Due to an early morning travel schedule, I am putting out the daily comments during the evening so export sales will not be included. We will catch up with them on the Friday morning report.
As Yogi Berra once said "it is déjà vu all over again" as the wheat market extended higher in response to stories that Russia was amassing troops on the Ukrainian border in an effort to maintain peace and ensure the safety of Russian citizens living in Ukraine. Is it ever a good thing to have the fox or in this case the bear guarding the hen house? We now have the west calling for an economic embargo against Russia, including wheat and Russia looking at embargoing various products from the west and tension appear to be escalating. While I do not think it quite the same, this is what accelerated wheat to the spring high previously this year and appears to have shaken us from the doldrums once again. Hopefully this situation comes to a quick and peaceful resolution but with managed money leaning well to the short side of this market, the safest place would appear to be on the sidelines. If you did not have a chance to read it, in the Financial Times this week, economic historian Niall Ferguson wrote a good piece explaining why we should not immediately pass off this situation as that was the same mistake the west made 100 years ago when Archduke Franz Ferdinand was assassinated, which ultimately sparked off WW I.
Lets hope that a peaceful situation evolves from these tensions but until it does, I have to imagine the wheat market will remain on pins and needles. As I have covered previously, there is little positive in the wheat fundamentals at this point but uncertainty demands that risk be reduced and that translates into buying. If tensions settle down once again, there would be little to support prices.
The short covering in wheat prompted the same action in corn and December future pressed up to the highest level traded in over a week. Overhead resistance is dense in this contract up to the 3.78 level and while continued rally in the wheat could carry us through that point, independently there is little positive news to be found.
Bloomberg News did publish average trade estimates for the upcoming report and show an expected average yield of 170.2 b/p/a with total production of 14.25 billion bushels. The average estimate for the carryout came in at 2.034 billion bushels and if it does turn out that we push carryout north of the 2 billion mark on this report, I have to think it would pound that proverbial final nail in the corn bull coffin.
We witnessed a big slice in the ethanol production last week, not due to profitability but transportation issues. For the week ending August 1st we manufactured 265,188,000 gallons, which is over 10 million below the 10-week average. This figure still equates to around 95 million bushels of corn so is still nothing to sneeze at. Ethanol inventory was down 14 million gallons.
Yield reports are slowly emerging from the south and while limited at this point, have been outstanding. Prices have softened again in the overnight trade and it is possible that we could easily see this market chop sideways now into the report but unless the situation in Ukraine really evolves into something major, I have a difficult time not thinking this may be just a resting spot before the next dive into lower lows.
The bean market was not to be left out of the short-covering rally and November future rallied away from the base of support once again. We have seen a little two-sided action in the early overnight trade so neither bulls nor bears would appear to hold the upper hand at this point.
That said, I believe the burden of proof lays with the bull at this time as with no real weather threats on the horizon, thoughts should turn to bigger crop potential. The Bloomberg survey revealed an average trade estimate of 45.5 b/p/a and total production of 3.815 billion bushels. While that is not much different than the last USDA estimate regardless, it is a larger number.
I would still like to believe that we have room to see November bean work back against the 11.00 level between now and the report. If correct, I intend to view such action as an additional hedging opportunity as it would likely require a weather issue to extend from there and right now that does not appear to be in the forecast.