Morning Comments - Bulls are getting a touch nervous
Apr 03, 2014
Fundamentals – It would appear that markets reacted a bit to harshly to the downside yesterday as prices have bounced overnight but I suspect it is more akin to a dead cat than any kind of actual reversal. Rains are moving across much of the Midwest and south which will of course keep producers out of the field near-term but is just what the doctor ordered for an emerging wheat crop.
Export sales fell within estimate range of 2 to 400k MT coming in at 336,400 MT or 12.36 million bushels, which were down 16% from last week. Indonesia, Egypt and Nigeria were the best buyers. 14/15 CY sales came in at 310.5 MMT or 11.4 million bushels. Year to date we have now sold 1.112 billion bushels, so need to sell an additional 63 million of the next 9 weeks to have reached the projection.
I suspect any strength in wheat currently will be fleeting and after what has been a very solid 6-week rally, we are in line for additional downward correction. Eventually I believe July futures should have room to reach to the 6.30 level.
Fundamentals – The USDA report provided us with two very solid up days but that could not extend into a third for the corn market. Even with the solid setback yesterday, corn did maintain key moving average support and have tried to rebound overnight.
The 7-day NOAA forecast indicates that east of the Mississippi we will be looking at reasonable amount of rainfall, particularly to the south, which will of course slow down field work but unless that really persists, it is tough to think of it as a positive market factor. By the time this moves through soil temperature should be warm enough at least in areas south of Minnesota to move the planters into high gear.
Export sales were 32% below last week but still decent at 960,600 MT or 37.8 million bushels. The best buyers for the week were Japan, South Korea and Egypt. 14/15 sales were pretty light at 1.5 million bushels. Year to date, we have now sold 2 million more bushels than the current USDA estimate of 1.625 billion bushels and I suspect we should see that number bumped up by at least 50 million bushels on next weeks reports.
Weekly ethanol production, which was released yesterday was supportive coming in at a daily average of 922,000 barrels, well above the 10 week average of 897,000. This should equate to around 97.5 million bushels. If I were operating an ethanol plant and enjoying these margins, I would be trying to max out production as well. Weekly stocks grew for a second week in a row.
It would appear that the bull was only wounded yesterday and still has intentions of trying to charge once again but I suspect over the next 3 to 5 days he could be pretty well exhausted for now.
Fundamentals – That was a pretty solid reversal in the beans market yesterday but we have seen a number of those types of days over the past 8 months and to date, none have had a lasting impact. It is not that the world fundamentals are looking any more positive at this point, but we still lack solid confirmation that we have turned the supply/demand balance in this country and until that happens the bulls will try and defend their position. Export sales this morning appear to have helped their cause.
For the week ending March 27th, we sold 66,200 MT of beans or 2.4 million bushels. Granted, that is not a huge number but realistically eats up the beans that the USDA found on the grain stocks report. Interestingly enough, the biggest buyer for the week was China at 51.2k MT but there were also cancellations from unknown of 92.5k MT. It will be very interesting to see what changes the USDA will make next week concerning both exports and imports.
Even with the overnight strength, we remain well below the highs posted yesterday and I continue to believe this 15+ level will turn out to be very significant resistance.