Supply-Side Fundamentals Improving For Wheat

October 15, 2013 01:19 AM

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn futures are 1 to 2 cents higher, soybeans are fractionally to 2 cents lower and wheat futures are 1 to 3 cents lower. I expect to see more choppy trade amid a lack of government data and uncertainty in Washington. Cattle and hog futures are expected to mildly favor the downside this morning.

* China suffering from drought in wheat areas. Severe drought is affecting about half of Henan, China's top wheat production region that accounts for roughly one-quarter of the country's total wheat output, according to the ag ministry. State-run Xinhua news agency also reports dryness is an issue in Shangdong, China's second largest wheat production region. The dryness is causing winter wheat planting delays and spurring speculation China will continue to actively import wheat. Meanwhile, excessive wetness continues to delay winter grain seeding in Ukraine. As of Oct. 14, the country's ag ministry says 73% of intended winter grains area has been planted, while wheat wheat is seeded on 76% of intended acres.

The long and short of it: Fundamentals are improving for wheat, but the market is going to need some positive demand news soon to extend the price recovery.

* Rains falling. The rains started in the far western Corn Belt Monday and are pushing eastward. While some areas got heavy precip, much of the rainfall is expected to be light. Still, that will be enough to temporarily push producers out of fields. USDA is not updating harvest progress due to the ongoing government shutdown, but a Reuters poll showed analysts guessed soybean harvest at 45% done and corn harvest 31% complete as of Sunday.

The long and short of it: Harvest delays are temporary. Better-than-expected yields are a bigger story and threaten to keep harvest pressure on the corn and bean markets near-term.

* Optimism for a debt/budget deal. There were seemingly some positive developments on the debt/budget front overnight as Senate leaders neared a deal that would fund the government through Jan. 15, extend the debt ceiling until Feb. 7, and have a Dec. 13 deadline for a longer omnibus spending bill before Jan. 15, when the next round of sequester cuts is scheduled to slice another $20 billion out of agency budget, primarily from the Pentagon. Key is whether the House will vote for any budget/debt package.

The long and short of it: Until the uncertainty in Washington is removed, markets are going to remain on edge. If a deal is reached, the stock market is expected to respond with gains. Exuberance is less likely in commodities.


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