The Grain Report by Tim Hannagan
Aug 23, 2013
Tim Hannagan is a Grain Analyst for Walsh Trading, Inc. and a nationally recognized expert on the grain markets.
Thursday at 7:30 AM central time we got a look at the demand side of the market. The weekly export sales report indicated 494,000 metric tonnes of wheat was sold last week. That’s down 20% from the four week average. Brazil was purchased 188 and China 52 of the total. Both are regular buyers on a weekly basis. Thailand, South Korea and Taiwan were in for smaller amounts of feed quality wheat at a discount to cash for high protein wheat certified for human consumption.
Sales have been slow for the last three weeks as harvests wind down in the European Union. Sales of wheat at discounts to U.S. prices should come to a screeching halt as we approach October 1st. The U.S. will then become a primary port of origin for wheat. At that point we expect trend following funds to start buying back their short position of 75,000 contracts. New crop corn sales for delivery after September 1st stood at 434,000 metric tons this week vs. the four week average of 665,000. Importers are putting off purchases awaiting lower cash prices at harvest. Currently cash prices are $1.50 over September futures and the Ukraine is selling corn and a 72¢ discount to U.S. prices and a 32¢ discount to Brazil’s. We expect new crop corn sales to pickup measurably as harvest begins. New crop soybean sales stood at 926,000 metric tonnes. Key player China purchased 681 of the total and 159 to an unknown destination A.K.A. China. This is 1.8 million metric tonnes lower than China’s purchase of 1.3 million metric tonnes last week. Still a respectable demand number. As of August 8th export sales stood at 48% of the USDA’s forecast for the 2013-14 marketing year compared to the five year average of 30%. No one wants to be caught short of grain for the third consecutive year as the new marketing year approaches. Feeders, end users and exporters looking at empty storage bins will buy cash grain at record levels this year to garner grain out of the farmer’s hands. Avoiding the $1.50 to $1.80 cash premiums over nearest futures they had been paying for the last four months. Grain prices are trading higher Friday as expected. Traders do not want to be short going into this weekend. Everyone is looking to get long ahead of Sunday as weather forecasts call for virtually no rain through August 31st and a 10 day stretch of the hottest weather this growing season. WXRISK.com a very well followed weather site sees 85% of the Midwest grain belt as being dry with temperatures in the high nineties and 101° in the western grain belt states. Look for a sharp, sizable rally Sunday night into Monday’s trade. But, don’t expect the market to rally all week off the hot dry conditions. There are three reasons the early week highs will hold for the week. One - It’s the end of the month when funds can pay a 2 to 3 percent bonus on profits taken before month end. This makes for an easy decision if you’re a fund manager. Two: large traders will not leave their chips lying on the table ahead of the three day Labor Day weekend. Three: Long term forecasts show that upon return from the holiday Tuesday, temperatures will be wet and much cooler September 3rd through 5th. Traders going long into the weekend should look to take profits on the initial rally as index and trend following funds price in the weather premium.
If the weather forecast holds true we should expect new crop November beans to test $13.50 and December new crop corn to test $5.00. Just a note, every Thursday at 3:00 PM central time I hold a free grain webinar to discuss the fundamentals of supply and demand, weather and point out the technical aspects of the grains using the charts to identify trading patterns. The webinars run an hour to an hour and half. They are available recorded as well. If you are interested in attending just send us your E-mail address and we will send you a link to get in free. Indicate whether you wish to attend the live or recorded presentation.
If you have any questions or comments, please contact Tim at 312-957-8108 or 888-391-7894 or email him at email@example.com. Please visit our website at www.walshtrading.com for daily audio commentaries, market insights, webinar recordings and more. If you missed Tim's Weekly Grain Webinar yesterday, August 22nd, you can access it here.
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.