U.S.D.A. REPORTS AGAIN
Reports and more reports to digest. Thursday brought us our weekly export sales report. Wheat sales were a weak 323 T.M.T. down 25% from the week prior, keeping wheat demand a non-pricing force until harvest of the winter crop begins late May. Soybean sales were 205 T.M.T. for old crop shipment before September 1, and 238 T.M.T for new crop year season after September 1 for shipment. China was in for 188 T.M.T. of the new crop purchases as their immediate shipments are out of South America.
Corn saw a whopping 1.357 M.M.T. sales. 64% over the week prior with 896 T.M.T. going to Asian countries. Where there's smoke, there's fire. I have been talking to you for two months to get ready for a surge in corn demand for the second, third and fourth quarters of the year as Asian neighbors of China turn to the U.S. to fill needs China cannot or will not supply. We have seen Asian sales over the week prior 5 of the last 7 weeks. This comes on several fronts I have been expecting to surface. China's mandate on 2010 feedlot expansions of their hog and chicken populations for meat protein and corn to ethanol expansion would require China exiting the export market to neighbors. Next, the drought has forced China to draw on their strategic grain reserves to move feed into livestock areas to insure animal protein expansion continues. Yet, they still confirm they intend to build their strategic corn and bean reserves to 40% of domestic usage by year's end. This all sets up a sharp increase in corn exports to Asia and potentially China being an importer of U.S. corn. We have had several rumors the last two weeks that their lining up to make such purchases. Demand doesn't price itself in overnight, but by week-to-week and month-to-month. Again, the big story comes year's end will be the surge in corn and bean exports beyond U.S.D.A. expectations.
As far as weather and drought reports out of China, it is typical of a communist, government-run country to have one sentence releases on each issue that you have to thread together like a tailor to get a paragraph of understanding. But, here are some highlights:
Most rivers in Southern China are at 40% of normal levels with 600 rivers of various size and importance dried up. 60 million people are being affected by the drought with 24 million short of drinking water, the bare minimum and 16 million farm animals short of basic survival water rations. Some say it is the worst drought in 30 years and some 50 years, but with their economy expanding and 40 million more people moving from poverty into a higher standard of income-living this year, food quality and quantity demand is at the forefront of the government's goal. This means imports. There is no way to calculate the demand, but it is going to bring a lot of emotional fear-trading from trend-following and index funds. Additionally, farmers in the U.S. are currently holding 4.5 billion bushels of corn and 609 million bushels of beans on the farm holding it back until summer growing season high prices set in. As you know, last fall during our harvest, I wrote on my report many times that growers would sell only the amount of cash corn and beans to satisfy harvest-time bills and winter needs and lock the rest up until June and July as growers learned from the three prior years that over-buying of our seasonal planting and growing season period by the Index and trend-following funds brought much hi9gher cash and future bids mid-summer than previous years. A stronger demand and exports with farmers holding tight to stocks for higher prices sets up a very special period ahead.
Ok, moving on, we got our April, U.S.D.A. monthly crop report today, Friday, out two hours before the open giving us only adjustments on our ending-stocks inventory or what's considered the U.S. grain savings account of grain to be left overcome the start of our new grain marketing year, September 1. They put wheat-ending stocks come wheat new marketing year at 950 m.b. versus 1.001 b.b. last month and 657 m.b. a year ago. Even with lower world production the number is mountainous. But, suggests the beginning of lower stocks and production to come. When the supply curve begins down, the price curve soon begins to move up. Corn ended stocks for the corn and bean marketing year, ending September 1, were put at 1.899 b.b., up 100 m.b., from last month's report and 10 m.b. under the average pre-report trade guesses. They raised world stocks 4 M.M.T. it is a neutral number, neither bullish or bearish for the new week as traders now turn to weather and its impact on potential field work and planting.
Soybean ending-stocks were left unchanged at 190 m.b. We had dropped the last three consecutive months from 230 m.b. It has meant little to report day, but it is big for the long-term May through September. The report raised world production, South American production in Argentina and Brazil all higher, yet their increase in U.S. export projections offset production increases. This is the trend, that production cannot keep up with demand for beans and other high protein vegetable oil crops for the third consecutive year as our government has yet to grasp demand. We look for ending-stocks to continue lower in future reports.
Technicals read like this:
July corn has first support at 3.50, then 3.40. With resistance on the upside at 3.72 basis July futures. Definitely buy on a close over 3.72. Be a light buyer at 3.50 and aggressive at 3.40. Next week's weather is 60/40 in favor of good filed work and some planting to get underway. This should lend to a lower Monday opening, but watch out as spring jet stream weather patterns change quickly and WXRISK.com sees a big rain system hitting the west coast late weekend and should stay in our western and southern states leaving the Midwest dry, but a small shift and we are wet all week and prices move higher. The market goes back to trading weather's influence on Monday.
Soybean support basis July is still 9.35with resistance at 9.75. Buy 9.35 lightly and a close only over 9.75 agressively as next stop is 10.10 I like buying the august 10.00 call option and selling the 11.00 call for $0.15 or $750. cost and risk. You have that much risk in the futures every day. It doesn't expire until late july . Wheat remains the same. They took out minor resistance Wednesday of 4.74 basis july futures. That was the first price I gave on last Friday's report to buy this week. I then gave 4.90 as major resistance and to buy on a close over 4.90 only. We hit 4.92 today so you put profit stops at least on the 4.74 buys. It will take a close over 4.90 to confirm a major short-covering potential can occur. Funds are short 75,000 contracts entering this past week. At some point they will exit and take those big short position profit, but it's the charts that signal intent and the charts show 4.90 as a key turning point. If not taken out then new lows will occur. A close above 4.90 leaves 5.10 as first stop then 5.34.