Wheat (And Other Grain Markets) Weighing Fundamentals Against Macro-Economics

November 20, 2012 12:19 AM

What Traders are Talking About:

* HRW crop continues to deteriorate. USDA's latest ratings of the winter wheat crop show 34% is rated "good" to "excellent," down from 36% the previous week and 50% last year at this time. Conversely, 24% is rated "poor" to "very poor" compared to 22% last week and 16% year-ago. When USDA's crop condition ratings are plugged into the state-weighted Pro Farmer Crop Condition Index (0 = crop failure, 500 = perfect crop), the HRW crop dropped another 7 points to 288, while the SRW crop was unchanged at 379. For the HRW crop, modest improvement in Nebraska and Texas was more than offset by declines in Kansas (-3 points), Oklahoma (-1 point) and Colorado (-2 points).

The long and short of it: Declining HRW crop ratings are a concern, but that's not translating into buying interest in wheat futures as the macro-economic situation is of more immediate concern to traders.

* Euro-zone concerns linger. France's credit rating was dropped one notch to Aa1 by Moody's late Monday, with the credit-rating firm keeping a negative outlook for the country amid an uncertain fiscal outlook and a deteriorating economy. Meanwhile, investors are anxiously waiting as euro-zone financial ministers are meeting today on whether to grant Greece its next tranche of emergency funding. Also, Fed Chairman Ben Bernanke speaks in New York today and is expected to defend the Fed's actions to date to help the U.S. economy via asset purchases. Traders will also watch for any signal from Bernanke about what the Fed will do as Operation Twist winds down at the end of this year.

The long and short of it: Macro-economic concerns are real, but it's become very apparent the euro-zone is going to continue to keep Greece afloat, so those worries are overblown.

* Ukraine export situation remains confusing. Last week, Egypt removed Ukraine from its official list of wheat suppliers after receiving notification the country would ban wheat exports starting Dec. 1. Ukraine is now asking Egypt to be reinstated on the list, saying it has supplies to export. The vice chair of GASC, Egypt's main wheat buyer, says he has told Ukraine that to get back on the list, any firm supplying Ukrainian supplies must guarantee wheat from other Black Sea countries at no additional cost if the export ban is enacted.

The long and short of it: Expect the Ukrainian wheat export situation to take more twists and turns as the country is obviously having difficulty making a decision on whether (and when) to ban wheat shipments.


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