The Grain Hedge Team provides a macro-focused daily view of the world’s grain markets. Kevin McNew received a bachelor’s degree from Oklahoma State University and his master’s and Ph.D. degrees in Economics from North Carolina State University. He spent 10 years as a Professor of Economics with the University of Maryland and Montana State University focusing on commodity markets and is widely regarded for his ability to boil-down complex economic situations into easy-to-understand concepts for applied life.
Will Chinese Grain Auctions Hurt Soybeans?
May 19, 2014
Wheat is trading lower this morning after shedding 45 ½ cents last week. In the overnight, Wheat traded as low as 6.65 ½ which is around the 38% retracement measured from the February lows to the recent highs. This price area should also serve as support from the previous low of $6.63 which was tested twice back on April 10th and April 11th. Despite the positive technical factors this morning, it does look like there will be moisture moving through the southern plains the early part of next week. Although this would usually be very positive for the ailing crops many worry that it’s too late for the rains to help the wheat crop significantly in that region of TX, OK and Southern Kansas. Seeding delays for spring wheat in ND and MN will likely be slowed by some precipitation early this week, and also in the 6-10 day outlook.
Last Friday it was reported that Egypt bought 60k Tonnes of wheat from Ukraine which again shows the confidence in Ukrainian ability to continue delivering on their obligations, but also highlights that U.S. grain has lost its competitiveness in the global market after the run-up in prices triggered by drought in the southern plains.This morning there was also talk of dryness expanding in the former Soviet Union during over the next 10 days which could have a supportive effect on prices.
Crop progress and condition ratings will be released this afternoon at 3:00 pm. Last week’s report showed 59%, 20% of soybeans, and 34% of spring wheat planted. This put corn and soybeans on track with the 5 year average while spring wheat lags behind following a cold and wet spring across the northern Plains. Expectations are for this afternoons report to show corn 70-75% complete while soybean sowing at 30-35%.
At the moment, corn July corn is down 3 while July soybeans is off 2. New crop beans are trading 4 cents higher as the old crop / new crop spread continues to unwind and some soybean planting concerns remain in the market given weather. This may be a story supporting November soybeans in the short term but longer term we expect the crop to be planted and acreage numbers to weigh on U.S. soybean futures.
Chinese grain auctions will continue to be a trade topic this week. Tuesday the Chinese will auction 300,000 tonnes of soybeans from state reserves followed by a 1.0 million tonne corn auction on Thursday, May 22nd. Chinese auctions are typically bearish U.S. prices, as fresh grain supplies in mainland China should weaken demand for U.S. grain. Last’s week’s soybean auction actually had a positive impact on U.S. grain futures as the average price and quantity sold was much higher than trade expectations. This week’s grain auctions will be an important indicator of Chinese demand moving forward.