Markets Mixed; Egypt Buys Black Sea Wheat

Aug 29, 12:07 pm | Mid-day Commentary | Share this:

AgResource Daily Farm Marketing Advice for Tuesday: 1/ No new advice.

Mixed has been the morning in Chicago, with neither the bulls nor the bears having much excitement as summer draws to a close. Seasonally, it’s bottom picking time, but whether the wheat market especially can garner lasting support will in large part be a function of Russia’s interior market over the next 1-3 weeks. ARC does estimate managed funds’ position in Chicago wheat this AM at a net short 70,000 contracts, which prior to 2016 was rather large. Funds’ position in corn is pegged at net short 50,000 contracts, with funds net short an estimated 30,000.

US exporters sold 226,000 MTs of corn to Mexico, and 198,000 MTs of soybeans to China. South American exporters will continue to attract record demand, but traditional importers (Mexico, namely) no longer have much incentive to replace US corn with South American origin, particularly with Brazilian corn offered at/near parity with the US through December.

Egypt secured 235,000 MTs of wheat for early October delivery from Russia and Ukraine. Egypt paid $187/MT, basis fob, which is generally in line with fob quotes Monday evening, and which confirms the Black Sea quality wheat market at $178-183/MT into November. This compares to comparable Gulf HRW at $183/MT for October. Gulf basis is higher this week following Harvey’s impact on the coast, but on paper US wheat is still highly competitive.

The spot ethanol production margin, basis futures, rests at $.80/Gal, a 4-month high and vs. $.70/Gal a week ago. Just as important, spot RBOB has rallied to a $.24/Gal premium to ethanol. The incentive to boost blending hasn’t been this great since mid-2015. The EIA’s weekly report on Wednesday should include steady ethanol production, and another modest draw in crude, gasoline and ethanol stocks.

Stats Canada will release its August crop report Thursday morning. ARC expects Stats Can to reveal Canadian wheat production at 24-25 MMTs, with canola production estimated at 17.5-18.5 MMTs. USDA pegs Canada’s wheat and canola harvests at 26.5 and 20.5 MMTs, respectively. Canola futures this week have followed the soy market to very marginal losses, but canola maintains a premium of $55/MT to soy, vs. a slight discount on this week a year ago.

Crude is down $.60/barrel at midday, spot gasoline futures have rallied further to $1.76, EU wheat futures look to settle €.75-1.00/MT weaker, though amid a new 2.5-year high in the euro, European cash grain markets will be little changed this evening. The market is largely ignoring new lows for this move in the US dollar, but ARC views it as important longer term.

Midday GFS Weather Model Update: The midday GFS is a little quicker with Harvey’s conclusion, which should wrap up in the next 72 hours. Additional heavy rainfall worth 2-6” will impact LA, AR, W TN and W KY. The GFS then features yet more Gulf activity Sep 5-7, which will again impact E TX, LA and MS. Virtually no rainfall is offered to the heart of the Corn Belt over the next 10 days. Temps will be rather variable over the next two weeks, particularly across Canada and the US Northern Plains, but the bottom line is that overnight lows at times will fall into the upper 30s and 40s across the Dakotas, MN and MI into Sep 12th. High temps will also reach into 90s across the W Plains. 10-day precip is below.   

midday 8-29

AgResource Market Comment: The market in recent weeks have been digesting larger than expected global supplies – Russian wheat has been especially surprising. Funds’ next move will hinge upon NASS’s Sep yield estimates, while the US wheat market is working to boost its share of world trade to a multi-year high.