overnight, the Taiwan Flour Millers’ Association purchased two cargoes of U.S. wheat totaling 75,600 metric tons. South Korea’s largest animal feed maker Nonghyup Feed Inc. (NOFI) has purchased 193,000 tonnes of corn in a tender on Friday and allowed the United States to be an option for the supplies after initially excluding U.S.-origin corn from the purchase.

In weather, the massive winter storm across the U.S. Midwest is helping ease drought conditions. But, roughly 10 inches of moisture or rainfall would be needed in a large portion of the Plains and Midwest to break the drought that blanketed the crop region in 2012. This storm’s snow totals are reaching upwards of 12 inches which is rain equivalent of one inch of moisture.

South America’s weather continues to show improvements as Brazil has gotten timely rains in drier areas, while Argentina is seeing a forecast of drier weather in rain-soaked production regions. Some analysts are beginning to increase their forecast for Brazil beans as weather conditions are more favorable.

Corn Falls Below $7

Grain prices suffered double digit losses in the overnight session with corn and wheat taking out critical support at $7 and $8, respectively.

Selling began in Wednesday’s session on the heels of a bearish ethanol report and forecasts for sharply higher corn acreage in 2013. EIA’s weekly ethanol report showed production was down 2,000 barrels per day from last week and sharply higher stocks of ethanol. Even with falling corn prices, margins continue to be weak for ethanol producers as prices for ethanol have fallen sharply as well. Since Dec 1, corn prices have come down 50 cents a bushel while ethanol prices have fallen 23 cents a gallon or 62 cents a bushel-equivalent, putting pressure on margins.

On Wednesday, Informa revised their 2013 acreage forecast pegging US corn at 99 million acres, which is higher than last year’s level of 96.9. Falling prices led to new tenders overnight, but all the business was for non-US corn. South Korea’s largest feedmaker Nonghyup Feed (NOFI) is seeking up to 210,000 tonnes of corn excluding U.S. origin and South Korea’s Korea Corn Processing Industry Association (KOCOPIA) has bought 55,000 tonnes of Brazilian corn.

In wheat, prices broke through the $8 support area, and falling below the key 200-day moving average that had served as a floor for the past week. Germany’s projected that their 2013 winter wheat plantings area has been expanded by 7 percent on the year to around 3.1 million hectares.

For soybeans, prices continued to fall lower without new signs of China in the market for soybeans. Weather in Brazil points to favorable growing conditions as beneficial rains are expected to continue during the next 5 days supporting developing soybeans.

Export sales this morning were mostly disappoint with corn showing 114K tonnes sold for the week versus expectations of 250K-550K, soybeans at 619K versus expectations of 650-850K, and wheat at 651K versus expectations of 450K-655K.