Afternoon wheat: Is a dark cloud beginning to loom over the wheat complex?
Pre-report price action was a bit on the defensive side as both Chicago and KC futures fell to around a nickel lower during early trade. However, in the moments leading up to the report futures began to firm. There was a bit of chaos post-report as the USDA website crashed and data was slow in coming out. Initially trade firmed - maybe in response to the rally coming out of corn as the data for corn was friendly, or maybe in response to the positive data coming out for Spring wheat. Mpls firmed the most, rallying to more than seven cents higher, while KC traded as much as six cents higher and Chicago a nickel higher. But the data for SRW wheat and especially HRW wheat was not very friendly and the rally in both markets were not very lasting. Over the final 90 minutes of the day all of the trade in both KC and Chicago would be lower, and Mpls wheat eventually saw lower trade as well. Spring wheat eventually finished the day the best at only one tick lower, while both Chicago and KC finished the day between two and three cents lower.
The Spring wheat data was the most interesting part of the report as the USDA finally captured the damage to the crops in the northern plains from the multiple early snowstorms. Harvested acres were reduced 5,000 in Idaho, 10,000 in Minnesota, 120,000 in Montana, 745,000 in North Dakota and 10,000 in South Dakota. Production was reduced 415,000 in Idaho, 570,000 in Minnesota, 1.045 mil bu in South Dakota, 4.025 mil bu in Montana and a whopping 35.540 mil bu in North Dakota. Not only that, but Spring wheat ending stocks were cut by 29 mil bu and Mpls wheat still could not post a higher close. That is a HUGE red flag as we look ahead to next week.
The bull was hoping for World production downgrades, and although we did see them in both Australia and Argentina, it was not as big a cut as expected. The USDA lowered Argentina 500 TMT down to 20 MMT, and they lowered Australia 800 TMT down to 17.2 MMT. They also lowered exports for both country's 500 TMT. These reductions were offset by increases in the EU, which saw a 1.0 MMT increase to 153 MMT, Russia, which saw an increase of 1.5 MMT up to 74 MMT and Ukraine, which saw an increase of 300 TMT up to 29.0 MMT. Exports in the EU were increased 1.0 MMT and exports for both Russia and Ukraine were increased 500 TMT. What all this meant was total World production was increased 320 TMT to 765.55 MMT and ending stocks were increased by 480 TMT up to 288.28 MMT. Going forward, it will be extremely difficult to raise total World production or exports. Most likely they will be lowered as we should see additional reductions coming out of Argentina and Australia and we could also see a reduction coming out of Canada. So, for now, bearish World data numbers, but the next few reports should provide friendlier World data numbers.
Was only looking for small changes in the US S&D, and what the USDA provided was very close to what we were expecting. Production was cut 42 mil bu down to 1.920 bil bu - mostly coming from the northern states talked about above. We saw a small change in seed as the USDA lowered that 7 to 61. This gave us an ending stocks reduction of 29 mil bu down to 1.014 bil bu - which was right at our estimate. As expected, there were changes in ending stocks in a few classes, the most notable coming from Spring which was reduced 29 mil bu down to 279 mil bu. Durum was reduced 3 down to 46 mil bu. SRW saw a 1 mil bu increase up to 111 mil. All of these were pretty close to what we were expecting. The only surprise I saw was the increase in ending stocks for HRW. I know it was only 2 mil bu, but it took stocks up to 493 mil, which is a pretty big number. It is going to be hard for rallies to carry very far in KC wheat with the data the USDA provided. Would not be surprised to see KC/Chicago break back down. The data is also negative for both the HRW & SRW wheat vs corn spread. Both had been on good rallies, but do not be surprised if both give back a good portion of its gains this week in the not so distant future.
Today's crop report was the focus of trade, but there were a few other things worth mentioning. After the close yesterday, headlines surfaced that rolling back tariffs were not part of any US/China trade deal, and the notion of that to happen was met with much criticism from some White House staff. This leaves the trade deal on hold again and may have casted a negative vibe leading up to the report. Also, KC open interest was off 10,101 contracts on Thursday - mostly coming in the Dec which was off 11,188 contracts. Funds are the ones that are short, and if this was fund short covering, how in the World did KC manage to finish Thursday's session lower? Today's crop report data was not very friendly to KC wheat. We already mentioned earlier the huge warning sign that Spring wheat futures is giving us. And, you had a US Dollar that settled more than a full point higher this week. If the wheat complex struggles out of the gate again on Monday (the past three Monday's wheat has finished lower), it could turn into a very defensive week for wheat. Keep in mind, a seasonal play started today - to buy May corn and sell May wheat and hold it through Jan 18.
In Friday afternoon's commitment of trader's report, we were expecting the large spec (funds) to be sellers of 2,000 contracts of Chicago wheat over the period ending Nov 5. What the data showed was that they were sellers of around 9,000 contracts. At that time, it increased their net short position to just over 28,900 contracts. In KC, funds were sellers of around 4,400 contracts, which at the time increased their net short position to around 24,900 contracts. Managed money was sellers of roughly 5,700 contracts in Chicago, which at the time, flipped their position from a small net long to a small net short of around 650 contracts. In KC, managed money sold over 4,500 contracts, which at the time, increased their net short position to around 33,900 contracts.
France AgriMer weekly crop report estimated 2020 soft wheat planting progress at 67 pct complete vs 54 pct last week.
Russian Ag Ministry forecast November thru December 2019 grain exports in a range between 7 and 8 MMT. If realized that would bring this year's total to between 40 and 41 MMT.
Export business this week:
*** Japan bought 123,928 mt of Aussie, Canadian and US origin wheat. The total included 31,661 mt of Aussie white, 35,157 mt of Canadian red, 32,715 mt of US DNS, 14,940 mt of US HRW, and 9,455 mt of US white wheat.
*** Egypt bought 175 TMT of French and Russian wheat at an average price of $233.16. The grain is for Dec 15 thru 25 shipment.
*** Filipino importers reportedly bought reported bought 35 TMT of Aussie feed wheat. The price paid was said to be between $255 and $256/mt CIF.
*** Syria cancelled their tender for 150 TMT Russian wheat.
*** Ethiopia postponed their 200 TMT milling wheat tender that was slated to close Oct 29 out to Nov 13.
*** Ethiopia postponed their 400 TMT milling wheat tender that was slated to close Nov 5 out to Nov 14.