Wheat Giving Corn and Beans The 'Recipe' For Putting In A Low

August 1, 2013 01:35 AM

What Traders are Talking About:

Overnight highlights: As of 6:30 a.m. CT, corn futures are 3 to 4 cents lower, August soybeans are higher while new-crop contracts are steady to weaker and wheat futures are mixed with a slight downside bias. Non-threatening weather and strong gains in the U.S. dollar index point to the weaker tone continuing into the day session. Live cattle futures are expected to be light and choppy awaiting cash trade, while hog futures are called firmer amid short-covering.


* Wheat showing corn and beans what's needed. Wheat futures slumped from seasonal pressure as harvest got underway. With winter wheat harvest now into the home stretch, seasonal pressure has eased. At the same time, export demand for U.S. wheat is strengthening. While the U.S. is being undercut on price by Black Sea origin wheat, the export side of the market is becoming a positive price factor. Unfortunately for the wheat market, corn and soybeans are acting as an anchor, limiting upside potential in wheat futures for now. But wheat is giving us a clue as to what needs to happen for the corn and soybean markets to rally. Seasonal pressure must ease. If weather forecasts continue to call for mild temps and rainfall chances, it will be difficult for corn and soybeans to rally. In fact, prices could slide into harvest. There must also be a pickup in export demand. While we've seen some of that, there hasn't been enough fresh demand to signal prices have dropped far enough. And importantly, demand dries up if prices firm. For demand to become a positive price influence, global end-user buying must be consistent and sustained if prices firm.

The long and short of it: Wheat is giving corn and beans the "recipe" for putting in a low, but now we must wait for the ingredients to come together.

* Brazil buying U.S. wheat. Brazilian millers have purchased around 400,000 MT of U.S. HRW wheat over the past week and the country is shopping for more U.S. supplies, export sources told Reuters. Brazil typically fills most of its wheat import needs from neighboring Argentina, but a shortage of supplies in that country have halted exports, leaving Brazilian millers searching for alternatives. In addition, a frost/freeze last week damaged a portion of the Brazilian wheat crop. The Brazilian Wheat Industry Association (Abitrigo) estimates the state of Parana will lose approximately 10% of its total wheat crop due to the cold snap.

The long and short of it: Demand for U.S. wheat is picking up, giving wheat futures a reason to rally. But if corn and soybeans remain anchors, it will be hard for the wheat market to find sustained buying interest.

* Macro data flooding in. The Fed announced yesterday it will continue its $85 billion per month in asset purchases and will keep an accommodative monetary policy for an extended period. Investors were hoping to get an idea of when the Fed will peel back its quantitative easing, but the fact there wasn't even a hint of the timing should be no real surprise. Meanwhile, U.S. 2nd-qtr. GDP came in stronger than anticipated yesterday morning, partly due to a a major "benchmark" revision to data back to 1929. On the global front, Chinese manufacturing sector data had a mixed view. The Chinese government-released "official" purchasing managers' index (PMI) upticked in July, while the HSBC PMI (private sector) down ticked. Most economists believe the Chinese government is trying to "talk up" its economy, which if that's the case, would signal conditions aren't rosy. Traders are also expecting the European Central Bank to make no changes to monetary policy this morning (around 6:45 a.m. CT) -- the Bank of England already announced no change to its monetary policy this morning. And tomorrow morning, traders will get key jobs data -- non-farm payrolls for July and the unemployment rate as of Aug. 1.

The long and short of it: Grain traders are mostly focused on fundamentals (weather/crop conditions in corn and beans and demand in wheat), but the macro-economic data is impacting other commodities and the U.S. dollar.


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