Thursday's weekly export sales report showed 371,000 metric tons of wheat was sold last week up 14% from the week prior and 23% over our four-week average. The better sales came as Asian customers entered for feed-quality wheat. Demand remains a non-pricing force as record U.S. wheat stocks and world record stocks keep demand spread out among all the world exporters with no one garnering a lion's share.
Weather looks to take a more important role as our winter wheat crop in the western plains is breaking dormancy and in need of warm sunny days and timely rain for good yields. Kansas, our number one wheat producing state, has 77% of the crop having broken dormancy and is rated at a healthy 64% in good to excellent condition versus 43% a year ago.
Texas is lower, but it went dormant with a very poor rating and is now much improved. The current El Nino weather pattern continues to bring ample rain storms across the western plains as it has been doing since October. The fear from now through the end of April is an ice storm or freezing temperatures of three or more hours entering burning the wheat. That would induce a weather rally but next week looks warmer with timely rains.
Corn exports last week were 606 T.M.T. off 19% from the previous week, but 8% over a rising four-week average. Asian business was very active again.
Japan is rumored to be coming in for 3.5 million metric tons of corn for July on out delivery. As you know, it has been my theory that corn exports are poised for a surge in demand the second quarter through year's end as Asian neighbors of China turn to the U.S. to fill feed needs China cannot.
Soybean exports were 273 T.M.T. up 28% from the week prior, but just a number that seasonally reflects our slow-down in exports as South American beans come on line. 796 T.M.T. were loaded of boats and shipped with 283 T.M.T going to China.
In the big picture of things on demand long term the next 9 months, we have to address several issues: a) The drought in China and surrounding regions; b) The president of China's grain reserve program said they intend to build grain reserves to 40% of demand and usage to insure against short falls in production. This means they must continue to buy on foreign ports. China remains in the grips of an El Nino-inspired weather pattern that has brought drought-like conditions to their southern grain provinces and severe winter weather damage in the north. Monthly crop reductions for corn and beans production estimates have surfaced since late last fall. They have begun to take grain from their strategic reserves and moving it into drought areas to insure the expansion of hog and chicken populations continue as well as human food needs. This certainly suggests that China will need to increase bean imports and buy corn to insure the strategic grain reserve mandate is met. The Chinese ministry commerce increased its bean import projections for March from 3.9 to 4.5 M.M.T Now, though it is unclear yet if China will move from an exporter to surrounding Asian neighbors, to an importer of corn on the world market, the numbers certainly suggest it. An increase in U.S. corn exports should be expected, but a certain surge in bean sales is imminent. Besides China's untimely bad weather, the same El Nino -inspired drought is hitting other Asian countries and regions such as Indonesia and Malaysia which produce 90% of the high protein palm oil that competes against soy oil. Half the palm oil growing regions in Thailand are suffering from drought. The Mekong River which flows from China through five countries in southeast Asia is at its lowest level in three decades. If China's protein mandate is threatened on palm oil production elsewhere and high palm oil prices, they will turn to the U.S. for soy oil to fill the hole.
Moving on, even though it is demand that drives the market price, we have to put it on hold the first three days of next week as supply-side production takes the stage as Wednesday's 7:30 am Central Time U.S.D.A. Planted Acreage Intension Report is released.
The pre-report trade estimates of 31 top brokerage analysts came out Thursday. They put all wheat-planted acres at 53.34 million acres versus 59.13 in 2009. The range is 51.90 to 54.90. They put Durum wheat acres at 2.49 M.A. and the key spring wheat at 13.42 M.A., with a range of 12.70 to 14.00. If there's going to be a surprise in wheat, it will come with a much lower spring wheat acres numbers as the last two years had severely wet spring planting problems and corn and beans look more profitable to plant. Growers could ease their wheat headache off the record 1 b.b. inventory over hanging the wheat market by cutting acres. Wednesday will tell. Expect some of the short position profits to take them before next Tuesday on fear of a bullish surprise.
Soybeans came out with an average guess of 78.50 M.A. to be seeded. This is over 2009 of 77.45. The range of guesses were 77.43 to 79.50. Bullish is 3 M.A. less and bearish is 3 M.A. more. A one million acre increase leaves it up to weather. You can plant 2 M.A. more and with a drought in some areas produce less. Of course, you can plant 2 M.A. less and with bio-genetic seed results and perfect growing season weather produce more than the year prior. So, 1 to 2 million more or less acres to be planted on the report will have the market the next day say, It's not what you plant, but what you grow. They then go back to trading outside markets and seasonal.
Corn saw an average pre-report estimate of 89.08 M.A. versus 86.48 or 2.6 M.A. more. The range was 87.00 to 90.20. The lowest estimates was even higher. The market psychology is to round these numbers off so they see the 2.6 more like its 3 M.A. more and that is bearish for the report. After these pre-report trade estimates came out, it took about 4 minutes and corn, beans and wheat all pushed to new lows on the day Thursday. Like wheat, corn and bean traders who sold the high of the week above the resistance, we gave you entering this week at 3.74 corn and 9.75 beans, look to take short profits before Tuesday off report risk. Here's some trading thoughts for aggressive traders who want to be in the market for the big report but yet, control risk.
For corn, since we are down into the end of this week prior the report, it is a bullish surprise that could benefit appreciably. Consider buying a May 3.60 call option for $0.10 or $500.00, plus commissions, you have a fixed and limited risk to the cost of the option and if the report is bearish then you can still sell it out and re-coupe money as it has four weeks time premium built in. An overly bearish report could still see it with half value on report day, yet a bullish report would be very rewarding. You have more than $0.10 risk on the futures when the market opens Wednesday so the option looks reasonable.
If you're bearish, the 3.50 May puts are $0.09 or $450.00. Charts suggest a more bearish report than expected and 3.34 would be seen quickly and possibly 3.25.
On beans, buy the 9.50 May call and sell the 10.00 call for $0.14 or $700. You have more than $0.14 risk on the futures contract on the open Wednesday and 10.00 is resistance near term.
Like corn, beans too, even with a more bearish report should give you a chance to sell out of the option on report day at half value or so. These are option strategies solely to address the risk and uncertainties of the report results. Looking back on our technicals, they have worked like a dream.
On the week of March 8, I gave 3.60 as strong chart support to buy with 3.74 as resistance and look for month-end and pre-report profit -taking by short positions held. We hit 3.60 to 3.61 as a low three days that week, then rallied to a 3.77 high this past Monday before profit-taking entered. Had we closed over 3.74, 3.88 to 3.94 could have been seen. Going into this week, I gave 3.60 again as support and with a close under 3.50 next resistance and 3.34 worst-case scenario. The market doesn't look at charts too closely the two days prior a government crop report as they trade rumors and emotions, but like I said in early March when 3.60 hit, the shorts have the profits again and the risk, so expect a break to unveil more short covering.
For beans, entering the week of March 8, I said if 9.30 low support hit buy and look for month-end and pre-report short position profit -taking to push beans back to not higher than our 9.75 resistance as shorts have the profits and risk. We hit 9.30 three times with a 9.25 low and of course we rallied on short-covering to a 9.76 high this past Tuesday or a $0.46 rally before profit-taking. The longs, fat with profit and risk, began selling Wednesday and Thursday. 9.30 still remains major support. A close under and 9.10, then 8.90 is next, and 9.75 remains resistance. Charts kind of go to the sidelines Monday and Tuesday, but shorts have the profits again and are likely to buy back and short cover to some degree to avoid the risk of the report.
Wheat remains the same. Don't buy wheat until we break 5.00 basis May, at which time trend funds should begin a much bigger short-covering rally of their near-record 66,000 short positions taking us back to 5.24 and possibly 5.45. The last two weeks are identical to last year. Last week saw a big rally as it did last year and this week we broke as it did last year. It's the way the market gets profits from longs and shorts out of the market. Last year corn acres came out on the report 900thousand acres less than the year prior and beans 306 higher and the market exploded to the upside on report day and continued higher into june as it refocused on planting and weather uncertainties .