Gary Hofer: MARKET BULLETS

U.S. grain markets, including wheat, corn and soybeans are reflecting some volatility, as they bounce in a 30-40 cent range, but essentially they have no direction.

Wheat in Chicago has accomplished nothing since late January this year. Tuesday’s closing price was within two cents of the same level as the first day of February, nearly 3 months back.

The world always waits to see if spring weather in the northern hemisphere will create a crop-scare. So far the prime ingredient, moisture, has shown up enough to at least prevent a disaster in most major regions, although the Pacific Northwest is clearly drier than normal, even in Idaho, which is rare.

The crop condition report for Monday April 20th shows the average of PNW winter wheat at about 42% Good-to-Excellent this week versus a more normal 52% last year. You won’t hear many complaints about too much rain down at the hardware store this month.

Wheat needs a wake-up call from a fundamental factor; some news story to light the fuse under the big speculative shorts. Large funds have shifted capital away from other investments and taken big short-sold positions in grains in recent months. Capital on the move can be intimidating for traders, as the big funds all tend to use a similar set of indicators, trend identifiers, and other motivating factors, so when they all decide to go, the sheer size of the group is enough to create a fair-sized price move.

The accumulation of the present short-sold total of 58,739 contracts is the ninth largest on record. The largest ever was in December of 2013 at 78,684 contracts which led to a rally of more than $1.20 per bushel in the following four months. The trade is aware of the overhang, but there is no clear and present danger of trend change or any other imminent pressure on the funds to buy back or “cover” the positions, so it is similar to watching for cracks in a dam…pretty dull work until it actually happens. This may be the best hope for anything positive for wheat prices this summer.

Wheat export sales for the new crop are behind schedule to reach USDA targets, although it is a long way to the end of the crop year from here. The world is sitting on plenty of wheat.

The two major discount wheat price sellers are quiet right now. The Russians effectively withdrew from export sales last fall when they decided to protect their domestic supplies in a hostile trade environment. They will return when their new crop is “made” which is not for a few weeks yet. They have been getting good rains.

Argentina used to be the go-to wheat export price cutter some years ago, but had recently been very subdued by self-imposed export limitations. Changes are coming in Argentine politics that may release them once again to be aggressive sellers. Argentine presidential elections are coming in October and there is talk of cutting or eliminating export taxes (currently at 35%) on grains and oilseeds after the election by some candidates. The market sees no price-positive factor in this development.

The U.S. dollar continues to be a price negative force in grain and other export markets, although the screaming hot upward momentum has eased since mid-March. General expectations are for U.S. grain exports to lag heading into the summer.

The trend is sideways. A failure to hold above $4.80 in Chicago July futures will trigger more sales, while anything approaching $5.50 is going to discover some enthusiastic sellers that have been waiting to get off the long-side hook.

Information and opinions contained herein come from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options is substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital.