If You Are Looking For Reasons To Be Bullish Wheat
Dec 29, 2010
1. There are several rumors starting to fly around that some of China’s main wheat growing areas are seriously dry and the crop in those areas could be in jeopardy.
2. The EU may have massively oversold wheat to countries who were forced to replace Russia as their primary source. If this is the case the US may become the "worlds" primary wheat supplier in the months ahead.
3. There are talks that China could actually be forced to release some of their government wheat stocks as a feed replacement for tight corn supplies.
4. Russia may stay on the sidelines and not lift their wheat export ban, and possibly even be forced to be an importer of wheat before it is all said and done.
5. Many areas in the Middle East and areas of Africa are experiencing extremely dry conditions. If this continues to be a problem they will need to importer much larger amounts of wheat in 2011.
6. The USDA report on Jan 12th may actually show fewer acres planted than we are anticipating.
7. Barclays is reporting that institutional investors will increase their stakes in overall commodity assets under management in 2011. Those inside the numbers are expecting more than $70 Billion increase from last year, with grains expected to be a top performer.
Quick Thoughts from December 29th:
- On the cash side, I am hearing end users and or buyers have their needs covered and seem to be taking a wait and see type approach to covering anything out into to 2011. This worked for them the last time we made new highs a couple of months back, when we broke prices all the way back below $5.00, maybe they will get lucky and it will work for them again. I promise you, one of these times they are going to get burned.
- The word is several of the big players in Argentina have already reduced their corn estimates, and may soon reduce them again. If you remember, the USDA had them pegged for around 25 million tons...some close to the source are now talking 20 million tons or less.
- As for soybeans I was hearing numbers anywhere from 43-48 million tons tossed around in the trade yesterday. The USDA had them pegged at 52 million in the last report. Time will certainly tell who is right and who is wrong, don't be surprised if you see the USDA drop their numbers sooner than later in regards to South American production.
- Egypt finally booked some Soft Red Wheat from here in the US. There are also more talks that Turkey may jump back in the Hard US Wheat market sooner than later.
- The recent rally in beans has sparked a little more farmer selling, but from what I hear most of it has been in the new crop. I am just not sure many guys are sitting on a lot of old crop beans.
- I heard that a descent size ethanol plant in Indian announced that they would be firing back up very shortly. I wonder if we won't start to see more plants that had been closed down start to open back up. If so you have to believe this puts even more pressure on corn supplies and is certainly bullish the corn market.
- Paris milling wheat has now hit a new three year high in trade this week.
- The soymeal market is trying to slowly gain some back on soybean oil. As many of you know I am a firm believer that most significant bean rallies in the past have all been lead higher by meal and not oil. Maybe this rally will prove to be the exception. I have tried to play meal against oil a couple of times the past few months, thinking meal would begin to make up ground on oil, but this trade has just not worked out well for me...so instead I have chosen to cheer from the sideline. You can almost bet this will be the one time soymeal makes it's move...lol. I know with meal now priced around $400, profitability in the livestock markets will be getting tougher and tougher.
- For those of you still holding the July/Dec Corn spread I recommended a few months back, you should finally be seeing some decent returns. I wouldn't jump on the bandwagon now if you are not already in, but it is nice to see this spread work itself back into good profit margins. I commend those of you who hung in there and stood by the trade.
- For those that are interested more specific CFTC data showed that the "Trend Following Funds" bought around 25,000 contracts of corn and 4,000 contracts of beans last week. They were actually sellers of around 8,000 wheat contracts last week. Essential this makes them long over 300,000 corn contracts, close to 150,000 bean contracts and close to flat the wheat market. The index funds were reported as buying around 1,000 corn, and 2,000 beans contracts. They were actually net sellers of wheat by around 1,000 contracts. From what I can gather this now puts them net long just over 440,000 corn contracts, over 210,000 wheat contracts, and just under 200,000 bean contracts.
- I told you there was light volume on Monday. From what I am told only about 468 million shares actually changed hands on the New York Stock Exchange, and it was actually the fewest for a full trading session since the Spring of 1998.
- If you are trading cocoa you may want to keep your eye on the developments in Africa as an ultimatum has been thrown down by a bloc of West African countries for the current President (Gbagbo) to step down or be removed by force. If things get crazy it could certainly start to affect the cocoa supply chain.
- I have read in recent reports that China imported 2.38 million tons of cotton in the past 11 months of 2010, that is up 81% from the previous year.
- Don't forget The EIA Energy inventory data is going to be a day late, talk is that we should see another weekly draw in crude oil stocks of 2.5 to 3.0 million barrels. You have to believe the drawdown is not only a combination of improved demand, but it also has to do with year-end inventory management and tax jockeying.
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