The Ukraine inspired bounce in wheat is but a memory now as with the lower overnight trade, we have been down for 3 days in a row and have erased a little over 60% of the rally in the process. While additional problems could still erupt at any time, reports tell us that the Ukraine military forces have surrounded insurgents, cutting off power, fuel and other supply chains and it should be only a matter of time before the current uprising is quelled. When the next one happens is anyone’s guess.
Outside of that, the action will be dictated by the reports tomorrow morning. We should not see major changes in the wheat figures but due to the solid yields from the spring plantings, the trade is expecting to see the total production number climb from 1.992 billion on the July report to somewhere in the neighborhood of 2.013 billion.
With expectations of a larger domestic crop as well as larger than expected Russian production and a Black Sea market that will dominate the export trade for some time, it is difficult to find much encouraging to report about wheat. That said, the reaction to the reports would be the key element tomorrow. With managed funds already carrying a large short position and expectations for larger numbers we may have factored in much of the bearishness. As always, it is how we react to number more so than the raw figures that can provide clues as to market direction.
We have witnessed two-sided action in the corn market during the overnight hours but remain quite stable at this point. The two-most critical factors this week are the report and the weather outlook and right now, it would appear that neither will be providing support for the bull cause.
Showers have fallen or are predicted to fall this week over 80 to 85% of the growing region with up to 1 ½ inches reported in some areas. The outlook then for the last third of August is for a warm up in temperatures into the 80’s and low 90’s, which should be nearly ideal conditions to begin speeding up the fill and maturity of this crop.
For the report tomorrow the trade is expecting to see the yield come in right around the 170 b/p/a mark with total production around 14.239 billion. This would be up 379 million from the July estimate and if that is the figure, could push the carryout over the 2 billion bushel mark. I believe that is one of those psychological benchmarks that will define the action moving forward. Of course, many will expect to the crop size to continue to grow even more and traditionally, that would be the case, as a large crop tends to become larger.
Interestingly enough, funds continue to remain long corn and one can only imagine they are using the short wheat position as the offset. That said, it would appear that they will be provided with little to support that position and if wheat does indeed stabilize and rebound, it could be even more negative for the corn.
November beans have also witnessed two-sided action in the overnight hours and did poke in a slightly higher high versus Friday but appeared to run into resistance at the January lows at 10.88. We continue to see the saga of old versus new unfold as the soon to expire August futures have pushed higher again this morning reaching a new high for the August/November spread. Back on the 17th of July that spread posted a low of +72.5 to the August and this morning it has traded to +210. Of course with harvest literally just around corner, this story will soon come to an end.
As I covered in corn the weather outlook for the balance of August looks quite favorable for crop develop in much of the growing region. Showers through the balance of this week and then a warm-up in temperatures then for the balance of the month. That would appear to be just what the doctor ordered for the bean crop.
The average trade estimate for tomorrow has the yield at 45.5 b/p/a, which would be up just 3/10th from July bringing in production of 3.8 billion. The trade is expecting to see the current crop year carryout cut 3 million bushels to 137 million and looks for the 2014/15 carryout to rise to 409.
With a weather issue looking unlikely, without a positive surprise from the USDA tomorrow, it is difficult to imagine why new bean will continue to hold around this $11 mark and could easily be overvalued by $1 or more.