Game Changer for Wheat?

December 12, 2012 12:12 AM

What Traders are Talking About:

* Game changer for wheat? Wheat futures posted a downside breakout from the choppy, sideways pattern (slight downtrending channel for nearby Chicago wheat contracts) that have contained prices for the past five months after USDA upped its projected 2012-13 ending stocks by 50 million bu. Tuesday. While the reduction in projected exports was relatively modest, it was more than traders expected. More importantly, it speaks volumes about what USDA expects on the export front moving forward. While Black Sea wheat supplies are tightening, USDA doesn't see the U.S. wheat export situation improving. Also keep in mind traders don't have weekly reminders of how poor wheat conditions are in the Plains now that USDA has stopped issuing weekly crop progress data until next spring. That puts more focus on the demand side of the market, which is not a positive for wheat.

The long and short of it: Aside from crop concerns, wheat traders don't have a reason to be active buyers. And with USDA lowering its wheat export forecast, there's now incentive for them to be sellers. If Tuesday's technical damage is confirmed over the next several days, it opens sharp downside price risk for wheat futures.

* Fed decision coming today. The Fed will conclude its two-day Federal Open Market Committee meeting at 11:30 a.m. CT, at which it is widely expected to announce a new bond-buying program to replace the expiring Operation Twist. Fed Chairman Ben Bernanke will give his thoughts and answer press questions at his quarterly press briefing this afternoon. Included in the press briefing will be the long-term economic projections from the Fed Board, including outlooks for GDP, inflation and unemployment.

The long and short of it: A new stimulus measure from the Fed should give markets a boost, especially the stock market. If that's doesn't turn out to be the case, it would be a red flag to the Fed that investors don't believe it is doing enough to help the economy.

* End-user demand picks up. There was a flurry of export activity overnight, with South Korea being the major buyer. South Korean firms purchased 238,000 MT of corn (South American or South African origin), 195,000 MT of non-GMO soybeans (185,000 MT of U.S. origin) and 110,000 MT of Brazilian soybeans. South Korean firms also tendered for 48,100 MT of U.S. wheat. Japan purchased 21,530 MT of feed wheat and 31,030 MT of feed barley. China has also been recently buying U.S. soybeans, including a daily purchase of 115,000 MT USDA announced Tuesday.

The long and short of it: Aside from soybeans, the U.S. isn't garnering much of the global export business at this time, which is weighing on corn and wheat futures.


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