THE REPORT YAWN
Let's cover the latest supply/demand reports. Thursday's Weekly Export Sales Report showed wheat sales the week prior at 245 T.M.T. down 37% from the week prior. A little Asian business but key world buyer, Egypt, continues to snub the U.S. in a political statement and buying mainly Russian wheat. Wheat demand will remain a neutral pricing force until the end of January at which point we start looking for a change with Asian markets entering in a bigger way.
Corn sales were 847 T.M.T. up 29% from the week prior and 25% over our four-week average. Asian sales were 371 T.M.T. and drought struck Mexico in for 103 T.M.T. It is a positive number, but Asian sales were half the week prior, so the better numbers came from other countries who are not expected to be consistent weekly buyers. We need Asian countries to be our active buyers with outside countries our bonus buyers as Asia is three quarters of our exportable feed grain business. So, it is a good number on paper but I'm cautious on it.
Bean sales always lead the way with 927 T.M.T. sold up 41% from the week prior. China was in for 613 T.M.T. to be shipped at a later date versus 312, the report prior, and 1.449 M.M.T. were actually shipped to China. China continues to aggressively buy for future delivery and receive weekly ships to unload that has their soybean purchases 60% over the year prior. There is much talk that if South American crops come in larger during the January-to-March growing season, China will cancel some U.S. purchases for March on out delivery and re-buy on S. American ports. Baloney! Last year's Argentine drought left China with no choice but to keep U.S. purchases but the year prior South American big crops saw China keep all they came in contact with. 2010 appears to be a year where China will again keep all purchases for future delivery and these are the reasons: China began last spring to build a major corn, bean and wheat strategic grain reserve to insure their mandate for more protein and meats in their diet would go uninterupted. Poor growing conditions forced them to draw on those reserves, especially beans and corn, leaving their storage goals behind schedule. China looks to play catch-up with no cancellations of U.S. prior purchases on fear that a drought in the U.S. in 2010 would, in fact, find that mandate unobtainable. The buying will continue in various weekly levels, some better than others, but all over the year prior until their grain savings account is achieved.
O.K., let's cover that lame crop report that came up with marginal adjustments but it did set up an explosive potential for changes on the January report. Wheat saw a 15 m.b. increase in ending-stocks to 900 m.b. It is a record level and came to be on lower export projections. Ignore it. It's old news and the market doesn't trade wheat demand now. The report put corn ending-stocks at 1.675 b.b. up 50 m.b. from the month prior and 29 m.b. over the pre-report average guess. It came as the government lowered export projections. Don't be misled by the lower export projection as the government was too high on original projections but in the big picture demand looks to exceed a year ago. As noted on my last report, our export inspections for the first time show demand has exceeded a year ago this time and a year ago the market was talking about how strong demand was as they had underestimated it. So you read various reports on how weak demand is but that comes from perception of what was expected, not fact. World-ending stocks came in at 132.34 M.T., down from the month prior, and down sharply from a year ago - - 145.44 M.T. The stocks to use ratio clearly leans to higher prices and demand the first six months of 2010, with Asian feed demand expanding, the door now open for genetically modified corn to be shipped into Europe and the inevitable ethanol increase to 15% per gallon of gas next summer, you have to see demand and exports increase longer term. Near term, we face the choppy book-balancing that year-end brings on. Corn will come in Monday and trade what the influence is from crude oil and the dollar-index. Then January 2, the trade comes in as heavy buyers to begin their buying commitment of the new year, but mainly the need to get long prior the January crop report. The buying will come as traders will fear a sharp cut in corn production and ending stocks resulting. Note, the last crop production report was early November. The January report has the results of the harvest from November 1 to December 31. During that time, we harvested the lowest-yielding eastern grain belt acres that were planted last and matured during the worst of our early fall weather. The report will also address crops left and or abandoned in the fields to be plowed under or harvested in the spring. All a brew for a bullish report.
The bean report was a sample of what the January report will say. It put ending stocks at 255 m.b. down 15 m.b. from the month prior and 20 m.b. over the average trade guess. Well, they raised exports but not to the tune of trade expectations. Those who expected a lower-ending stocks number than received, will expect further cuts in January, setting beans up to rally January 2 into the report. Like corn, beans also use the next two weeks, void of crop reports, to trade off outside market influence. China's insatiable demand for high protein beans is well-documented. It is not going away as their mandate to bring more protein into their diet is a cultural change and will only broaden their needs, not only to meet demand for an increasing population and economy, but for the building of soybean and soyoil reserves to insure their protein mandate goes unimpeded.
U.S. bean exports are at almost 80% of what the U.S.D.A. had projected to be sold by September 1, 2010, the end of the marketing year and beginning of the new one. Everything suggests demand world-wide will increase for beans and this, of course, has everyone wanting to plant more. But, as always, it is not what you plant but what you grow, and this sets up the weather in South America in January and February as a critical pricing fundamental. The technicals look like this for next week:
March wheat has resistance at 5.50. I can't buy it unless we close above 5.50 or hit support at 5.18.
January beans have support at 10.15 with resistance at 10.60. Buy support or a close over resistance;
March corn has support at 3.80 to buy or a close over 4.04 resistence. Tim Hannagan 800-563-9510
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