Are We Seeing Harvest Lows Yet?
Sep 25, 2012
Soybean bulls are reacting to some new reports and rumors coming out of Brazil that they are dangerously close to being OUT of soybeans. This certainly isn't anything we didn't see coming, but actually hearing it from Brazil is making it feel much more realistic. There is also some additional rumors of more Chinese interest in soybeans from both the US and Canada. Net-net, the soybean bulls have a little something to cheer about as demand is NOT being rationed at these price levels.
Wheat bulls continue to believe the rains in Australia have simply come too little too late and the crop is still well below the current USDA estimate of 26MMT's. There was also some additional bullish news thrown on the table when a reputable weather service reported that 62% of the projected Hard Red Winter Wheat area had too little top soil moisture for adequate planting and emergence. The same group also reported that around 56% of the normal Hard Red Winer Wheat acres has received less than 50% of their normal average rainfall within the past 30 days. On top of this I truly believe we are going to see Russian wheat exports come to a screeching halt within the next 60-days. Keep in mind their prices have jumped higher by some $30-$40 per ton just in the past 30 days, making US wheat much more competitive now. Moral of the story, wheat producers may want to continue waiting for higher prices before marketing additional bushels.
Looking forward over the next couple of weeks we may have a tough time rallying despite the extremely tight balance sheet. Below are a few key reasons the bears continue to lean on the downside (selling into the rallies) and possibly why a portion of the bulls continue to liquidate more length:
- Month-end and Quarter-End fund liquidation could add some additional money-flow pressure to the Ag markets.
- Fund rolls may add additional pressure to the front-end. There is some talk that several funds will opt to roll long NOV12 soy positions out into the deferred NOV13 soy contracts.
- Not only are Chinese crush margins slipping but imports maybe starting to slow as the Chinese head into their "Golden Week Holiday" or what some call the "Mid-Autumn Festival," one of the most important holidays in the Chinese calendar. Keep in mind the following week the new Chinese Leadership will begin transitioning into their rolls. Bottom-line, things could be a little slow in China for a couple of weeks.
- USDA's Quarterly Stocks Report scheduled to be released this Friday continues to garner more bearish talk as traders fear there worst.
- Talk of improving yields in the US and improved planting conditions in South America causing the supply side of the equation to swell.
I am hoping once harvest is behind us, both the "cash" corn and "cash" soybean markets will start to strengthen. From my perspective, the recent pork and poultry slaughters just don't indicate a ton of corn feed rationing has been done. Yesterday's export data also showed us that corn is still being delivered into China (6.5 million bushels last week reported in the export inspection data). The price of corn is also dropping relative to the price of wheat. In return, we should start to see some renewed Asian interest in corn. In fact, just yesterday the South Korean feed group NOFI supposedly grabbed a cargo of option-origin corn at just under $309 per metric ton, or some $30 per metric ton cheaper than feed wheat values were being quoted. I also continue to hear more rumors about Chinese soy buying on the breaks. My point is, supplies are going to be extremely tight once we get past harvest. Yes, in the interim we may continue to break as the trade readjusts and backpedals a little in regards to the severity of the supply situation, but once farmers lock away the bushels, they may be increasingly tougher to free up and the "cash market" might lead the parade back higher.
Bottom-line, yes I think we are eventually going to head back to higher ground, I am just not sure we have seen the seasonal harvest lows put in. Eventually "demand" is going to be the driving force. The problem right now is increasing "supply" estimates in corn and soybeans along with seasonal and technical weakness may continue to pressure the trade.
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