While many of you may have missed it last evening, there were technical issues at the CME and the overnight trade was suspended for four hours. Actually, that may be better stated that the open of trade was delayed four hours (two for the grains). It would appear that everything is operating normal at this point but you can imagine that it made for an uncomfortable 240 minutes for the hedgers around the world who needed to lay off risk.
The wheat market has since witnessed a little two-sided action as we begin the week but appears to be semi-supportive. Once again we find little fresh news with most of the stories I have read centering around the quality issues plaguing European and Ukraine wheat. Ultimately this could provide an issue for millers in Europe and elsewhere but the biggest impact will most likely be felt in the corn market as we are confronted with a competitive feed product just when the world stocks of corn are climbing.
The wheat market has been developing a congestion zone for the past 7 weeks now but has done nothing as of yet to suggest we are ready to move out of the range. It would appear the biggest drag on this market right now is corn and the impending harvest of a record crop. If wheat is to compete around the world as a feed grain, it will need to remain competitive in price to corn. Longer term indicators are turning more positive though so it would appear that at least the worst of the pressure is out of the way for now.
While there is undoubtedly a few dry pockets yet, it would appear that the majority of the corn belt received moisture over the past week. It would seem that the only bullet that bulls may have left in the gun would be for the potential for an early frost. I understand temperatures in Canada did press down against the freezing mark over the weekend and that the lower 48 will cool off again later this week but that does not constitute a killing freeze. We had Drew Lerner of World Weather speak at our annual outlook meeting last week and at this point, he suggests that the region that could be at risk for an early frost would be more towards the middle latitudes of the growing region. The Northern Plains and upper Midwestern states where we experienced delays this past spring are expected to see normal to later than normal frost dates.
The Pro Farmer tour wrapped up last Friday and the tallies for corn were a bit higher than the USDA. The average yield was estimated at 169.3 b/p/a producing a crop of 14.093 billion bushels. If you recall, the August government estimate was 167.4 and 14.03 billion.
As I mentioned under wheat, the quality issues with European and Ukraine wheat will most likely hang on the corn market in the weeks and months ahead. Europe is already accustomed to feeding wheat but some of our traditional corn customers could easily be lured into doing the same this year. Currently Black Sea wheat delivered into Asia costs around $240 a metric tonne compared with U.S. corn at $220. While that would appear to give the competitive advantage to corn, keep in perspective that on average the protein level of wheat is 3% or so higher than corn so the price spread is probably closer to $233 vs. $220.
Weekly export inspections should not hold any surprises nor should the weekly crop conditions/progress reports later today. It is somewhat impressive that we have seen December corn remain in this 3.80/3.60 trading range for the past 5 weeks but with harvest already started in the south and the balance looming just around the corner, it would seem the odds are stacked against the potential to hold here indefinitely. We should have additional yield data from some southern states in the state-by-state reports this evening. There have already been reports of 180 to 200 corn coming from areas that have never dreamed of such yields.
It seems agonizingly slow but new crop beans continue to chip away at the downside. Overnight we have pressed into a slightly lower low for November futures making this the 4th week in a row in which we have been able to do so. With the recent moisture that has passed through the majority of the Midwest, it is difficult for a bull to find much to shore up their cause.
The Pro Farmer tour tally came in just a smidgen below the USDA. They uncovered a yield of 45.35 b/p/a for production of 3.812 billion versus the government at 45.4 and 3.82 billion. Regardless, these are still both record numbers. I am not sure if we will find many yield numbers from the south as of yet but we have heard estimate from some calling for 100 bushels beans.
This market continue to die a slow death and while percentage wise, I do not believe we have a tremendous amount of downside potential, possibly 6 to 10% in price, it will then become dependent on what happens in South America for the next move. Another big crop down there and the picture turns decidedly unfriendly.