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All American Grain Report by Tim Hannagan 12/13/2013

RSS By: Sean Lusk, AgWeb.com

By Tim Hannagan

Senior Grain Analyst, Walsh Trading, Inc.
312-957-8108 or 888.391.7894
email: thannagan@walshtrading.com 

 

 

This is Tim Hannagan it's Friday, December 13th. Last week we talked about selling the beans going short after Tuesday’s December 10 USDA monthly crop report this week. The last three weekly reports I discussed the building of bearish demand fundamentals in soybeans lending to a break in prices after the USDA crop report. Coming into December, exports were slightly over the record year prior. Sales are 93% of the USDA 2013-14 forecast. But Chinese business is changing. Understand that China imports account for almost 90% of our sales. From October 28th to November 25th, grains inspected and shipped averaged 83 million bushels, highs of the year. The average since is only 59 million bushels. Chinese shipments received in the same period went from 57 million bushels to 36 million the last two weeks. Note, shipments are more important now than exports to be determined later because future shipments are expected to be canceled from China if South American weather stays optimal for growing conditions in January and February. Looking forward, last year’s shipments from December 15th to January 31st averaged 40 million bushels. The recent weekly export sales report showed a Chinese slowdown as well. The last two weeks saw average Chinese purchase for future shipments at 428 thousand metric tons versus the four prior weeks of 969 thousand metric tons. The four-week average in September was 704. What broke beans down $.20 Thursday after the weekly export sales report release was even though total sales were 1.108 million metric tons, up 38% from the week prior, Chinese purchases were only 558 thousand metric tons, the second lowest in two months and index and trend following funds look to Chinese purchases for direction. Other buyers are not in consistently on a weekly basis. In December of 2012 for instance we had export sales the first two weeks of December at 1.142 million metric tons and 1.319. Then China saw the good weather in South America as nonthreatening to the crops and began to cancel previous US purchases to buy cheaper beans from Brazil for February on out. The last two weeks of December saw 616 and 87 thousand metric tons with the weekly average in January of 612, February 341 and March 305 thousand metric tons. With good weather in Brazil through mid February, Brazil could produce 10 million metric tons of soybeans more for late February to April delivery. With no genuine weather threat such as a LA-NINA or EL-NINO weather pattern, China may be beginning their seasonal exit from U.S. overbooking of soybeans as insurance against a drought in South America. Today Friday, we had a low basis March beans of 13.00, which is a major support price on the charts. That represents monthly profit-taking by funds as they always pull profits out after US crop reports as they usually have a measurable rally. They took $.35 off the high of the October report, $.50 off the November report and $.40 off Decembers report. If we are in for a bigger seasonal break we need to close under 13.00 basis March. The wildcard now is weather in South America through February or China re-enters the U.S. as a major buyer of beans. Argentina does look very dry and hot the next 15 days. Technical’s read like this, March bean support is 13.00 then 12.80 and 12.60. Resistance 13.45. March corn support is 4.20 then 4.08. Resistance 4.30 then 4.40. March wheat support 6.05, resistance 6.36. Don't forget my weekly webinars each Thursday at 330 central time for a live review or you can get a recording by going to the Walsh website at www.walshtrading.com.

 

RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT.  WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.

Ag Outlook: Kansas/Chicago Wheat Trade by Sean Lusk

May 07, 2014

It is my belief after watching price action in wheat that an opportunity may be coming for a spread trade between Kansas City Wheat and Chicago Wheat. 

 
View From The Fields
A crop tour of key producing states took place last week with no surprising results. Oklahoma wheat yields were estimated at 18.5 bushels per acre. That compares to 31 bushels per acre last year. Production is estimated at 66.5 million bushels down from 105 last year with 55% of Oklahoma was rated in severe drought conditions as of April 22. 
 
The number one winter wheat producing state Kansas, has estimated production at 260 million bushels, down 18% from last year and 72% of the state is in severe drought conditions. Yields were estimated at 35.1 bushels per acre compared to 43.8 last year. Plants are considered short with fewer kernels. This led to the spread, long Kansas City wheat short Chicago Board of Trade wheat which expanded again this week. This has been mentioned on our Thursday 3 p.m. webinar several times that buying Kansas City selling Chicago Board of Trade wheat was a viable spread as long as the drought continues.
 
Harvest Begins Soon
However the spread has about run its course as harvest should start to begin in the Southwest late May, that's when traders will begin to sell Kansas City and buy Chicago Board of Trade.  Reasons are we are pricing Kansas City wheat higher now because of drought conditions amid lower production. 
 
But as harvest gets underway the low quality wheat suitable only for the feed ration will drive the U.S. to a number two or three port of origin in the world to buy wheat from. The number one exporting country will be whoever produces the highest quality. Traders will begin to buy Chicago Board of Trade wheat as the quality of that wheat is much higher with proteins up higher as well. That's where the demand is going to be. A Russian/Ukrainian War might exacerbate this condition as well.
 
The Trade
Depending on one’s appetite for risk, I would look to buy Chicago Wheat and sell the Kansas City Wheat at a spread price of 1.10 or better Kansas City over basis July Futures. This spread has gone parabolic over the past few weeks (see chart) and for the aforementioned reasons is possibly due for a correction. I would risk 20 cents on the spread if filled at $1.10 putting a stop in at $1.30, risking $1,000.00 on the trade plus all commissions and fees. A more conservative version of this trade would be to trade mini contracts of this spread which are one fifth the tick size. If one were to trade two mini’s using the aforementioned levels, the risk on the trade is $400.00 plus all commissions and fees. 
 
 
KansasChicago Wheat
 
Webinar
For those interested in grains, Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 PM central time. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. If you cannot attend live, a recording will be sent to your email upon signup. Or please contact me at anytime at slusk@walshtrading.com. To receive weekly invitations and follow up recordings of our webinars, please Subscribe to our list and select to receive Webinar Announcements and Recordings.    
 
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT.  WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
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