Alpari Grain Outlook 03/01

Thursday's weekly export sales report showed 372,000 metric tons of wheat were sold last week, down 47% from the week prior. There's been much talk China is rolling around looking to buy wheat, especially low quality wheat for the feed ration. I don't see that as being the case on several issues. One, China today released 1.2 million metric tons from its strategic reserves for its domestic millers. This is a sign that they're willing to use those reserves until new crop US wheat becomes available shortly as harvest begins late May. Also, India looks to export up to 800,000 metric tons of low quality wheat in the month of March to compete against the US.

What we can expect near-term is a lot of small lots sales to Asian countries looking for feed quality wheat - sales of small amounts adding up to 46, 38, and 31 t.m.t. totals for the feed rations. This increase in exports comes from the fact that the price of near-term wheat futures are under the price of corn, which is very unusual. This makes wheat very affordable compared to corn to the feed rations. So we should expect active buying of wheat, but all in small quantities and not large enough to be bullish from a demand perspective. If wheat is going high long term, it will take production side problems with this year's winter wheat crop as dormancy breaks this month and matures into April.

The US drought monitor shows an improvement in the drought in the southwestern winter wheat states with snows the last two weeks adding some moisture to meltdown and add to the topsoil. This week the hard red winter wheat growing states, Kansas, Oklahoma and Texas, saw between 5 and 16 inches of snow which eventually will melt. Trend following funds are holding 72,000 short contracts up 5,000 from last week - an increase for three consecutive weeks. Once we break dormancy should we have warmer and dryer the normal conditions, we could expect funds to begin to cover those short positions, bringing wheat back up.

Corn export sales were 302,000 metric tons, down 16% from the week prior. China didn't purchase any corn for old crop shipment before September 1 but purchased 67,000 metric tons for new crop shipment after September 1. All indications are that China will wait for new crop shipments to buy the bulk of their corn. Corn demand near-term remains bearish. Soy bean export sales were 689,000 metric tons, mainly sold to China, in for 474,000 metric tons and 350,000 metric tons for new crop. The increase in sales last week comes after the two prior weeks where China cancelled previous shipments and we saw minus export sales for the week. This week's purchases by China for old and new crop shipment look to be about half what this report show.

Brazil's port union said they would hold off any dock strike until the middle of March, while China released over 1 million metric tons of beans from its reserves to feed to its domestic crushers. This suggests China is willing to be a little patient on shipping delays out of Brazil, at least for the near term. Brazil's harvest is 30% complete, versus the five year average of 16%.

The downside looks limited ahead of next Friday's USDA monthly crop report on several issues. One, the report should show exports remain strong and possibly lower ending stocks. And two, competition for soybeans export from Brazil is absolutely wild as crushers and feed industry producers in Asia demand supplies now. You have to look at the shipping out of Brazil like an hourglass that has been turned as it's slowly coming out of the narrow spout. You can expect talk of another strike any day, whether it be for dockworkers or truck workers, and that certainly would bring us a sharp daily rally in soybeans. But as I've noted prior, these rallies are short-lived, because these are among the highest paying jobs in South America, so they don't last very long.

We're winding down on the weather in South America being a pricing influence. The next three days, all of Argentina looks to receive 70% coverage up to 3 inches. Corn is done maturing but this will help the late planted soybeans. The key to the long-term weather now is most of Brazil and Argentina looks to stay dry with a heat dome moving into central Brazil on the 11 to 15 the forecast. This will have the harvest in central Brazil pickup, though it doesn't guarantee that it will be shipped any faster.

Next Friday midday the USDA releases its monthly crop production supply/demand report. Traders should expect a decrease in corn exports and another increase in ending stocks, but beans could see another drop of 5 m.b. on its ending stocks carryover as demand is still running ahead of previous USDA estimates. Long-term weather outlooks on the 90 day forecast look to keep the southwestern states drier from Iowa heading west, but the Eastern grain belt, Illinois, Indiana and Ohio, look normal. The current 90 day forecast suggests that the hard red winter wheat is going to have some problems breaking dormancy and growing into March, April and May and that could have the 72,000 short fund held positions cover those buying back and adding to their long position with a measurable rally.

Entering the new week, technicals read like this. Support for May corn is 6.80, then 6.65, resistance 7.20 then 7.35. It will take a close over 7.35 to turn bullish on the charts. May beans support remains 14.20, then 13.90, with resistance at 14.65 and 14.85. May wheat support is 6.80, then 6.50, with resistance 7.20, then 7.40. A close over 7.40 negates the bear market. The month of March is usually set up to be a bear trap for the corn and beans as South America crops hit the market. We look to see record corn and bean exports out of that region and talk about record corn and bean acres to show up on the March 28 planted acreage report. This should have corn and beans end up lower at month end.

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 timothy.hannagan@alpari-us.com.

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