Wheat Market Loses Bullish Support

November 7, 2013 12:20 AM

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn futures are fractionally to 1 cent higher, soybeans are 1 to 3 cents higher and wheat futures are steady to 2 cents higher in most contracts. Quite trade is expected through the daytime hours as traders await USDA's November crop reports tomorrow morning. Cattle and hog futures are called slightly lower this morning.


* Black Sea wheat outlook improves. Wheat futures rallied for five weeks from mid-September, largely driven by cold, wet conditions that were plaguing winter wheat seeding in the Black Sea region. At the time it was feared both Ukraine and Russia would not be able to seed nearly as many acres to winter wheat as hopes. But weather conditions have greatly improved, turning unseasonably warm and drying out in Ukraine and Russia in recent weeks, allowing farmers to make strong progress in winter wheat seedings. Neither country is now expected to lose as many winter wheat acres as previously feared and growing conditions are said to be "near perfect" in some of the the major production areas. With that support gone, momentum has shifted back to bears.

The long and short of it: In addition to the easing of Black Sea supply concerns, demand support has also faded. Therefore, wheat futures appear headed back to the August/September lows.

* FAO raises global grain production, stocks forecasts. The Food and Agriculture Organization of the United Nations (FAO) raised its 2013-14 global cereal grains forecast nearly 10 MMT from last month to 2.498 billion MT. FAO's global cereal grains stocks forecast was increased by 5 MMT from October to 564 MMT, which is 13% higher than 2012-13. Much of that year-over-year increase is driven by global coarse grains stocks, which are forecast up 30% from 2012-13, while global wheat stocks are seen up 7% and global rice stocks are forecast to rise 3% from last year. Meanwhile, the FAO food price index rose for the first time since April to 205.8 in October, up 2.7 points from September. The higher food prices were largely driven by increased sugar prices.

The long and short of it: A record U.S. corn crop is largely behind the increased global cereal grains forecast from FAO. Corn futures continue to slide as the record crop has eased supply concerns that have been highly price-supportive for the past couple years.

* Hog futures topping. Lean hog futures rallied longer and stronger than many, including myself, expected as supplies were slower to build seasonally than anticipated. Each time the market looked to have topped, a flood of fresh buying would surface. But over the past week, lean hog futures have posted the strongest signs that a top is in place. Last Wednesday, December lean hog futures posted a key bearish reversal after moving to a contract high and closing below the previous day's low. Then came active followthrough selling last Thursday and Friday. After two "pause" days Monday and Tuesday, December hogs gapped lower yesterday. In addition to the technical price action that signals a top, hog supplies are building as Wednesday's estimated slaughter would be the largest of the year and the highest daily tally since September 2012. In addition to building slaughter supplies, Iowa/southern Minnesota hogs weights are on the rise. The increased pork production threatens to weigh on the pork product market.

The long and short of it: Technicals and fundamentals signal the hog market has put in a top, though the period of seasonal price pressure is likely to be much shorter than normal as supplies will start to ease by early next year, especially with the expected influence from PEDV.


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