Alpari Grain Outlook 02/20
By Tim Hannagan | February 21, 2013 7:34 AM EST
We began the week with the weekly export inspections report showing 30.3 million bushels of wheat were expected for near-term export, up from 23.2 the week prior and a four week average of 20.5. This was the best number since last March. Several issues support the increase. One, talk of Brazil and China in buying needs as Argentina has fallen short of wheat exports to Brazil, forcing Brazil to the US. Note: Argentina is a big supplier of wheat to Brazil but too much rain during the Argentine yield time cut their crop this year appreciably. Two, China has shut down US imports of corn while expanding their feedlot populations, thinking they will compensate with more feed quality wheat.
Last week's wheat export was a long list of small Asian countries buying smaller lots of feed quality wheat. That might be in jeopardy for future US sales as India has entered as an exporter, offering 750 thousand metric tons of wheat believed to be almost all feed quality to Asian nations. If India becomes this major exporter near term, it will offset recent US export strength. One bullish demand report doesn't make a bull market, but we will watch the export sales report on Friday for a change in the demand trend, which has been bearish.
March wheat is only $.35 over March corn. It's easy to see why the feed industry overseas is feeding more wheat in place of corn. Even though the wheat is too low in quality for human consumption, it's still higher in protein than corn. The May wheat is $.50 over May corn, still a value for feeding. So the feed exports in terms of price practicality remains into May.
Weather for the wheat belt, which breaks dormancy in March, is getting a shot of moisture with 6 to 12 inches of snow falling this week in Kansas, Colorado and Nebraska, with an inch of rain in Texas and Oklahoma. This will help topsoil, but then return dry again. Unless demand services in a big way and consistently, we have to assume it would take a supply-side rally on weather and production-related issues after dormancy breaks in March into April.
Corn export inspections were 9.5 million bushels, versus 14.8 the week prior, and a four week average of 12.7. China was in for 2.4 versus 6.5 last week. While this may be part of the rumor that China is in for feed quality wheat in lieu of corn, it's still the long pattern of price rationing the USDA is exercising and historically low ending corn stocks which leaves us no choice but to ration the corn through exports until new crop planting weather in April and June comes in clearer.
Beans inspected for near-term export were 40.3 million bushels, up from 30 the week prior and four week average of 43.2. Note: the week prior of 30 was attributed to the weeklong Chinese holiday closing of government offices and businesses, so there's a little catch-up being done here. Don't get demand excited. Last week's export sales report showed a reduction in exports to China, canceling previous purchases as they get ready for a record bean crop in Brazil in March at cheaper value. Last Friday China canceled another 250,000 metric tons of previous purchases to show up on this Friday's report and potentially our second week in a row of minus export sales.
We all know why corn and wheat ended lower Tuesday on bearish corn exports and moisture for the winter wheat belt, but beans were up .45 cents. Three issues surfaced. One, beans were down over 1.00 in eight consecutive down days into last week's low. The one dollar drop had 27,000 new short positions make a bundle profit. Two, late Friday, China confirmed they had negotiated a multibillion-dollar US bean buying intention for the new crop season from a Midwest producer group. No surprises - this is their seasonal trade negotiating done prior to planting. They want US Midwest farmers to know they intend to be a big buyer of beans again this year and to plant more to avoid tight stocks and higher prices. It's no surprise because there are only two ports in the world to buy beans from: the US and Brazil. This was a reminder to traders that seasonal demand this fall will be as big as ever - psychology was bullish entering this weekend. And three, rains over the weekend in South America were disappointing.
So, 1.00 break, 27,000 new profitable short positions and two pieces of friendly-to-bullish news and you have a more than ample short covering rally. As we look forward, news could be less supportive. Southern Brazil's largest bean growing area will get 1 to 3 inches of rain with 70% coverage Wednesday through Friday. Thursday and Friday is the USDA Outlook conference, where USDA officials project the amount of grain acres farmers intend to plant. Everyone assumes profitable grain prices and world record demand will have acreage increases announced and with good weather record production and a surge in ending stocks inventory.
The wildcard is Brazil's ability to get importers like China the grain they need as fast as they need it. Shipping delays could see some of those new cancellations of Chinese US purchases suddenly come back. Brazil has two major shipping ports and needs four. Word has it, ships of 100 or more are moored at sea waiting to load and central Brazil's early plant beans are now being harvested but delayed due to rain and what appears to be a dock workers strike this weekend, which occurs almost every year for about five or six days. I'm sure the truckers will have a strike or a slowdown as it seems an early harvest event. But, as I noted, these are among the highest paying labor jobs and strikes are short-lived.
Technicals read like this entering Wednesday's trade: May corn resistance on the upside is 7.10 then 7.20, support 6.80 then 6.65. May wheat resistance is 7.45 then 7.60. A close over 7.60 sets up 8.00. Support is 7.20 with a close under setting up 6.90 next. May bean support is 14.30 then 14.10, resistance 14.70 then 14.85, 15.00 and 15.25.
Note: Thursday at 3:00 PM Central Time is my weekly online web grain discussion. It's free! Just email email@example.com to request a password and webinar link.
Also, Thursday's weekly export sales report is released Friday at 7:30 AM Central Time.
For those who have questions on grains or would like to open a futures trading account at Alpari and use me as your broker, call me at 312-470-1112 x3304 or e-mail firstname.lastname@example.org.
Disclaimer: Trading foreign exchange, commodity futures, options and other over-the-counter products carries a high level of risk and may not be suitable for all investors. The high degree of leverage associated with such trading can result in substantial losses, as well as gains. The past performance of any trading strategy or methodology is not indicative of future results, which can vary due to market volatility; it should not be interpreted as a forecast of future performance. You should carefully consider whether such trading is suitable for you in light of your financial condition, level of experience and appetite for risk, and seek advice from an independent financial advisor, if you have any doubts. Alpari (US), LLC is dually registered with the CFTC as a Futures Commission Merchant and Retail Foreign Exchange Dealer and has been a member of the NFA since 2007 - Member ID: 0379678.
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