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Published January 30, 2012, 10:23 AM

Potential exports drive wheat higher

The corn market gained 25 cents last week with the strength in the wheat market. Rumors that Russia may put a tax on wheat exports and may even ban exports supported the wheat market which spilled over to corn. The strengthening export demand and a firming cash basis also offered support last week.

By: Ray Grabanski, Agweek

Corn: strength in world feed grains

The corn market gained 25 cents last week with the strength in the wheat market. Rumors that Russia may put a tax on wheat exports and may even ban exports supported the wheat market which spilled over to corn. The strengthening export demand and a firming cash basis also offered support last week.

To start last week, corn opened 8 cents higher and found solid buying support. Rain did fall in Argentina, but not as much as forecast and not as widespread. Traders think Argentina’s crop continues to shrink and opens up more opportunities for U.S. exports. News of fresh export sales also added strength as Mexico purchased 152,900 metric tons of U.S. corn.

On Jan. 24, corn opened 2 cents lower with pressure from the rainfall in Argentina, along with the lower overnight trade and the negative outside markets. Reports are that parts of Argentina received 1.5 to 2.5 inches of rain last week in a 24-hour period. Soon after the open, the wheat market took off and corn followed. Rumors in the wheat complex were that Russia was going to tax its wheat exports and may possibly ban export sales. This offered support to corn as there could be less feed grain on the world market. Corn futures are also finding support from lower trending production estimates for Argentina’s crop and the lack of farmer selling.

Corn opened 2 cents higher on Jan. 25 and traded firm for the day. Production estimates continue to shrink for the Argentina crop and the forecast for Argentina and southern Brazil is also dry for the next seven days. Corn is also finding support from demand and an improving basis. Argentina’s ag minister believes that corn exports will still total 15.4 million tons this season. USDA had projected 18.5 million tons in the previous USDA monthly update.

On Jan. 26, corn opened 9 cents higher and traded firm until the close. The futures found support early from the positive outside markets and the strong exports sales report. The Federal Reserve’s decision to leave interest rates alone was seen as positive to the commodities and pressured the dollar. The strong cash basis, ethanol demand and lack of farmer selling also offered support. Argentina also remains dry for the next five days, but there are hints of showers for the weekend. The futures did back off at the close as profit taking entered the market.

Ethanol production for the week ending Jan. 20 averaged 934,000 barrels per day. This is down 0.74 percent versus the previous week and up 1.3 percent versus last year. Total ethanol production for the week was 6.538 million barrels. Corn used in last week’s production is estimated at 99.49 million bushels as compared with the weekly average pace of 94.9 million bushels necessary per week to meet this crop year’s USDA estimate. Stocks were 19.8 million barrels which was up 1.4 percent versus last week and up 4 percent versus last year.

Wheat: grain market leader

The wheat markets had gains of 30 to 40 cents last week. Rumors of export tariffs in Russia and firming prices on European wheat sparked commercial and noncommercial buying interest in the wheat markets. Losses in the dollar were supportive as well. Noncommercial traders had built a record net short position in Chicago wheat during the first weeks of January, and short covering last week fueled the rally.

Wheat opened 7.5 cents higher in Chicago on Jan. 23 and closed 9.25 cents higher. Rains last weekend were disappointing in South America, creating strong gains in the row crop markets. Wheat followed along with additional support coming from the continued slide in the U.S. dollar. U.S. wheat is becoming more competitive on the world market, as shown by better numbers in the weekly export inspections report.

On Jan. 24, wheat opened 2 cents lower but quickly turned higher on commercial buying interest. Strong gains were propelled by rumors of possible Russian wheat export tariffs. Both Russia and Kazakhstan are said to be building domestic wheat reserves in the face of a questionable Ukrainian winter crop. This is the first positive fundamental news the wheat markets have had in quite some time, creating a buying spree in what was a heavily sold market.

Wheat opened with small gains on Jan. 25 but added strength throughout the day. Noncommercial short-covering has added fuel to this rally after building a record net short position over the past few weeks. With recent weakness in the U.S. dollar and firming wheat prices in the Black Sea region, U.S. wheat has become competitive on the world market. Rumors of Russian wheat export tariffs have been unconfirmed, but traders are viewing a slowdown of exports from that region as forthcoming. Russia has exported between 21 million and 22 million metric tons this year, and government officials had predicted earlier that exports would be capped at 23 million to 25 million metric tons.

On Jan. 26, wheat opened with 13-cent gains and had gains for the entire day, and a late session surge in Minneapolis made the spring wheat market the leader at the end of the day. Commercial buying has continued in the wheat markets, evidenced by the strength in the nearby contracts. Stronger European wheat prices and a slowdown of exports from the Black Sea region supported wheat. While reduced exports from Russia and former Soviet Union countries could help U.S. wheat exports, the large Australian crop will be stiff competition in the Asian market. With the rally in corn, soft red wheat should continue to find its way into the feed market.

Soybeans: followed wheat and corn

Soybeans gained 20 to 40 cents last week. Deferred contracts experienced larger gains as commercial traders are neutral-to-bearish. South American weather continues to influence the market.

Soybeans opened 19 cents higher on Jan. 23 after the weekend brought less moisture than expected to South America. The coverage and amount of rain experienced in Argentina was less than anticipated, especially in the northern regions. The forecast for Brazil appears dryer as well. Support was provided by positive outside markets, including a weak U.S. dollar. Estimates of Chinese imports increased for the third consecutive month, providing strength to the market. Increased export interest helps to firm up the basis both in South America and the U.S.

On Jan. 24, soybeans opened 7.5 cents down after South America experienced better rain coverage and accumulation than expected overnight. The six- to 10-day forecast remains wet as well. The rain is slowing the early harvest in northern Brazil, which could accelerate U.S. exports in the short term. Soybeans received strong support from the wheat and corn markets as they traded sharply higher. Other outside markets were more negative, as crude oil was down and the U.S. dollar was firm.

On Jan. 25, soybeans opened 4.5 cents down and traded mixed before settling at 6.5 cent losses. Pressure came from negative outside markets early with gold and crude down and the U.S. dollar stronger. Later in the session, outside markets grew more positive, but reports of rain in Argentina kept pressure on soybeans. Recent South American rains could boost crop conditions, with many analysts expecting crop sizes to stabilize near the current estimates. The early harvest in northern Brazil remains slow, keeping the U.S. export window open for now.

Soybeans opened 11 cents higher on Jan. 26 with support from strong outside markets. The U.S. dollar was lower while crude oil traded higher. There was some spillover buying interest from a strong corn market early in the session as well. Soybeans pushed through the 100-day moving average for the first time since Sept 16, but were unable to sustain that level. Commercial selling late in the session provided pressure, causing soybeans to close well off session highs. The South America weather forecast showed dry conditions over the weekend, followed by rain this week and into the following weekend.

Barley

USDA reported inspections of 8,000 bushels of barley for export. The barley export shipments pace is at 5.6 million bushels compared with 4.5 million bushels for last year at this time. Export sales of 9,000 bushels were reported going to Taiwan. Year-to-date sales for barley are at 3.8 million bushels compared with 4.1 million bushels for last year. Cash bids in Minneapolis were at $5.30 for feed and $7.15 for malting barley.

Durum

USDA reported export inspections of 579,000 bushels for durum last week. There were no new export sales reported, with durum’s export sales pace at 14.9 million bushels compared with 29.4 million bushels for last year at this time. Cash bids for milling quality durum are at a discount to spring wheat, with bids in the $7.50 to $7.90 range.

Canola

Canola futures on the Winnipeg, Manitoba, exchange gained from $4 to $10 (Canadian) per ton for last week. Canola followed the soybean market closely with daily weather reports from South America. There was active spreading in the canola market this week with new crop contracts showing the strongest gain for the week, up around $10 (Canadian) per ton in the November contract. Active farmer selling pressured the nearby contracts, while concerns about 2012 production supported the deferred. Cash canola bids in Velva, N.D., on Jan. 26 were at $24.21.

Sunflowers

Last week’s soybean oil export sales pace was estimated at 2.5 trillion metric tons. This brings the year-to-date export sales pace for soybean oil to 192.7 trillion metric tons compared with 1,040.5 trillion metric tons for last year at this time. Cash sunflower bids in Fargo, N.D., on Jan. 26 were at $27.

Dry beans

Dry bean markets remain firm, with strong Mexican demand creating an increase in pinto bids. Pinto bids are now in a range from $45 to $48 in the North Dakota/Minnesota region, reaching producer price targets. Prices are steady at $45 for navies and blacks.

Grabanski is president of Progressive Ag, a Fargo, N.D.-based hedge brokerage firm. Reach him at 800-450-1404.

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