Rising tide lifted all boats

Published on: 14:43PM Dec 02, 2014

www.thehueberreport.com/freetrial

 

Wheat

The wheat market provided the first surprise for the month of December as fund buying shot prices up to the highest levels witnessed since July and August of this year.  Russia was the hot topic as it has been so often in the wheat market this year and this time rumors that they could curtail exports in the weeks and months ahead provided incentive for the last of the fund shorts to exit.  It is estimated that they purchased in excess of 13,000 contracts on Monday, which will have potentially moved them to a flat and possibly even slightly long position for the first time since spring.  Also helping with the rebound yesterday in not only wheat but tugging corn and beans back to the unchanged levels was a turn around higher in energies and metals after the recent rout and a setback in the dollar.  All that said, there has been very little if any follow-through in all the aforementioned markets overnight.

As impressive as the move was yesterday in the wheat market, it is challenging to find much rationale for continued strength.  This move has pushed US wheat further into an uncompetitive situation in the world markets.  There were reports again yesterday that another cargo of feed quality wheat from Europe was booked for delivery into the Eastern US.  That could be more of a negative for corn than wheat at this point but reflects that there is really no problem securing wheat regardless of the speculation about what Russia may or may not do.

This was at least partially bore out again with the weekly inspections.  For the week ending 11/27 we loaded 10 million bushels, which was 40% below the previous week and 25% below the 10-week average.  For the marketing year to date we have shipped 446.22 million bushels or 17.2 million per week.  To reach the USDA target of 925 million we need this pace to average 18.4 million for the remaining 26-weeks. 

There are always caveats that can upset the apple cart such as these Russian rumors or possibly an Australian weather concern but this additional advance has pushed us into levels of tough overhead resistance and a pretty clean slate for the funds.  Would they really move to the long side of the ledger with less than a month to go in the year?  Always possible but maybe not probable. 

Corn

All the exciting buying in wheat and the turn around in metals and energies provided the corn market with some renewed buying interest yesterday but the net result was by no means a game changer.  As would be expected prices have struggled in the overnight hours.  Funds are currently holding a long position in excess of 200k contracts, which could become increasingly difficult to defend without some fresh news to provide the ammunition. 

Now that the beans are not hogging all the port capacity we have seen a little uptick in the corn inspections and this past week we loaded out the most corn in the past 7 weeks with a number of 29.3 million bushels.  This was 40% above last week and 11% ahead of the 10-week average.  Inspections for the year to date have reached 321.08 million bushels, which is now 36 million bushels or 11% ahead of the same time last year.  All that said, year to date we have shipped 27.5 million per week and we will need to see this average bump up to 35.7 million to reach the USDA target of 1.75 billion. 

We are beginning to hear a little increased discussion about what could be in store on the January final production reports.  While I suspect most will not be anticipating much of a change in yield but there are some who still believe the USDA will trim harvest acreage. While the possibility exists, I suspect the government would also ratchet usage lower via exports and feed usage were that to be the case. 

Unlike wheat right now, US corn is competitively priced in the world market on a FOB basis which could help prop up near-term demand.  That said, no one need hunt very hard to find available supply.  

Soybeans

All the commodity buying excitement helped lift the bean market into positive territory and off critical support but the bounce was pretty meager.  The line drawn in the sand right now is just below us right at the 10.00 level and if/when violated we could unleash a big round of long liquidation.

When you load more soybeans in a week than corn and beans combined, it is difficult to say that is disappointing but the 67.9 million bushels posted for inspections was the lowest number in the past 7-weeks.  That figure was a solid 20 million below even the lowest estimates, was down 44% from last week and 7% below the 10-week average.  Granted, we need only average 23.5 million per week moving forward to reach the USDA target of 1.7 billion but such a sharp drop off in one week does raise a few eyebrows. 

The weather outlook in South America appears to be generally favorable with frequent showers in the forecasts.  There is certainly no guarantee that this cannot shift but without an issue developing there, it should become increasing difficult to defend the bull story.