Afternoon wheat: A strong finish to the week
For the second time over the past four days, it was the wheat complex that led the rally across the grain floor. I wish I could give a confident response as to why, as it is the corn and soy markets that have the story, not wheat. Weather and China were the two hottest topics of conversation today. Cold enough temps to potentially end the growing season for corn and beans was felt as far south as the Texas panhandle, and those temps are expected to move into areas across Minnesota and Iowa tonight. As far as China, according to a Bloomberg article released around an hour before the close, the US and China reached a partial agreement that would broker a truce in the trade war and lay the groundwork for a broader deal that Presidents Donald Trump and Xi Jinping could sign later this year. Where this leaves the tariffs that were to go into effect on Monday is not known. Most likely they will be put on hold, but we await further news. This morning the talk was that part of deal was said to be currency related, basically deterring Beijing from devaluing its currency, and the US delaying planned new tariffs and relaxing export bans. That caused a break in the US Dollar, and a move to level not seen in almost three weeks. We all know a break in the US Dollar is supportive to commodity prices here in the US, especially wheat. But we also know that managed money still holds a modest short in all three classes of wheat. All this led to sharp gains in wheat today. KC finished the strongest at 16 cents higher, but Chicago was not too far off - finishing 15 cents higher. Even Mpls joined in as they ended the day around 13 cents higher. For the week, SRW wheat futures finished more than 17 cents higher, and in doing so posted its third consecutive higher weekly close. HRW wheat futures finished the week more than 15 cents higher, and technically, the weekly chart for KC looks much better than Chicago as it still has that gap below it. Spring wheat futures finished the week 12 cents higher, and like KC has yet to make a move to fill the gap on the weekly chart from three weeks ago following September expiration.
For wheat to lead the rally in grains in two of the past four days made me take a deep dive into my thought process as to why. I wish I could say it is because we are getting business done, but the USDA lowered their export expectations for wheat 25 mil bu in Thursday's report. That is not a sign of confidence. Feel more confident saying that the relationship between KC Dec wheat and Dec corn remains in-tact. The USDA lowering wheat feeding expectations opens the door to several different avenues. Does the USDA think wheat is going back to a storage market and the farmer is going to primarily use corn for feed going forward? Does the USDA feel the quality of some of the HRW and Spring wheat crops are not as bad as what many traders are led on to believe? Either way, the USDA data suggests at some point the relationship between KC wheat and corn is going to have to change (widen). Does not mean the USDA is right, because if the spread does not widen than traders feel the USDA is wrong. After all, whatever is economically better to use as feed - wheat or corn, the farmer is going to use. And we cannot forget the fact that the USDA tightened SRW wheat stocks a little more Thursday. We have seen big moves in the KC/Chicago spread over the past few days, but it is hard to imagine this spread rallying too much with the ending stocks data the USDA provided yesterday. A shift in winter wheat acres - moving HRW to corn and/or SRW wheat to beans or cotton will surely change that thinking. If we see a total reduction of 500,000 winter wheat acres, will that be enough to spook the short and extend the rally in wheat further?
In Friday afternoon's commitment of trader's report, we were expecting the large spec (funds) to have bought around 3,000 contracts of Chicago wheat week over week ending Oct 8. What the data showed was that they were sellers of around 1,200 contracts. At that time, it increased their net short position to just over 43,400 contracts. In KC, funds were sellers of around 2,100 contracts, which at the time increased their net short position to just around 23,200 contracts. Managed money was buyers of almost 2,400 contracts in Chicago, which at the time, lowered their net short position to around 19,100 contracts. In KC, managed money sold around 2,300 contracts, which at the time, increased their net short position to just around 35,100 contracts.
Egypt's supply ministry's strategic reserves for wheat stands at four months.
France AgriMer weekly report estimated that as of Oct 7 the country's winter wheat crop planting was 4 pct complete vs 15 pct this time last year. Recent rains, which are a welcome sight after a dry spell, has kept progress at a minimum.
Export business this week:
*** Tunisia is said to have bought 25 TMT of wheat priced at $220.49/mt CIF and another 25 TMT priced at $221.49/mt CIF in Friday's snap tender.
*** Japan bought 114,012 mt of Canadian and US wheat. The total included 53,960 mt of Canadian red spring, 24,533 mt of US DNS wheat, 24,014 mt of US white wheat and 11,505 mt of US HRW wheat.
*** Egypt's GASC bought a total of 295 TMT of Ukraine and Russian wheat. The total included 180 TMT of Russian wheat and 115 TMT of Ukraine origin. Russian wheat prices ranged from $220.42/mt up to $222.20/mt CIF. Ukraine wheat was priced at $222.15/mt and $222.61/mt CIF.
*** Jordan bought 60 TMT of wheat. Five firms participated, however no price had been given.
*** Bangladesh is in for 50 TMT of opt origin milling grade wheat. The lowest offer was said to be $255.46/mt CIF. No purchase has been finalized yet. Other offers ranged from $256.33/mt up to $269.74/mt.
*** Oct 22 Jordan back in for 120 TNT of wheat.
*** Oct 23 Ethiopia is in for 400 TMT of milling wheat.
*** Oct 29 Ethiopia is in for 200 TMT of milling wheat.
*** Nov 4 Syria for 150 TMT Russian wheat.
*** Syria continues to work a swap of 100 TMT durum for 100 TMT of milling hard wheat. Offers have to be good to Oct 28.
*** Columbia for wheat.