Wheat Will Have To Swim Upstream To Rally Now

September 25, 2013 01:08 AM
 

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are 1 to 2 cents higher, soybeans are 5 to 7 cents higher and wheat futures are mostly 3 to 7 cents higher. Bulls' challenge again today will be to maintain the overnight price strength through the daytime hours. Cattle futures are expected open steady to firmer this morning, while hogs are called mixed.

 

* Wheat finding support. Wheat futures were supported yesterday by news a frost hit Argentina's wheat belt, causing potential damage to the newly planted crop. More potentially damaging cold temps are expected in Argentine wheat areas through the weekend. Meanwhile, Chinese wheat prices are surging. Chinese wheat futures rallied to a new high overnight and cash wheat prices are also up sharply amid tight domestic supplies of high-quality wheat as consumption hits its peak. In addition, the Chinese government is expected to raise its minimum price it pays farmers for wheat, which will keep some of this year's crop off the domestic market. Therefore, there are expectations China will import more wheat. State-run China National Grain and Oils Information Center on Monday raised its Chinese 2013-14 wheat import forecast by 1 MMT to 7.5 MMT, though around 6 MMT of that total has already been booked. USDA forecasts Chinese wheat imports at 9.5 MMT in 2013-14.

The long and short of it: Wheat is trying to put in a low, but those efforts will be difficult in the face of likely seasonal pressure on corn and beans through harvest unless supportive news is consistent.

* Corn demand building. USDA has announced daily corn sales the first two days this week -- 197,200 MT to Mexico on Monday and 180,000 MT to Columbia yesterday. The pickup in daily sales activity suggests corn futures have dropped to a "value" level. If that's truly the case, more demand can be expected near-term. But with harvest building, it's likely going to take a very large purchase by a prominent country to really grab traders' attention and signal to them that price are cheap enough for now. If smaller tenders become more regular, it's not likely to have a major price impact, but it would at least be a sign that the market has started to rebuild some of the export demand that was lost during last year's runup to record prices.

The long and short of it: It's hard for demand to be strong enough during harvest to become highly price-supportive. But a pickup in demand could help limit seasonal selling pressure.

* CME ends delivery of Zilmax-fed cattle. CME Group (CME) announced beginning Oct. 7, it will no longer accept delivery of cattle fed the growth additive Zilmax against CME live cattle futures contracts. The exchange's decision comes after Tyson Foods and Cargill Inc. said they would no longer buy cattle finished with Zilmax. CME says Zilmax-fed cattle are "no longer merchantable in our view from a contract specification perspective because they will not be accepted by a majority of our approved slaughterhouses."

The long and short of it: CME Group's decision should have limited market impact. This announcement is to protect again Zilmax-fed cattle being "dumped" during delivery.

 

Follow me on Twitter: @BGrete


Need a speaker for a seminar or special event? Contact me: bgrete@profarmer.com

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