Morning Report - The Bull Fights for Another Day
Apr 16, 2014
Fundamentals – As the news coverage of the turmoil in Ukraine expanded and in some instances was hyped yesterday, so did the level of uncertainty with wheat traders and prices accelerated higher. Seeing that there appears to have been no issues with grain shipments or fieldwork, this would appear to be a What If? situation. What if the fighting expands and they begin to tie up the transportation system for the military? What if Russia makes a full-scale assault? What if the West intercedes? I am certainly not qualified to provide answers to these kinds of questions, but keep in perspective that any or all of them could become moot points and if we have already built in a risk premium, the greater risk would then return to the downside.
One interesting note on the Ukraine topic. I was with a good friend yesterday who is in the international seed business and most specifically; they conduct a tremendous amount of business with both Ukraine and Russia. As you would suspect, the seed for this crop year is already there but for them, the concern rests with 2015. Needless to say, they are watching the situation very closely and if the atmosphere continues to deteriorate, will trim back on ideas for supply needs a year from now. If that is the case, the real effect on the world grain markets will potentially be in 2015 and beyond, not now.
While significantly quieter than yesterday, prices are higher again this morning but still remain below the highs posted back on the 20th of March.
Fundamentals – If the rally in the wheat market were being driven by the uneasiness over the situation in Ukraine, you would suspect that corn would be give the same treatment but that was not the case as prices closed near unchanged and are flat once again this morning. I believe the reason is two-fold. One, funds already hold a quite long position in this market and we remain towards recent highs so there are fewer shorts to scare. Second and more important, the weather outlook appears to be improving and a solid pickup in spring work and planting will be expected from this weekend forward.
We will have the weekly ethanol report released today but other than that, little else to drive the corn market for now. I continue to believe we are very top heavy and should confirm the completion of this advance between now and the end of the month.
Fundamentals – Beans needed a spark for fresh news if we were to reinvigorate the buying again and that came via the crush figures yesterday. During April we crushed 153.8 million bushels, which was above the trade estimate of 146 million. This number was 12 million above March and 16 million above a year ago. As we have witnessed several times recently, with the critically tight situation we have it does not require much to send this market higher and while there is no denying this was a positive figure, the trend should be lower through the balance of the year. Funds were buyers of around 9,000 contracts yesterday.
As I have commented previously, I continues to believe there remains a possibility that we could push the nearby bean futures up into the 15.35/15.45 zone between now and early May as we complete this rally and the strength yesterday and overnight has moved us again into striking distance. Even an aging and tired boxer can get in a few good jabs late in the fight, but eventually the exhaustion sets in and the other just needs to bide his time until that happens.