Pre-Opening Wheat Market Report 11/05

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November 6, 2012 1:41 AM EST

December Chicago wheat was trading 4 cents higher near 7:30 am CST. KC and Minneapolis are seeing similar gains. Outside market forces look slightly negative today after European markets traded lower and the US Dollar rose overnight. The January Paris Matif futures contract hit a new contract high overnight at 270.25 Euros per tonne. Concerns over Greece's debt are adding a negative tone to macro markets to start the week.

The wheat market is leading the grain complex higher to start the week as traders anticipate cuts to global production in this Friday's USDA report and on dry conditions in the western and northern plains that are raising concerns that some of the crop may not germinate ahead of dormancy. Traded volume was modest on Friday with only 79,419 contracts trading hands and open interest rose by 203 contracts. The USDA will release an updated crop conditions report for US winter wheat today and some expect Good/Excellent conditions to fall near 38% vs. 40% as of last Sunday.

The Commitments of Traders reports as of October 30th showed Non-Commercial and Non-Reportable combined traders held a net long position of 28,362 contracts, down 3,993 contracts for the week. Trend-following funds (Non-Commercials net of index Funds) held a net short position of 14,950 contracts which represents a decrease of 6,511 contracts and the selling trend is seen as a short-term negative force. These same funds increased their net long position in KC wheat to 40,898 contracts which was an increase of 3,391 for the week. The record net long in KC wheat held by these traders is 67,789 contracts from November 2nd, 2010.

US wheat export sales continue to limit price gains with just 363,000 tonnes reported last week vs. 572,000 tonnes the week prior. Thai flour millers bought 45,000 tonnes of US wheat for December shipment last week and an Indonesia miller covered 20,000 tonnes of high protein wheat from Australia for November. Lebanon issued a tender for 50,000 tonnes of optional-origin wheat with a November 6th deadline. Jordan and Syria are both in for 100,000 tonnes and traders noted that Iraq reissued for 50,000 tonnes of wheat.

An Australian marketing group expects western Australian production to be near 8.5-9.3 million tonnes vs. previous forecasts of 9.1-9.3 and against year ago levels of 15 million tonnes. Many analysts believe total production could fall near 21 million tonnes on this Friday's USDA report vs. current estimates of 23. Late monsoon rains in India helped to replenish soil moisture levels and India is now expected to produce a bumper crop in 2013. Production in 2012 was a record 93.93 million tonnes vs. demand near 86 million. Another record crop in 2013 would result in its 6th straight year that production has exceeded demand. India has become an aggressive exporter this season as domestic stocks surge and global wheat prices rise. India exports are pegged at 5.5 million tonnes vs. prior estimates of 4.5. This is the highest export level since 2003 which was reported at 5.65 and is the second highest since 1982.

The 6-15 day forecast turns wetter for the southern Midwest and eastern Corn Belt which should help soil moisture levels in some areas but could delay winter wheat seeding in others. The chances for rainfall or snow in the western plains the next 2 weeks are limited which could leave a third of the winter wheat with poor establishment before heading into the winter dormancy. Nebraska, Colorado, and South Dakota conditions remain in the worst shape. Dormancy will begin in the northern region by November 10th and in the south by December 10th.

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*Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.

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