The poor wheat market just cannot find a friend at this point in time. Futures prices extended into lower lows yesterday and have followed suit again overnight. The gap the was left as we began this week does now officially qualify as a breakaway measuring gap which provides us with eventual targets down around contact lows at the 5.60 level.
The current U.S. weather outlook calls for several waves of showers to move across the country over the next week to 10-days which looks ideal for all crops that are in the ground. Once again there is a little discussion of a high pressure ridge building in the Volga region of Russia that could create some issues there but in the majority of the growing regions of Europe, Ukraine and Russia the weather has been very favorable. The Black Sea and French markets evidently have taken note as the have been tracking lower, making U.S. wheat just that much more uncompetitive. Black Sea wheat has broken around $35 ton this week. Additionally, planting progress has finally kicked into gear in Canada. In Saskatchewan wheat is now 64% planted, right in line with the 5-year average.
Often when you reach the end of a marketing year we will find some unusual sales numbers as we move from one crop year to the next and that was the case for wheat this past week. For the 13/14 crop year we posted a negative 52,400 MT or -1.9 million bushels. This leaves us with total sales of 1.166 billion bushels, just 18.9 million below the USDA target. Sales for 14/15 crop year were solid though at 531,500 MT or 19.5 million bushels. This was bolstered some by the rolling of sales forward but were almost 9 million higher than the 10-week average.
You might be able to make the case that we have pilled so much bad new on the wheat market recently that there will be little else to push it lower. While there could be some validity to that reasoning, it would not appear via price pattern that the bear is satisfied just yet. Out of curiosity I looked at the old "Voice of the Tomb" theory of seasonal trades for this time of year. It is interesting to note that during the spring the "voice" tells us to sell July wheat on the 10th of May. It just so happens that this year that was about 4 days after the peak and the opening price was 7.22. The next suggestion from the "voice" would be to buy December wheat on the 1st of July.
As oversold as this market is, I am not sure we will remain under pressure for another 30-days, and I intend to be on the lookout for bottoming signs now as we move into the month of June but that said, for now the bears holds the upper hand.
While July corn still closed a bit soft yesterday, at least we did not press into a lower lows and have witnessed a little more stabilization this morning. Part of this could be explained as just end of the month quietness but I would like to think it is a reflection of a market that has pressed just about far enough for the time of year we sit.
Corn usage remains consistently solid. The EIA Ethanol numbers released yesterday revealed a slight increase over the previous week as we produced 272,538,000 gallons using approximately 98 million bushels of corn. This should keep up right in line with the USDA projection of 5.05 billion bushels of corn usage this year. The only cautionary point in the report was a build in stocks of 21 million gallons, which takes us to a 13-month high in inventory and almost 10% above a year ago.
Export sales were also solid as we sold another 682,000 MT or 24.5 million bushels of corn. The upper estimates were looking for 20 million. This brings year to date sales up to 1.79 billion bushels which means we only need to average 7.9 million per week for the next 14 weeks to meet the target of 1.9 billion.
Of course, this does tend to be the time of the year where the trade has shifted it’s focus from demand to supply and with nothing threatening the crop at this point, the path of least resistance has been lower. The weather outlook for the next week to 10-days look quite favorable with several showers passing through. Unless the extended forecast shifts to extreme temperatures, I suspect it will be challenging to see much of a weather related rally from that point.
All that said, the recent break has sucked much of the risk premium out of corn and has us sitting in a very oversold position and I would expect to see a corrective rebound during June. Keep in mind the word corrective though as the words implies a rebound within the existing trading range. We are going to post an outside lower monthly reversal and are turning monthly indicators lower in the process, which does not paint a pretty longer term picture for the corn market.
The soybean market remains stuck between contradictory forces. An impossibly tight old crop situation but record new acreage and potential for a massive crop. That said, there seems never to have been a panic to obtain old supplies, which could imply that last years production was understated and for the new crop, we have the risk of weather for the balance of the growing season. These opposing stories continue to leave us stuck in a trading range. While I am of the opinion that we will eventually breakout to the downside, it would not be surprising to witness another 30-days at current ranges before that occurs.
While export sales were significantly lower than last week, we still sold an additional 60,300 MT of beans or 2.2 million bushels. Of course any sales just dig the deficit a bit deeper and we now sit 51 million bushels above the USDA estimate. At this point I suspect we are going to have to see the June grain stocks report that will be released on the 30th of next month to possibly find a satisfactory answer of how many beans this country holds. Sales for the 14/15 marketing year were very solid at 821,100 MT or 30.2 million bushels.
As I commented initially, the bean market remain between that proverbial rock and a hard place and while it may test our patience, we need to wait for the market to grow comfortable (or not) that we have done enough to bring the supply in balance with the demand.