Afternoon wheat: KC and Mpls reverse lower after strong start

Futures:
Another strong night for the grain complex, with corn and soy initially leading the gains, but by the morning pause wheat futures had caught up and finished equally as strong. The buying continued as we moved into the day session, and it was at this time - within the first 15 minutes of the day - in which each market posted their daily highs. By an hour into the day the markets were a couple cents off its highs, and by late morning we began to see more leakage. In wheat, over the entire latter half of the session prices gradually weakened. With around an hour left in the day, both KC and Mpls futures had moved lower. It was a little surprising to see Spring wheat futures lead the decline as the only wheat story is probably Spring wheat planting delays. A ten-cent spike lower move late in the day in both KC and Mpls sealed those markets fate, and each market finished between six and eight cents lower. SRW wheat held together much better into the close and ended the day basically flat. Between last night and this morning, we cautioned that with prices already rallying more than 35 cents off post-report lows in both Chicago and KC, it was hard to get too friendly at these levels - especially with last Friday's report not providing any positive data. The markets will probably need some other spark to keep the momentum going. We were hoping it was going to come in the form of the US winning some business as the export lineup was beginning to build, but today's reversal probably tells us otherwise. Another spark could have come from the technical side of trade, as a strong close to the week would make the weekly charts look awfully impressive - and scary to those fund managers that are holding huge short positions. But we first had to finish the week strong and cautioned there was a lot of week left. Today's reversal in KC and Mpls diminished that hope some. But again, we still have two more days of trade, and even though there really is no story in wheat, if we are going to see more to the short covering in corn and soy, wheat will follow. For wheat, we can chalk today up to failing at the first level of resistance - not the end of the World. But we really don't want to see a defensive end to the week.

Another big take out of today's price action had to be the huge move in the KC/Chicago spread. The spread was under pressure most of the day, but over the final 15 minutes of the session the spread lost four cents and finished seven cents lower in the July. That is a new contract low for the spread, but what is more surprising is why did we not see this move yesterday? We had an outside day lower close on Friday, followed by a second lower close on Monday, so we had a bad trade technically. Crop report data on Friday was negative to the spread, as the USDA projected HRW production 13 mil bu higher than the average estimate. Condition reports Monday afternoon continued to show SRW wheat states struggling with all the precip, while the HRW wheat states were enjoying a huge rebound from where the crop was at this time last year. When we saw choppy price action in the spread Tuesday and overnight, I started to think maybe the time was not right for the spread to break down further. There are times you get caught up in something else the market is doing and miss a great opportunity and chalk up today's move to one of those times.

Headline news:
Export sales will be out in the morning. Sales last week were in line with expectations coming in at 91 TMT, with an additional 412 TMT of new crop sales for combined sales of 503 TMT. It took total old crop sales to 939 mil bu vs 865 mil bu last year. There are 156 mil bu open sales. New crop sales are 94 mil bu. Most business has switched to new crop, so we will maybe see some old crop sales switched to new, which may give us a bad old crop number. But recent price action is telling us we are probably getting some business done, just don't know if it will be on this week's report or next week - or both. Regardless, we will probably see the usual players with Mexico, the Philippines and other Asian flour demand around, as well as some African nations. Look for combined sales between old and new crop to come in around 500 TMT.

For the first time in twelve years, Australia will import wheat due largely to drought conditions there. Typically, Australia is one of the top five exporters in the World of wheat. A small vessel of Canadian wheat is expected to arrive at the end of June to mid-July.

France AgriMer estimated 2018/19 soft wheat exports to destinations outside the EU would total 9.75 MMT, up from a previous estimate of 9.70 MMT. They lowered 2018/19 soft wheat ending stocks by 100 TMT down to 2.3 MMT.

APK-Inform pegged Ukraine's 2019 overall grain production at 69.3 MMT vs 69.8 MMT last year. The overall includes 26.2 MMT of wheat.

Spreads:
The wheat/corn spreads started the night a little better, as initially we saw limited follow through buying in corn. But then the corn buying surfaced, and the spreads weakened. Wheat futures firmed into the morning pause and that enabled the spread to recoup their minor overnight losses. In a bit of a surprise the wheat buying intensified once we moved into the day session. Why it was surprising was because the weather premium being built into corn is understandable, corn planting progress is only at 30 pct, and the 6 to 10-day maps are wet. But wheat futures do not really have a story right now. We talked this morning that the spread is trying to make a good trade, but with several levels above the market where we should probably find selling, it may be tough. Not surprising, after the strong start to the day the spread reversed, and as wheat futures gradually weakened throughout the day, as did the spread. When you see a specific play (wheat/corn) try and make a good trade over a two or three-day period, warning alarms should be sounding. But until a story surfaces in wheat, or the weather story in corn disappears, now is probably not the right time for this spread to go on a big run to the top side. Look for rallies to continue to be sold.

Export business:
*** Tunisia bought 75 TMT of opt origin soft wheat. The lowest offer was $195.02/mt CIF.
*** Algeria bought around 600 TMT of opt origin wheat. They reportedly paid between $208/mt and $211/mt CIF. The grain is for July shipment.
*** Jordan made no purchase in their 120 TMT milling wheat tender. Expect them to be back in next week.
*** May 21 Taiwan is in for 111,050 mt of US milling wheat. Shipment is between July 5 and Aug 3.
*** May 21 Jordan is back in for 120 TMT of milling wheat.