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Wheat
The market action yesterday was really all about the beans. One could make the case that the numbers on the wheat report actually leaned to the friendly side, which would be correct but seeing that we have already posted more than a 15% rally from the lows in October, I suspect most of the buying power had been spent ahead of time. Prices have extended nicely overnight but nearby futures still remain over a dime below the highs that were posted at the end of last month.
Looking around the news this morning, I can find little outside of a slightly softer dollar that supports the action. The excessively cold weather concerns for Russia and Eastern Europe appear to have subsided at least for now nor are there any burning concerns over the US winter crop.
As I have stated a number of times, I do believe we have our extreme low in place for this market but the world market remains very competitive and the US sits at a premium to the Black Sea and Europe. There will always be a certain amount of demand that works here due to logistics but for now the lions share will go elsewhere. As such, I continue to believe we should be looking at a sideways pattern at least through the end of the year.
Corn
You could actually make a stronger case for a corn rally yesterday than for wheat as the largest surprise on the November report was in the corn number but here as well, I suspect this market is just riding on the coattails of the beans as they continue to dance at the bull ball. Yes, I do believe we have a major low already established but to advance more than the 20% already accomplished leading up to the report would seem optimistic for now.
With the harvest pace now up to normal at 80% there would appear to be little story outside of those across the Dakotas, Minnesota and Wisconsin that received a pre-mature blanket of snow yesterday. North Dakota has 27% of the corn still out, South Dakota 16%, Minnesota 10% and Wisconsin 50%.
CONAB released updated estimates for the 2014/15 Brazilian crop yesterday but considering how early we are the changes were slight. They estimate corn production to be between 77.3 and 78.9 MMT which would be a reduction of 1.2 to 3.2% than a year ago but a slight increase from the estimate last month. On the USDA report this week WASDE has this crop estimated at 75 MMT.
Weekly ethanol numbers will be released later today but export sales will not be released until Friday morning due to the Veterans Day holiday. It would appear that we could have December corn stuck in this 3.80/3.70 zone for a bit longer but to extend through the upper end of that zone, I suspect we would need a fresh batch of bullish feed.
Soybeans
Beans and meal continue to be the leaders of the bull pack as we pressed into higher highs for the swing once again yesterday. I for one underestimated the power of the short-term impact that the tight meal inventories would have on prices and we have now completely reversed the position of the funds from a net short to a net long but this was accomplished via short covering not new buying and open interest has continued to move backwards. Not the kind of setup normally associated with extended bull moves.
While this is a futures market and as such is always looking for the what-if risk scenario, it would appear that we are developing a premium for a scenario that is factoring in continued tightness in domestic meal as well as a never-ending demand from China. It would seem though that we have a disconnect between a short-term logistical supply problem and the longer-term excess supply of beans we have in the world. Of course part of the function of the market is to move enough to rectify the imbalance but ultimately the medicine and the cure can create ill side effects down the road.
It would appear that at least from an economic standpoint we have accomplished the first. The domestic rally in meal has not only provided incentive to move product by any means domestically, we have now pushed US values $50 to $60 a ton above South America. While we still have to go through the physical process of refilling pipelines, there are reasons that it will be done. The longer term implications are that we have pushed prices enough that feed users will be looking at substitutes which should begin to trim demand and possibly even more critical is the fact that over the past month we have pushed 2015 beans higher against 2015 corn, providing additional incentive to plant more beans. With a 450 million bushel domestic carry out and 90 MMT World carryout, do we really need more bean acres? It would appear that this animal could ultimately have a really long tail.
Of course when psychology shifts, those in control will grasp any pieces of news that can bolster the cause and that seemed to be the case with beans yesterday. Yes it true that CONAB reduced their estimate for the 2014/15 beans crop to an estimated range of 89.34 to 91.74 MMT but this was basically down .5 MMT. Now even at the upper estimate this would be little over 2 MMT under the last USDA estimate but also keep in perspective that it would still be between 2.50 and 6 MMT above last year’s crop, which in itself was a record.
With the higher overnight action it would appear the buying is not yet exhausted. I suspect we could extend higher yet into next week with nearby futures testing out the 11.00 mark again but it would appear that without something new from left field, it should just be a matter of time before the long-term picture will overcome the short-term questions.
