LAST FULL WEEK
Our last demand-side report came out with Thursday's weekly export sales report. For wheat - Boreing. Export sales were 325,000 metric tons, down 20% from the week prior and equal our weak four-week average. Even a $0.20 drop in prices last week and a $0.45 two-week drop in prices could not bring demand to U.S. ports. But bears in the market are nervous as we head into month-end and April. A near-record short position held by trend following funds may have wheat poised for another short-covering rally similar to last October 6, when trend-following funds entered the week short a record 60,000 contracts accumulated on a nine week $1.50 drop in prices. On that day, funds began buying back short positions and in three weeks rallied $1.30 cutting short positions from 60,000 to 12,000 contracts short. Currently they hold a near-record 59,000 short contracts fat with profits after a $1.00 drop since January and $1.35 drop since the November high.
Fundamentals are poised to start another short covering rally on two fronts. 1) our winter wheat crop in the western plains is now breaking dormancy. This sets in motion the growing season ahead of the late May harvest. The crop is now vulnerable in late March and April to weather damage should an ice storm, freezing temperatures or drought enter cutting yields and quality. Quality is a key wheat pricing ingredient as wheat is grown for human consumption. The market's in need of building a weather premium in the price - reflecting the uncertainty of this key growing period. Additionally, shorts should be anxious to buy back positions ahead of the March 31 planting intension report on fear farmers may report they intend to plant less spring wheat acres in favor of more profitable corn and bean crops. Note, they planted almost 6 M.A. less winter wheat acres last fall.
Though strong support lies at 4.72 basis May futures, avoid the long side until charts signal the turn up. Buy a close over 5.00 next week and add to your position on a close over 5.24, with 5.42 to 5.50 as an initial target should the short-covering rally ignite.
As for corn, export sales were 747 T.M.T. almost double the week prior. Asian countries were in for 424 T.M.T., versus 267 the week prior. Asian business is the key to corn's demand as seasonally they account for three-quarters of our exportable feed grain exports yearly. I expect China, who normally supplies their Asian neighbors with corn to halt these exports, keeping corn home in 2010 to meet feed needs on expanding hog and chicken populations and a mandate to increase corn-based ethanol, all after a recent drought cutting their corn crop appreciably.
As China goes from an exporter to importer, it also leaves surrounding Asian neighbors of there's to fill their needs on U.S. ports. Well, did corn post a low this past week that can hold into the March 31 acreage report? Possibly. Corn entered the week down $0.32 from the March 1 high. So, recent trend-following funds short positions are fat with profits. Next week is the last full week of trading in the month and funds should expect to further buy back short profitable positions and earn those month-end bonuses.
Next, we should expect profitable shorts to buy back some positions ahead of the March 31 report on fear a bullish acreage report could take away the profits. That is money management. Technically, May for the sixth consecutive week has support at 3.60. Resistance at 3.74 entering today, March 19. A close over 3.74 sets up 3.88 to 3.94 as next stop. If I had to guess, next week's range before hearing the pre-report estimates on the March 31 report from the industry. I would say 3.80 to 3.88 range would be seen. Of course, a close under 3.60 and 3.50 is next stop.
Soybean export sales were 214 T.M.T. for old crop sales before September 1; and 525 T.M.T. for new crop year sales after September 1. China was in for zero old crop as they try and squeeze beans out of South American ports for near-term needs, but they bought 390 T.M.T. of U.S. beans for 2011 crop year needs. Demand is seasonally slow for old crop but the big picture still has 2010 set up for another U.S. record bean export year. Next week, beans enter with similar fundamentals to corn. Beans entered last Monday just off a 2 week $0.65 drop in prices, leaving trend-following funds fat with short profits. We should expect funds to use part of next week to take short profits and pay month-end bonuses of profits taken. Additionally, speculators should exit short positions with some entering long ahead the March 31 acreage report. No one wants to be short if the report says growers intend to plant less acres this spring.
One of the potentially bullish wild cards the next 30 days could be quality problems in shipped South American beans. Record growing season and harvest period rains lent much talk of disease in Argentina's and Brazil's bean fields.
Their pre-shipping inspections of grains are a fraction of what we have in the U.S. Yet, even U.S. ships are sent back from time to time when foreign port inspectors find disease. If a country like China begins to inspect and uncover tainted grain, those ships will be sent packing and thoughts turn to the U.S. to fill the hole pushing prices here higher. Just a thought, be ready.
Other issues being talked about, but should be ignored, are shipping delays out of Brazil. This happens every year as they have half the ports needed to move the harvest. But, it eventually unclogs. Also, there is talk of dock workers going on strike in Argentina over wages. This too is a threat every year there and in Brazil. But, because dock workers' wages are among the highest of labors' wages nationally, strikes are very short.
Weather too is being talked up on wet spring concerns. The last two springs brought torrential rains, late planting dates and a fear-rally some grains might not be planted. Nonsense. The pre-planting spring rains always bring on some flooding in areas around rivers, but corn planting doesn't need to start until May 1, and beans and spring wheat late May. Note, last year's record late planting had corn and beans being planted into mid and late-June and with the miracle bio-genetic seeds did just fine. But, the market trades fear psychology and a wet spring lends support to grains anyway. There is though, one wild card on a too-wet, early spring. The southern delta states plant 10% or less of our corn and beans. Because of their position in the country, summer warmth planting weather arrives first before key upper Midwest states allowing field work and planting to start in late March and early April. The El Nino weather pattern brought a jet stream of storms this past winter bringing near-record snows and moisture.
Louisiana has only 11% of their spring plowing complete. That is less than half their five-year average. Similarly, southern states are the same, as rains won't stop. The current 6 to 10-day outlook is above-normal rainfall. If the rains continue to delay early corn and been seeding, they will switch quickly to vegetable crops easily grown in that soil and area. Midwest growers either plant feed grains or idle the land. So, we will watch the southern progress for potential acreage reductions of feed grains.
Let's cover the bean technicals: May beans continue to have support at 9.30 and minor support at 9.40. Key break out resistance is at 9.75. A close over here and 10.50 is next major resistance. Minor resistance is 9.65. If broken, buy and add on over 9.75.