Wheaties and Some Funny Charts

Tanner Sheahan
CPS Tangent

Happy April Fool's Day!

Wheat prices are clunking up a little at a time every day.  Right now we have prices from $7.65-$7.70 for now through post-harvest.  Nov/Dec is a dime higher at $7.80 and new crop for next year landed at $7.57.  Those are pretty decent prices, it's foolish to say otherwise....Ha. Ha. Ha....


Another interesting day! Expanded limits for corn made things even more interesting. Markets were called up sharp…what we got was, futures started with corn up 20-26 and wheats up 11-12. Corn futures were quickly overrun with buy orders and turned limit up and wheat quickly gave up early gains. Watching the corn bids/ offers was very interesting. With corn up the limit bids would jump from 1400 caks to 29,000 then to 108,000 then back down. We are currently sitting with corn up 42 and wheats down 5-8. One of the interesting tidbits from yesterday’s report is that the USDA is now projecting 162 bpa as ‘trendline’ even though the US has only averaged over 160 bpa once in history (back in 2009-10 at 164). So even IF you use 162 bpa you would only have carryout stocks into 2012 of 700 myn bu…still much too tight.
               NOAA says that the whole top ½ of the US will remain below normal temps from coast to coast all through April. They still think that the La Nina cycle will break down, but not any time soon. This could seriously impact corn plantings…STAY TUNED. Meanwhile the SW and southern (Texas, Louisiana) will have above normal temps. The topic of ‘market reform’ is in the news again. Don’t expect sudden or drastic changes in the CFTC’s attempt to gain control of the markets…it looks like it will be more of a ‘slow, measured’ approach to implementing new trading rules.
               With yesterday’s report now behind us…where will the corn come from? How do we make it last till new crop? Cattle markets are hot and margins strong. Weak $$ has the Koreans/ Japanese strong importers of beef/ pork. Exports? Value of the $ makes US corn pretty favorable…most likely it will need to come from either ethanol (perhaps as plants idle down for summer maintenance, some of the corn contracted will be dumped back into the market). Certainly wheat will need to be fed. Yesterday’s report was negative on wheat 3 different ways: acreage at or higher than trade expectations, increased wheat stocks (even more than last year at this time) and very weak sales. I could easily imagine a couple hundred million bushels of wheat making their way to feed channels.
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Report DAY! Markets are called up hard (+20 to 25) on this morning’s report. Actual open has corn locked limit UP (.30) from May ’11 till July of 12! Currently there are over 100m open buy orders looking for a seller. Wheaties are followers up 20 or so. The strength doesn’t come from the acreage report at all though….even though the acreage will be talked about till well after planting is done. This mornings strength will come from the corn stocks of 6.52 byn bu. Average market guess was 6.69…means we used/ lost or had about 170 myn bu of corn disappear. Not really what the end user wants to see on year with some of the tightest carryouts EVER! Rationing has NOT happened apparently. Drawdown in stocks continues and is steeper/ faster than expected. NOTES: Corn stocks are down 15% vs. last year. Wheat stocks are UP 5% vs. last year, and cotton acres will be UP 15% vs. last year. Sales report was also VERY bullish.
               Acreage: 92.2 myn ac vs. 91.8 ave guess. At 155 bpa that is only about an extra 56 myn bu of production…certainly not a big deal. All wheat acres were est at 58 myn acres vs. trade guess of 57.3. Winter wheat acreage came in right on target, all of the increase in gains were spring wheats (700m acres). Beans were right on target for acres/ stocks.
               Sales reports: WOW…! Corn sales came in with a blistering 74.8 myn bu of o/c sales and 12.5 myn bu of n/c sales (I would be betting that China gets associated with this somehow). Wheat on the other hand was MUCH more pedestrian with only  9.9 myn bu of o/c sales and 5 myn bu of n/c sales. Corn usage continues at a torrid pace…at this pace we WILL run out of corn this summer, unless something dramatic/ drastic happens. Pay attention for any possible ethanol legislation….as I see it, that is the one thing that has the potential to cause a sudden drop in corn prices. That or an ‘economic Black Swan’ of some sort.

Futures were called higher, but it was very short lived. After giving up initial gains, corn is now off 10 and wheats are off 4-6. Bull needs to be fed daily, and there simply is not that much market moving news this morning. Fundamentals are still well supported and weather (we’ll cover later) is supportive of prices. Rumors continue to swirl concerning a ‘Large’ corn sale late last week and China. Still no confirmation, USDA is only saying a sale was done. Traders are adamant it was China. Sale was for 39.3 myn bu of o/c corn and 9.8 myn bu of n/c corn. Market has been talking for weeks that China may need to import as much as 5 myn mt by June…this is probably 1.25 myn mt of that. China has announced that they will offer 18 myn bu of feed wheat this week (markets sees this as IN PLACE of corn). There is rumor that another big sale will/ may take place today…we’ll see. You gotta understand that the fundamentals generally don’t change that much or that fast, and traders need something to hang their hat on…so…the need for a rumor mill! Over the weekend we did get confirmation that Iraq booked 3.6 myn bu of Aussie wheat and 7.2 myn bu of US wheat.
               In other news: Heavy rains in Brazil (particularly in the north) have not only hurt bean harvest, but have seriously delayed cane harvest. Ethanol prices in Brazil are up .88/ gal. Obviously ethanol margins are STRONG. Exports to Brazil will stay for the time being. Brazil got more heavy rains in the north over the weekend, southern areas were rated ‘good’ and will dry out this week. Argie is also rated as ‘good’ no signif weekend precip, but they are in good shape right now. WA (Western Aussie) is STILL very dry, and it doesn’t look like they will get anything resembling a drought buster anytime soon. With winter planting to start anytime, the soil profiles are mostly void of any moisture.
               A slow meltdown in the N. Plains looks like it will continue. N Dakota will get flooding at any rate, and heavy spring storm is expected to roll across Montana/ Dakota later this week. COT report is sort of tough to follow due to lag time, but does confirm that the specs did sell 45 myn bu of Chic when we saw the sharp correction, while at the same time selling 85 myn corn (funds bot 50 myn corn in the same time period.
 Now, for Some Funny Charts: (Click to enlarge the pictures)

Have a great weekend!