Winter Wheat Conditions Appear To Have Improved

April 9, 2013 01:30 AM

What Traders are Talking About:

Overnight highlights: As of 6:30 a.m. CT, corn futures are narrowly mixed, soybeans are mostly 1 to 2 cents lower and wheat futures are 1 to 5 cents lower, with Chicago contracts leading the decline. Based on overnight trade thus far and the overnight news, grain and soy futures should open with a choppy to lower tone at 8:30 a.m. CT. Cattle futures are expected to open steady to firmer, while hogs are likely to favor a slightly weaker tone on the open.


* Winter wheat conditions a mixed bag. On the surface, USDA's winter wheat crop condition ratings signal improvement in the crop as 36% is now rated "good" to "excellent" compared to 34% previously, while 30% of the crop is still "poor" to "very poor." But those ratings don't tell the entire story. When USDA's weekly crop ratings are plugged into the weighted Pro Farmer Crop Condition Index (0 to 500 point scale), the HRW crop dropped 3 points to 274, while the SRW crop improved 9 points to 371. For HRW states, Kansas and Texas accounted for most of the decline. For SRW, all seven of the top production states improved. So... the crop which is really hurting, HRW, declined and the crop that has solid ratings, SRW, improved.

The long and short of it: Because markets are a lot of times very shortsighted, the "improvement" in the winter wheat crop mildly weighed on wheat futures overnight.

* China seen importing less soy, more corn. Chinese soybean imports are now forecast to decline for the first time in nine years, according to China National Grain and Oils Information Center (CNGOIC). The state-run firm puts 2012-13 Chinese soybean imports at 59 MMT compared to a prior forecast of 60 MMT and 59.2 MMT in 2011-12. CNGOIC cites reduced soybean meal demand due to bird flu and weak hog prices as its reason for the forecast decline. Meanwhile, a survey of three major industry analysts by Reuters indicates the potential for record Chinese corn imports in 2013-14. The analysts expect China to import 6 MMT to 7 MMT of corn in 2013-14, up from what is expected to be a record of 5.2 MMT of corn imports in the current marketing year. The analysts cite the sharp drop in prices, quality concerns with domestic supplies and spring planting delays as reasons for their stronger Chinese corn import forecasts. They also note the Chinese government has allocated additional corn import quotas for COFCO, the state-run grain trading firm. Chinese importers have already booked 1.3 MMT of U.S. new-crop corn.

The long and short of it: When it comes to global trade, China remains the key. Chinese demand will help set the longer-term price outlook.

* Bird flu claims another. The number of reported H7N9 bird flu cases in China is now up to 24, with 8 of those resulting in deaths. But the spread of the disease appears to be relatively slow and none of the people who have had contact with the infected persons have become ill. Numbers will continue to rise, but as long as they aren't multiplying quickly, panic in the marketplace will be avoided. If numbers start to build quickly, traders' concerns will also build.

The long and short of it: From an agricultural standpoint, there is going to be some reduction in Chinese feed demand, which is a limiting factor for the soy complex. Traders' panic level will determine how much pressure it puts on the market.


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