Friday, September 5, 2014

U. S. Dollar is once again the King

By: Dan Hueber


Mercifully, we are witnessing a little rebound this morning but it has been a rough week for the grain and soy markets as the increasing weight of larger crops caused the foundation to crumble once again.  While we do not know where the close will be today just yet, at current levels December wheat is down 30 cents from the close last Friday. 

While there has not been any real "fresh" negative news for the wheat market this week, neither has the been much positive and with Russia and Ukraine at least making plans for more cease fire discussions this weekend, you have eliminated the need for risk premium, assuming there was any to begin with.  Of course the other negative generated from the problems over there has been the collapse of the currencies of those two countries and then add in the bleak economic performance in Europe and it is understandable as to why the U.S. Dollar is once again the currency of choice for investors.  It has reached up to levels this week not seen since July 2013.

Export sales did not provide us with anything to be encouraged about either.  For the week ending August 28th we sold just 168,700 MT of wheat or 6.2 million bushels.  This is down 58% from last week, 56% from the 4-week average and 60% from the 10-week average.  Year to date this bring sales up to 11,436,000 MT or 420.2 million bushels and moving forward, we now need to average 12.9 million in sales each week to reach the 925 million target. The Black Sea dominates.


The bearish supply news continued to pile up on the corn market this week, which brought on what appeared to be the inevitable; that being a push into lower lows for the year.  While I believe many in the trade feel the USDA will not hit us with both barrels next week, they also believe that the September report will not be the largest.  Informa will release their September estimate later this morning and The Hueber Report did issue ours yesterday pegging the corn yield at 171.6 for a crop of 14.38 billion bushels.  We are also looking for ending stocks to crest the psychologically negative 2 billion mark, looking for 2.038 billion.  If/once carryout is above 2, it will potentially be the first time we have been north of that mark since the 2004/05-crop year. 

The export sales to finish out the 2013/14 marketing year were a negative 300,000 bushels but unfortunately the new sales were pretty uninspired.  We sold 525,600 MT or 20.7 million bushels.  This number was down 24% from last week, 29% from the 4-week average and 25% from the 10-week average.  The best purchasers were unknown destination at 268.3k MT, Mexico at 103.1k MT and Columbia at 86.2k MT.  There was another sales of 120k Mt reported to unknown destination yesterday.

I am not terribly confident that corn will be able to maintain strength for the close today but at the current trade, we will have lost around 18 cents since last Friday and will potentially post the lowest weekly close for a December contract since early October 2009.  With no surprises next week, I have to imagine that prices will continue to drift lower between now and the report on the 11th of September.  In light of the overall bearish sentiment, this appears to be a market that could set the extreme lows early in the fall but the challenge then would be to find a reason as to why we could need to rally from there. 


The selling in November beans appeared to have kicked into a higher gear this week, which is understandable with the onset of harvest and consistent reports of exceptional yields trickling in.  Numbers in the 70 to 90 bushel range are not uncommon.  While certainly not out of the question, to see a private company print a projection of a 4 billion bushels crop I believe was a shock to the trade.  This is not to say that others will not come up to that level eventually but I suspect many will not expect the USDA to do so.  We have yet to breech the 10.00 mark for November futures but came within a penny of doing so and unless we see some kind of surprising turn around later today, we should post the lowest weekly close for a November contract since July 2010.  

Informa issues their estimate later this morning and The Hueber Report published an estimate yesterday of 45.6 yield and 3.833 billion bushels production.  For a reference point for next week, the record production for beans in the country was set last year at 3.369 billion bushels so it is just matter now of finding out how large of a new record we can set.  We have ending stocks projected at 447 million, which would be the largest since the 2006/07-crop year.

Exports sales for 2013/14 came through at a negative 3.2 million bushels, which still leaves us 48 million bushels above the USDA target of 1.64 billion but that is somewhat of a moot point right now.  Sales for 2014/15 were also a bit of a let down coming through at 869,000 MT or 31.9 million bushels.  This was 32% below last week, 28% below the 4-week average and 20% below the 10-week average.  The major purchasers were a familiar bunch with China taking 338.3k MT, unknown destinations at 293.1k MT and Spain at 55k MT.

There are still a few forecasters keeping the potential for frost in the outlook for next week in the upper Midwest but most I have read believe damage would be slight to none even if it did occur.  As I commented earlier this week and noticed again on travels over the past couple days, I am amazed a just how rapidly many bean fields have begun to turn.  If frost cannot provide a pop, I have to imagine that prices will continue to work sideways to lower into the report.

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