Can Wheat Prices Keep Pace with Corn & Beans
Sep 17, 2010
I wanted to talk about Wheat for a change. I know I have been on the big bull band wagon, and actually was one of the the first to predict the big move higher right here on Ag Web several weeks back. I wanted to let my followers know that as of today I have exited several of our long wheat trades and have have started to become more cautiously bullish, possibly even starting to look at positions to implement with a bearish tilt.
I know there are fears of tighter ending stocks if the USDA is forced to raise exports, but I am just starting to wonder if that will ever really happen. US ending stocks are currently at the second highest level in the last 11 years, and actual soft red winter ending stocks are projected to be at their second highest level in all of history. I am just starting to think slower export sales might soon have an effect on wheat prices and cause us to come up well short of the USDA’s projected export estimates.
From the reports I am starting to hear I just wonder if we have not grossly over-estimated this number in the heat of all the excitement. Even with the the strong export sales we have seen up to this point, we will need to average nearly 18 million bushels per week for the next 9 months to reach the USDA projections. I just don't see it happening unless the US Dollar gets hammered (which is highly unlikely now that the Bank of Japan said they are going to intervene), or some key growing regions in other parts of the world have catastrophic problems.
Think about these facts, during the last six years, not one single time has average sales from this point forward ever even been over 14.5 million bushels per week not alone 18 million per week. Certainly you have to consider that with the massive reductions in the Black Sea region we will see more exporting, but how much more? To meet expectations we will need to see the highest weekly sales that we have ever seen in the past 15 years. Not to mention that as we move forward we are almost certain to see a higher number of wheat acres planted both here in the US and on a global scale.
In fact planting is well underway for winter wheat here in the US and recent rains have to be considered beneficial. I am hearing the same story in India, where good rainfall has boosted their 2011 wheat production estimates. I am also hearing that wheat stocks in india are now above 30 million tonnes, almost eight times higher than what they had original set for their goal. The thing I can't figure out though is that even with huge supplies, India continues to basically ban private wheat exports. If they get into the export game you can kiss the USDA estimate goodbye.
Those of you who follow our daily report know that we have been long Corn and short Beans since August 18th at a 5:2 ratio. This trade has been extremely generous and has produced profits in excess of $17,000 per unit. With this in mind I began rolling out of the short Nov beans today replacing the position with short Dec wheat contracts in order to spread off some of our long corn exposure. I am not necessarily telling you to get outright short the wheat market but you may want to consider it the new dog of the group as we head higher.
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