In Media Res

Published on: 12:20PM Aug 28, 2010


Harvests are well under way, but still closer to the beginning than the end. Russian fires have reduced the harvest by an estimated 60 million tons which will reduce Russian exports from 21 million tons to zero. That has been completely priced into current wheat prices but temperatures remain high – above 90 degrees every day in August with seven new record highs, all above 95 degrees, this month. Wildfires continue out of control, with the possibility of burning some of the wheat crop. Between drought, brought on by the hottest summer in over 130 years, and fire, there is, at best much uncertainty about the Russian wheat crop.

In America, managed money controls 49% of the market while users, commercial interests & producers, control 36% with the last 14% belonging to those the CFTC calls "Other." Managed money is 59% long while users are 62% short. At some point the harvest numbers will be largely known. If the results are much worse than expected, prices will move up sharply. If either the Russian wheat crop or the US wheat crop is better than expected, prices will drop like a stone, and they will go too low. They’ll not stay there: there can be no question that carryover will be low, leading to a bullish wheat market in 2011.


There is a noticeable difference between the government crop estimate and some private estimates: the private folk think we will see a smaller crop this year vs. the USDA’s "larger" estimate. Managed money is 87% long and controls 61% of the market. If the USDA estimate is correct, expect managed money to run for the exit, a veritable stampede of dumb cows. If the private forecasters are correct, look for prices to go higher as the managers try to force users to pay the highest price possible at the last minute.



The bean crop is estimated to be smaller this year. That knowledge is fully incorporated into current prices. Managed money is 93% long while controlling 63% of the market. If the crop is better than expected, don’t stand between managers and the fire exit.



Wheat is just hanging around, looking for an excuse to drop a dollar or two. Everything about the past five day’s price action is bearish.

Corn had a very bullish turn in the Wednesday- Thursday day pair. Friday saw a new high by 2¢, but the bulls were mostly overpowered by session’s end. Only next week will tell us whether the new bulls (are they neo-bulls in the same way the politicians have invented "neo-cons"?) can push prices higher. Looking to next year, I’d venture to say the only thing holding prices up is the managed money, not the market structure itself. On a break, look for 388-390 basis March.

Thursday and Friday were very constructive for beans, more neo-bulls perhaps. Structurally, beans and wheat are more solid than corn. I can easily imagine a dollar drop if good news hits the bean crop. But prices of $9 and above are a pretty good place to start the 2011 season, and from here, that what looks like reality will be.