Argy Wheat Damage Overstated?

September 26, 2013 01:41 AM

What Traders are Talking About:

Overnight highlights: As of 6:30 a.m. CT, corn futures are trading mostly 1 to 3 cents lower, soybeans are mostly 5 to 9 cents lower and wheat futures are mixed. Seasonal pressure will weigh on corn and beans today unless weekly export sales are much stronger than anticipated. In the case of soybeans, that will be difficult as traders are expecting a very big number as there was the fifth-largest daily sale ever to China last week. Cattle futures are expected to open mixed, while hogs are called steady to weaker.


* Argy wheat damage may have been overstated. The impact from frost that hit parts of Argentina's wheat crop earlier this week was probably overstated, according to a Reuters story citing a couple Argentine farmers and my correspondence with an Argentine farmer/trader. While there was undoubtedly some damage from the cold temps and another cold wave is coming this weekend, the coldest temps were seen outside of the main production areas. Argentine wheat production is still expected to be up from last year's small crop due to increased acreage.

The long and short of it: The cold snap in Argentina is likely more psychologically supportive than fundamentally based. Therefore, the price strength is likely to be short-lived unless severe damage is confirmed.

* China's gonna import more corn. China's self-sufficiency on corn could fall from 95% currently to 93% by 2018 and to 90% by 2020, according to an official in the corn division at state grain trading firm COFCO. The official told Reuters that while there hasn't been an announcement from the Chinese government, there is an "indication" that a change in China's corn policy may be coming. This is the third time recently a Chinese official has indicated the country will rely more on corn imports moving forward. Earlier this month, China's ag minister said the country will need to boost corn imports to meet growing demand needs and then the head of rural development at China's Development and Research Center said the country could tweak its grain security strategy by lowering the self-sufficiency rate for corn. Because of current import restrictions, Chinese end-users are ramping up purchases of DDGs and sorghum.

The long and short of it: China is going to buy more corn moving forward. It's just a matter of when there's an official policy change and how quickly end-users respond once they have greater import quotas.

* Basis plunging as harvest picks up. Corn and soybean basis is falling sharply across the countryside as harvest is picking up and new-crop supplies are starting to hit the market. As more new-crop bushels are marketed, basis will predictably fall further. Our national-average calculations show corn and soybean basis remains at a premium to front-month futures despite sharp drops from early August. Corn basis is 3 1/4 cents above Dec. corn futures, which is well above the three-year average of 14 1/4 cents under futures for this date and soybean basis is 4 1/4 cents above Nov. soybean futures compared to the three-year avearge of 21 cents under futures.

The long and short of it: Soybean basis should eventually rebound from the seasonal swoon amid tight supplies, but it's unlikely there will be sharp basis improvement prior to next summer as there should be enough soybeans to supply export and domestic channels until then.


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