China's wheat rumored to be in poor condition!?
Jul 22, 2013
"Wheat crop has suffered" is what I am starting to hear more talk that China's more severely than original reports had indicated. Word is the damage was not only caused by frost during the growing season but also rain during harvest. Some insiders are now thinking close to 20 million tons of wheat or more (15-17%) could eventually be declared unfit for human consumption. To put it into context, that would be like Australia losing about 80% of their normal wheat production. The thing we need to remember is that China used a lot of wheat last year for feed when there was little to any corn to import and prices where sky-high. The question now is how much wheat do they have left? The other question is without a large supply of wheat on hand, what will act as a substitute for corn? Could corn imports in China explode to 10 million metric tons this season without a substitute? Even though global wheat output is expected to rise this year from last, we will still be below "demand" and could eventually push wheat stocks to some of the lowest levels in the past few years.
Bottom-line I still see no compelling reason to be short this market right now. Producers who are still holding a few remaining bushels following harvest, in my opinion, should continue to hold, possibly looking for more bullish news out of China. I am not so sure the "basis" here in the US is going to be a big mover, so those who have access and can play the board may be better offer moving the "cash" bushels and simply re-owning with some type of limited risk "call." This creates cash-flow and helps limit you downside exposure to just the premium you paid for the call, while still giving you upside potential. As always, talk over the specifics with your individual advisor.
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