Afternoon wheat: Early gains unable to hold

Futures: 
The fact that we saw two-sided type price action overnight was not a surprise, but what was a surprise was the seven-cent rally over the final few hours of the night. Most of the headline news that came out overnight was un-influential or a bit negative to trade, and export sales this morning were better than the past few weeks, but nothing to write home about. During the day today there was talk that ABARE was lowering their wheat crop estimate 2.4 MMT down to 16.7 MMT. If some had received this news before others (as I have yet to see its official release), then I could understand the rally into the morning break. But with funds not nearly as short as they once were, and trade moving into an area where we thought it was going to have a ton of problems with (5.20 Chicago Dec), we warned those looking for a stronger technical move higher that it may not come.

Of the three classes of wheat Mpls has been struggling the most, and once the Dec moved below the 5.00 level this morning, it poisoned the complex and all three classes of wheat found selling. Both Chicago and Mpls wheat each settled around six cents lower, but Mpls has two additional distinctions. It has only posted one higher close over the past twelve sessions, and unless futures settle nine cents higher tomorrow, it will be the market's sixth consecutive lower weekly close. Chicago futures are still higher on the week, and as we mentioned going home Tuesday, if a market closes higher on both Monday and Tuesday, it tends to give the market some optimism for the week. Therefore, looks for any setback tonight/tomorrow to be well supported. If by chance SRW wheat futures have another poor performance tomorrow and settles more than 6 ½ cents lower, it will have a terrible looking outside day lower weekly close and the day of reckoning we talked about this morning for Chicago wheat may have already begun.

As quickly as futures started to sell off, we saw equally how fast the inner market spreads started to unwind. The Mpls/Chicago spread, which was trading more than three cents weaker early in the day reversed and finished the session marginally higher. The wheat/corn spread (in Chicago), which was trading more than two cents higher early in the day reversed and finished the session more than eight cents lower. And the KC/Chicago spread, which was trading marginally weaker early in the day reversed and finished a couple cents stronger. That reversal could have been the most important as the spread had an outside day lower close on Wednesday, and trade followed that up with lower price action overnight. A lower settle today probably would have meant another test of 1.00. One day does not make a reversal in any of these spreads, and outright futures in both Chicago and KC are nearing areas where they should find support, while Mpls still looks terrible on the chart. We very easily could see all these spreads back trading to how they were for much of the week and the reversals we saw today only being a one-day occurrence. Still feel this December delivery cycle will give trade its most volatile price action we have seen in a while, and today may have been just the start.

Headline news:
ABARE is said to be lowering their wheat production estimate down to 16.7 MMT - which would be a ten-year low, citing drought conditions as the reason. Their prior estimate was 19.1 MMT back in September. The USDA most recent estimate was back on Nov 8 at 17.2 MMT. There are many private estimates that are putting the Aussie wheat crop this year at between 15 and 15.5 MMT. Harvest is probably around 40 pct complete.

Export sales had a bit of a bounce-back week as sales came in at 438 TMT. The breakdown this week included 243 TMT of HRW, 30 TMT of SRW, 97 TMT of HRS, 68 TMT of White and a NEG 0.4 of Durum with Italy's small cancellation. Takes total year to date to 574 mil bu vs 533 mil bu this time last year. Most of the business was expected, but there were a couple of tidbits worth mentioning. Indonesia picked up a total of 58 TMT - mixed between HRW and White. Also, Unknown was the largest buyer, taking a total of 134 TMT. Always a little skeptical when I see Unknown as the largest buyer. Mexico and Japan were also prominent features.

The IGC kept their 2019/2020 Global wheat production forecast unchanged at 762 MMT. They also raised their 2020/2021 global wheat crop area by 1 pct to 218 mil hectares. Russia wheat areas were expected to expand in that time period as well.

With drought limiting Australian wheat output, traders say Asian importers will likely be very competitive for Argentina wheat during the first quarter in 2020. Volumes should match last year's pace. Traders note that some 8 MMT of Argentine wheat has been forward sold for export. The country is expected to have a total of 12 MMT of exportable wheat supplies.

Algeria's government announced they hope to pull back on soft wheat purchases to control costs associated with its subsidized bread program. They expect to limit wheat imports to around 4.0 MMT, down from the current 6.2 MMT pace.

KC mill bids continue to weaken slightly on lower proteins. 11 pro off another 3 today and is said to be +115 @ +125. The 12 pro wheat was off 5 today as well. HRW export bids off as well, with ORD for Nov and Dec each off 5, and 11 and 12 pro for both Nov and Dec each off 2.

Export business this week:
*** Algeria is thought to have bought as much as 550 TMT of milling wheat, paying between $223 and $224.50/mt C&F. Four trading houses made sales in the tender, with France probably receiving the bulk of the business.
*** Japan bought 119,998 mt of US and Canadian wheat. The total included 65 TNT of US and 55 TMT of Canadian. There was no Aussie wheat in this week's tender.
*** Bangladesh bought 50 TMT of wheat from a Swiss Singapore Overseas trading house paying $268.14/mt CIF.
*** Jordan bought 60 TMT of opt origin hard wheat in a tender that closed today. They reportedly paid $238.00/mt C&F. Other offers were $240.36/mt C&F and $242.00/mt C&F.
*** Tunisia bought 75 TMT of soft wheat and 100 TMT of Durum wheat in a tender that closed today. The price paid for the soft wheat is said to be $227.72/mt C&F, $228.22/mt C&F and $228.70/mt C&F (25 TMT each). The price paid in the durum tender is said to be $324.89/mt C&F, $326.29/mt C&F and $326.50/mt C&F (25,25 and 50 TMT).
*** Ethiopia again postponed their two tenders seeking a total of 600 TMT of wheat. The 400 TMT wheat tender is delayed until Nov 25, and the 200 TMT is now delayed to Nov 26.
*** Nov 26 Ethiopia another tender - this time for 80 TMT of milling grade wheat.
*** Dec 18 Syria is in for 150 TMT of Russian wheat.