China Grows A Record Winter Wheat Crop?!? Whatever

July 12, 2013 12:52 AM

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are mixed with a downside bias, soybeans are narrowly mixed and wheat futures are slightly higher in most contracts. Overnight trade points to light and choppy price action continuing this morning. Cattle and hog futures are expected to open today's session under light pressure.


* China grows record winter wheat crop? Whatever. China harvested a record 115.67 MMT of winter wheat this year, up 1.3% from year-ago, according to the National Bureau of Statistics. But it's hard to believe the "official" forecast as China experienced poor late-season weather and has recently been actively buying wheat. Record winter wheat production would not cause China to buy 1.32 MMT of U.S. SRW wheat over the past week. Plus, USDA raised its 2013-14 Chinese wheat import forecast by 5 MMT in yesterday's Supply & Demand Report and imports are now seen up 5.3 MMT from 2012-13.

The long and short of it: Recent trade activity and USDA's sharp increase in Chinese wheat imports do not point to a record Chinese winter wheat crop. This appears to be a case where China is trying to talk up its crop and talk down its need for imports.

* Bullish wheat report data. USDA's all wheat crop estimate came in 77 million bu. higher than the average pre-report guess and 34 million bu. higher than the June projection. Bearish, right? Well... the domestic production number was negative. But U.S. and global carryover came in well below what was expected. Wheat carryover for 2013-14 is now projected 142 million bu. lower than 2012-13 despite the bigger-than-expected crop. And the global carryover numbers are even more encouraging for bulls. USDA now sees global wheat ending stocks for 2013-14 at 172.38 MMT. That's down 14 MMT from its initial projection just two months ago and importantly, now down year-over-year. The drastic change in the global ending stocks outlook comes amid higher usage, primarily feed wheat usage for 2012-13 and 2013-14.

The long and short of it: While USDA's domestic and global carryover projections were bullish, I still don't believe the wheat market has the ability to lead a price recovery. With that said, wheat should be a willing participant if corn and/or soybeans lead the way.

* Dry outlook for central Corn Belt. Overnight weather models put a little rain in the outlook for the edges of the Corn Belt, but the central Corn Belt is expected to be dry. No rain is forecast for Iowa, Illinois, Indiana, Missouri and eastern Nebraska through the weekend. And next week is shaping up to be warm (potentially hot) and dry across those areas.

The long and short of it: It could be very telling of traders' attitudes to see how they trade this forecast heading into the weekend. Will the wetter forecast for the edges of the Corn Belt or the dry outlook for the heart of the region carry more weight as traders go home for the weekend?


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