Grains are lower this morning after China cancelled another 9.7 mb of Soft Red Winter wheat for the 2023-24 marketing year, plus China’s Producer Price Index fell for the 17th consecutive month by 2.7%.
Kevin Duling, KD Investors, says he thinks the grain market is handling or pricing the cancellation news in fairly well as it was rumored last week. However, he expects China to cancel the rest of the tender they bought last fall from the United States, which is around 600,000 metric tons.
He says they bought it at $5.50 and so prices aren’t that much cheaper in the U.S. but China can buy wheat from other cheaper sources in the world and may be having difficulty getting the U.S. wheat shipped with the slowdown in the Panama Canal.
“It was a surprise to me in the first place that they bought soft red winter wheat with the Panama Canal at that time was shut down to grain and shipping prices were high. You had soft white wheat out of the Pacific Northwest which was a lot cheaper. It was odd they skipped over that and bought soft red,” he says.
Stats Canada was also out with their acreage data this morning and while spring wheat acreage is expected to be lower, it was within or close to expectations according to Duling and will likely have no impact.
The funds went even shorter in grains last week so what could get them to change that trend?
Duling says there are four things he thinks could get the funds to cover this record short position. One is a break lower in the U.S. dollar index, a second is trouble with Brazil’s second crop safrinha corn, third is war escalating in the Red Sea or the Black Sea as NATO is gearing up to move into Ukraine. The last is dryness expanding in Russia and lowering their crop.
Duling is also concerned about last week’s poor technical action in cattle. Both live and feeder cattle futures made new highs for the move on Friday and reversed, even with higher cash and cutouts. This was a red flag for him, and he is recommending producers look at hedging through LRP contracts.
