Morning Comments - End of the month blues
May 28, 2014
The wheat market continues to slip away and has pushed into lower lows once again overnight. July futures have now reached back to the same level where it was trading at the beginning of March, right about the period when there was a threat of an actual war between Ukraine and Russia. Note that on the first trading day of March, prices gapped higher in what was a breakaway leaving a hole on the spot chart between 6.10 ½ and 6.16 and on the July chart between 6.02 and 6.08. There would seem to be no question that we now sit in an oversold technical position but this market has little story for the bull at this point and may not be able to find much supportive until we have moved into next month. The next level of support underneath begins at the 6.25 level and extends down to 6.00.
After weeks of deterioration the overall winter wheat conditions showed a slight improvement. Good/Excellent was up 1% at 30, fair was down 1% at 26% and poor/very poor unchanged at 44%. A year ago at this time the ratings stood at 31/27/42. Spring wheat planting edged up to 74% complete which compares with 77% a year ago and 82% average. Spring emergence runs a bit behind normal and stands at 43% compared to 57%.
Export inspections slipped a bit this past week as we moved 18.7 million bushels bringing the marketing year to date tally up to 1.129 billion bushels. With basically a week left we would need to export another 55.8 million bushels to reach the target.
As I commented above, wheat sits in a very technically oversold position and could see a corrective rebound at any point. That said, we can remain oversold for sometime and this late in the month with the overall weather outlook favorable both domestically and across Northern Europe/Russia, I suspect it would require something out of the ordinary to bring buyers back to this market.
The corn market has continued into lower lows for the swing as well in the overnight trade. This carries us into a congestion range were corn was trading between 4.68 and 4.56 back in late February before issues in Ukraine had really caught the attention of traders. This market is also contending with the end of the month blahs and at this point it would appear doubtful that we will find many willing buyers before the beginning of June.
As expected we did see great strides in planting progress this past week in the areas that have been furthest behind schedule. North Dakota planted 50% of the expected crop and now stands at 67% complete, Minnesota planted 28% more and is up to 81% complete, Wisconsin increased 31% and is up to 67% and Michigan jumped 24% to 53% complete. Nationwide we stand at 88% complete which is right at the historical average and 4% ahead of last year. This would imply that we still have around 5.2 million acres to plant if we are to reach the USDA target of 91.7 million acres. Emergence was reported at 60%, which is just 4% behind average and 11% ahead of last year. We should see the overall crop rating beginning next week but the states that have reported reflect a solid start. Arkansas 76% good/excellent, Illinois 67%, Indiana 68% and Missouri at 61%.
While not overly inspiring, the corn export inspections have been consistent. For the week ending May 22, we loaded out 45.7 million bushels bringing the year to date tally up to 1.287 billion bushels. This is just above the pace needed (43.8) to reach the current target of 1.9 billion bushels.
There will be quite a discussion/debate between now and the end of June as to how many acres of corn will be lost to either prevented planting and/or other crops which would appear to be a certainty at least in North Dakota. The question mark of course is were additional acres plant in the heart of corn country with the rapid pace of planted that was witnessed? Historical patterns would say yes. All that said, with the weather outlook quite favorable for growing conditions, it will probably be challenging to find much buying interest outside of short-covering between now and the beginning of June.
While the bean market may have taken a few good body blows yesterday, none of them came even close to delivering a knockout punch. Trade is a bit mixed this morning with nearby futures holding steady and the new struggling as the widow maker July/Nov spread continues to trade at a bit more than a $2.50 inverse. In is interesting to note that this spread actually posted its highest trade back on the 17th of April at $2.77 but has been stuck basically between $2.75 and $2.25 for two months. That should be indicative of a very tired bull but one that probably will not surrender until we have more evidence of supply/demand in balance.
Of course that would not explain the tenacity of the bulls in November futures. Planting increased 26% last week bringing us up to 59% complete, which is actually 3% ahead of the normal pace for this point in the year. Factor in the probability of additional acreage on top of the already record projected 81.5 million and the favorable growing condition forecast and it would make one wonder why we have not already pushed back below the 12.00 mark. Yes, we have broken fairly sharply over the past 2 ½ days but keep in perspective, up until last week, the high for the swing was 12.49 and we currently sit around 12.35.
I have commented before that I try not to argue with markets as one; it is fruitless and can be financially painful and two; if markets are not acting in a fashion as the fundamentals would seem to dictate, we have probably missed something. That said, I continue to believe that the gates are closing rapidly on the this bean bull and for the November contract especially, once they have been shut, it may require quite a weather disruption to open them again.