Tim Hannagan’s Weekly Grain Report
This is Tim Hannagan its Friday, October 18. The USDA has opened their doors and will begin releasing their reports we need on supply and demand to know what the markets are collectively thinking. Today, Friday they will release the weekly export sales report after the close of trading. Additionally, it will only show exports from the last week of September. The missing October reports will come out on next Thursdays report. Corn and soybeans rallied into the release of a report that was supposed to be released at 7:30 a.m. Friday morning, on thinking that big demand would surface. However since the report was moved for release after Friday’s close, traders were disappointed when news came out about the reports delay. They took profits from up on the day to down going into mid- session. Wheat held its gains making new highs for the week on re-entry of the short corn, long wheat spreads. Note traders unwound these spreads Monday, Tuesday and Wednesday. It makes sense to be long the wheat, short corn as a spread as traders believe wheat demand will remain strong and corn demand not quite as strong with importers waiting for another leg down in prices to new contract lows before entering as strong buyers. The rumors during the government closing were for much stronger soybean sales and wheat and to a lesser extent corn. There’s been a lot of talk this week on the wire services that wheat demand will be weak because we no longer are selling wheat into the feed ration. This could not be further from the truth. Since we harvested our very high quality spring wheat crop, the quality that millers are looking for of the processing of foods for human consumption and attracting countries that buy large quantities of wheat. The last month we rallied over 60¢ with countries like China and Brazil coming in for large tonnage of wheat for human consumption. Prices were falling from January into early summer as we sold record tonnage of feed quality wheat. But as I’ve noted on prior reports feed quality wheat sales are very small and never add up to a bullish demand . Feed wheat buyers buy hand to mouth as needed and do not store more than a 30 day supply. To have a bull market off demand fundamentals, there needs to be a combination of a lack of feed quality wheat and abundance of high quality wheat that Miller’s need before the processing of foods.
For Corn, we have talk this week that the EPA was proposing that they would set next year’s target for use of renewable fuels at 15.2 billion gallons, less than the 18.5 targeted for 2014. At 15.2 billion gallons this would leave only 13 billion gallons of corn-based ethanol to be blended down from 13.9 billion this year and 14.4 billion next year. If approved this would free up 500 million bushels of Corn to be put back into ending stocks and give Corn futures on that day of the announcement a very bad day. My opinion is the Obama Administration will stay steadfast on their target of ethanol production increases. Last year during the drought, end users of corn screamed for the EPA to reduce corn usage for ethanol but the Obama Administration didn’t budge. Current statistics of greater grain inventories don’t warrant changing the long-term ethanol trend that the government has put in place. There was also talk this week from a Mexican judge that placed an indefinite ban on genetically-engineered corn in Mexico and companies like Monsanto and Pioneer will no longer be allowed to plant or sell their corn within the country’s borders. On the surface one would think it could be bearish, but long term it’s actually very bullish. It means Mexico will go back to traditional seeds that have measurably lower yields leaving them with lower production and buying more U.S. corn. On the weather front , this weekend through October 30th looks generally to be very dry across the entire Midwest with much colder daily temperatures and a hard freeze OCT 25th, 26th and 27th. We expect harvest of soybeans near complete by the end of the month and this will make the November 8 USDA monthly crop report widely anticipated as the numbers will combine data from both the months of September and October in the November report. South American weather still looks to have more than ample rain with a continued slower planting pace, but they have a planting window to the end of November. Argentina looks to stay continued dry as they have been dry since May. There is some chatter that 10 days out there is a chance for some rain. This Argentine weather problem needs to be watched closely as it’s a big problem for wheat and looks to plaque their corn and soybean crops. Weather and its impact on soybean and corn crops in South America will become paramount to the pricing influence as we head into mid November. Technical’s read like this. Wheat support remains 6.80 with resistance 704; a close over next resistance is 7.38. December corn resistance is 4.46 then 4.64. Support is 4.28 then 4.16. November soybean resistance is up at 13.05 then 13.30. Support is 12.60 then 12.15.
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