Afternoon wheat: Markets struggle after mixed start
After a quiet overnight session that saw price action mixed to slightly lower, the wheat complex was anything but that once trade moved through the start of the day session. Early on it looked like the markets would go after Friday's highs. With no deliveries once again in Chicago and very limited deliveries in KC we figured the calendar spreads would be firm and they were. This looked to be the early driver of trade and SRW futures quickly rallied above their overnight highs. KC and Mpls futures firmed as well, but the buying was not as strong and neither market was able to take out their overnight highs. That was going to be the key to extending today, and once it was evident that the buying was just not there today, the markets reversed. KC wheat led the move lower, with trade falling a little deeper than we expected. Thought we would find support between five and seven cents lower today, and we did in Chicago and Mpls, but KC futures fell to nine cents lower before finally finding some stability. The final hour of the day saw most of the price action down around their lows, before firming a little into the close. HRW wheat finished the day the poorest at around eight cents lower, while Chicago finished around six cents lower and Mpls around a nickel lower.
Outside of deliveries, (none in Chicago, 11 in KC and 288 in Mpls), the other story of note this morning was ABARE finally releasing their updated production estimates. Some were saying that this was already in the marketplace on Friday, and price action surely illustrated it may have been, but we were already hearing rumblings two weeks ago. Granted ABARE reduced their Aussie wheat production estimate 850 TMT below what we had heard was coming, it still should not have been too much of a surprise and maybe that is why we had such a muted reaction this morning.
As we look ahead, until we start to see Chicago deliveries, Dec will continue to be firm against March. The strength today in the KC Dec/March calendar spread was a bit of a surprise, and the trickle-down effect from this strength kept the KC/Chicago spreads (basis the March) on the defensive over the latter half of the day. As far as flat price, the announcements after the close that the GASC and Algeria were both in for wheat should be a little supportive to trade, but how much? The US will not win any of the business, but it should keep World wheat offers bid, and World values have risen week over week over the past three weeks.
After the close the GASC announced they were in for wheat. The last time the GASC was in for wheat was Nov 13, and they ended up buying eight cargoes of which two were Ukrainian and six were Russian at an average price of $232.30/mt C&F - which was roughly 86 cents cheaper than its previous tender. It was the second consecutive drop in price after five consecutive moves higher but expect offers tomorrow morning to be a little higher. Why? Not only have World values firmed over the past few weeks, but Russia knows with Algeria also in for wheat, we probably will not see any French offers as they will be focusing more on the Algerian tender. The lowest FOB offer in the last tender was a Ukrainian cargo at $215.86/mt, which was one dollar higher than the low offer from the prior tender, but it was 59 cents lower than the low Ukrainian offer from the prior tender. The lowest French FOB offer was $216.36/mt. The lowest Russian offer was $218.75/mt. There were no Romanian offers in the last tender. FOB offers should be slightly higher, but freight should be a little lower which will help C&F offers some.
There was no wheat condition report this afternoon. They usually end the last week of Nov, but because the USDA said they were going to continue with their corn and soy harvest updates, some had wondered if they would continue with wheat conditions.
Export inspections this morning was well below expectations, coming in at only 247 TMT vs an adjusted 435 TMT last week (increase of 15 TMT) and 476 TMT this time last year. The report included 59 TMT of HRS, 126 TMT of HRW, 18 TMT of SRW, 21 TMT of white and 21 TMT of durum. Current market year to date is 12.615 MMT vs 10.582 MMT this time last year. There was a 43 TMT mixed cargo of durum and HRS that was shipped out of Duluth to Italy but did not see anything else out of the ordinary. There were vessels also shipped out to Ethiopia, Japan, Korea and Mexico.
Weekly EU data showed 227 TMT of soft wheat exports in the latest reporting period ending December 1, bringing the 19/20 marketing year to date total 11.140 MMT vs 7.041 MMT this time last year.
The commitment of trader's report was delayed until Monday afternoon because of the Holiday last week. We were expecting the large spec (funds) to be buyers of around 12,000 contracts of Chicago wheat over the period ending Nov 26. What the data showed was that they were buyers of roughly 13,000 contracts. At that time, it lowered their net short position to just over 12,900 contracts. In KC, funds were buyers of just under 6,900 contracts, which at the time lowered their net short position to around 15,700 contracts. Managed money was buyers of 12,525 contracts in Chicago, and it once again flipped their position from a small net short to a net long of 10,475 contracts. In KC, managed money bought around 9,300 contracts, which at the time, lowered their net short position to around 16,850 contracts.
ABARE lowered their wheat production estimate down to 15.85 MMT - which not only is a ten-year low, but it is also 850 TMT below the estimates we were hearing two weeks ago. They cited 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, so this estimate is more in-line with others.
Both IKAR and SovEcon said that Black Sea offers for 12.5 pro Russian wheat was slightly higher week over week - its third consecutive weekly rise. IKAR put Russian wheat prices at around $208.50/mt, while SovEcon had prices closer towards $210.50/mt. SovEcon said that since the start of the marketing year (July 1), Russia has exported 17.8 MMT of wheat, which is down around 16 pct year over year, but keep in mind, last year Russia did have a huge first half export program last year. Russian winter wheat planted area is said to be 4 pct larger than this past year.
Algeria again confirmed they plan to cut wheat imports to 4.0 MMT in the coming year vs 6.2 MMT last year. Despite this plan, they announced they were back in for wheat today.
Export business this week:
*** Egypt in for wheat for the Jan 21 thru 31 period.
*** Dec 4 Algeria is in for opt origin wheat for shipment in February.
*** Dec 6 Ethiopia is back in with another tender, this time for 75 TMT of milling grade wheat.
*** Dec 18 Syria is in for 150 TMT of Russian wheat.
*** Colombia for wheat.
*** Nigeria for wheat.