Chinese Buying Supportive Ahead Of USDA Reports

July 11, 2013 01:17 AM

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn futures are trading 2 to 5 cents higher in all but the July contract which is 18 cents higher, soybeans are 5 to 10 cents higher and wheat futures are mostly 2 to 5 cents higher. The U.S. dollar index is under heavy pressure, which is supporting gains. Price action could be volatile in what's likely to be thin volume ahead of USDA's reports later this morning. Live cattle futures are expected to be mixed to mostly firmer this morning, while hogs are seen favoring the downside.


* Crop Production, S&D Report out later this morning. USDA will update its 2012-13 and 2013-14 balance sheets and also release its first survey-based estimates of the spring wheat crop and all wheat production at 11 a.m. CT. In the Supply & Demand Report, traders are expecting old-crop corn carryover at 722 million bu. (769 million bu. last month) and old-crop soybean ending stocks at 121 million bu. (125 million bu. in June). Old-crop wheat carryover will be 718 million bu., as reported in the Quarterly Grain Stocks Report (down from 746 million bu. in the June S&D Report). For the 2013-14 marketing year, traders expect corn carryover at 1.874 billion bu. (1.949 billion bu. last month), soybean ending stocks at 270 million bu. (265 million bu. in June) and wheat carryover at 624 million bu. (659 million bu. last month). In the Crop Production Report, the average guess puts all wheat production at 2.057 billion bu., winter wheat production at 1.507 billion bu. and other spring wheat production at 504 million bushels.

The long and short of it: No matter what the actual numbers are, the key is whether the report data is deemed supportive enough to fuel a continuation of this week's price strength in the corn, soybean and wheat markets or if it halts the recovery rallies.

* China buying spree included corn. USDA has confirmed via daily sales reports China bought at least 1.32 MMT of U.S. SRW wheat. Now Reuters is reporting industry sources indicate state stockpiler China Grain Reserves Corp (Sinograin) has recently bought over 1 MMT of U.S. new-crop corn. One source put the purchases at 23 cargoes (around 1.38 MMT). Given the recent price break below $5.00 in December corn futures and the fact Chinese corn prices are well above U.S. prices, it's not surprising to see China actively buy U.S. corn.

The long and short of it: Chinese demand, along with other end-user buying, on price breaks is the reason we aren't as bearish on corn prices as some.

* Chinese wheat imports to rise sharply. China National Grain and Oils Information Center forecasts Chinese wheat imports will rise 73% in 2013-14 to 5 MMT, as poor late-season weather has trimmed domestic production. That's a sharp upward revision from the state-run think-tank's previous estimate for imports of 3.5 MMT. It's anticipated much of the increase in imports will be U.S. and Canadian supplies. USDA has confirmed via daily sales reports China recently bought at least 1.32 MMT of U.S. SRW wheat.

The long and short of it: Growing Chinese demand for U.S. will provide underlying support for wheat futures. But for a sustained price recovery, demand from other foreign countries is needed as the Chinese purchases are likely to come in spurts.


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