Grain Report - Review August 31, 2012

By Roger Baettig | August 31 2012 5:16 PM

First things first, markets are closed Monday for celebration of our Labor Day holiday. On the demand side our weekly export sales report came out Thursday at 7:30 AM central time, telling us how much of each grain was sold for future shipment. Wheat sales were 508,000 metric tons up 8% from the week prior and 1% over a neutral four week average. Buyers were drought stricken Mexico with Taiwan and South Korea probably in buying feed quality wheat. We need 700,000 metric tons or more weekly to be demand bullish as ending stocks remain large.

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Demand could soon pick up at US ports should Russia suspend exports. Russia is the world's fourth-largest wheat producer exporter. News suggests drought has cut production 22 to 26%, with talk they may run out of wheat for export by November. Russia grain gurus are having a meeting Friday, today that could shed light on their wheat crop. We all remember their last crop and when harvest began they announced a ban on exports due to drought. This sent shockwaves across the wheat market with $1.80 plus rally and importers scrambling to find ports to fill their needs. They could have softened the reaction with earlier news on their drought. The World Trade Organization has asked them to be a better World Trade Organization member with improved disclosure. I'm sure this is what the meeting is for, to let importers and such know what their intentions may be.

Exports for corn on the new grain marketing year beginning September 1 were 168,000 metric tons, clearly were seeing price rationing. We need 800,000 metric tons weekly to be price friendly and 1 million metric tons or more to be bullish. Last year this week sales were 700,000 metric tons, the year prior 1.690 million metric tons and before that 900,000 metric tons. I would suspect demand will remain weak until harvest gets well under way and product availability creates a buying now psychology as fear may be there will be none later.

Beans sales were very strong in new crop year sales at 731,000 metric tons versus 680,000 old and new crop year combined last week. Big world buyer China was in for 352,000 of the total. As has been the case, sales for new crop year delivery have been strong the last three weeks as were the world's sole port of origin to buy beans from until South America crops come in next February through April. Let's assume the obvious logic. China will continue to buy US beans through our harvest availability with delivery heading into January, but start buying South American beans in October to January for February on out delivery.

Next week it will be September. There is several issues that suggest you should resume a buying any break psychology. Breaks will be short lived, while rallies last on several issues. One, hurricane Isaac looks to bring 4 to 7 inches of rain to some of the Eastern grain belt areas in Missouri, Illinois, Indiana and Ohio. Weak drought battered crops could be damaged. We could hear of some flooding of acres in low-lying areas. Rain totals of six or more inches of rain are of historical proportion. This could have us start the week on the upside pricing in this event, should it occur over the weekend.

Two, the September 12 USDA monthly crop report will be only seven trading days away. The fear of the USDA cutting yields, production and ending stocks estimates again should have shorts buying out and speculators are buying long prior its release.

Since the last USDA monthly report, we had two crop tours, each coming out with yields under the USDA August report estimates. Markets trade fear before fact. Looking to South America, they begin planting beans in Argentina and Brazil in September. We all remember the drought there in the first half of this year damaging crops and pushing prices higher. Brazil and Argentina are, in order, the number two and three largest bean producer exporters and three and two largest in corn. Currently, that drought continues. WXRISK.com the weather site sees all of Argentina and Brazil warmer than normal with almost no rain the next 11 to 15 days with temperatures over 100 this weekend in northern Brazil.

Market history is drought is not traded until the crop is in the ground. Watch the situation closely as traders may not wait until it's all in the ground after what happened this year in the US and South America. Here in the US our drought started last September. In March and April I was writing about us being into months seven and eight of a drought while news services quoted others daily that dry weather meant early planting and higher yields. Can't imagine planting in dust and having higher yields. But that's market psychology, so though weather looks threatening in South America it is a mental note to follow, but not to trade yet. Technicals read like this. December corn support is 7.90 then 7.75. Resistance 8.25 then 8.65. November bean support is 17.30 with resistance 18.20. December wheat support is 8.75 then 8.55 with resistance 9.25 and a close over 9.60 is next.

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