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PFGBEST
190 S. LaSalle St., 7th Floor, Chicago, Illinois
800-935-6487
The Grain Report: What A Start
(August 31, 2010) We started the week's reports with our weekly export
inspection report .This report is important because it's a gauge of demand.
We have 2 reports each week that the government informs us exactly how demand
is going. Once the supply side of the market is known, then demand
will become the driving force weekly export inspection report comes every
Monday at 10 A.M. Central Time. Wheat inspections were 25 million bushels
and that was up from last years 16m.b. bushels and our four-week average
of 19m.b. Clearly that's a strong number and suggests that it could even
get stronger. The spring wheat crop harvest is underway and as the harvest
progresses over the next 30 days and finishes up we expect demand to be very
aggressive. Corn inspections were 45M.B. up from a year ago of 37 and
and a very strong four-week average of 35M.B. This was the second consecutive
week over 40 m.b. Anything over 40 is considered very bullish
for demand. What I liked about the number this week was that it came
after Friday's close the highest close of the year. So traders were not concerned
about the high price, they just needed corn. Soybean sales inspections were
7M.B. expected for near term export. That was down from the week prior of
11M.B. and just under the four-week average of 9M.B. What we've seen the
last two weeks is China backing away from what was a very aggressive
export pace as they know the harvest is just about underway and as the harvest
begins here in September they expect to have the cash availability for beans
to be a much better value. Overall export demand for wheat, corn and beans
looks to maintain a record pace going into 2011. The next report was Monday
at 3 PM central time after the close .Our crop condition report came out.
Traders had expected to show a reduction in the quality of corn and beans
from the week prior being very hot and very dry and they were surprised that
it came out unchanged. Corn condition was put at 70% of the crop in good
excellent condition unchanged from the week prior and one percentage point
above a year ago This is what has traders confused as last year summer and
fall going in the harvest was one of the coolest and wettest on record. This
year we had over 65% of the Midwest much warmer, actually some of the
hottest temperatures on record and very dry. How can the condition of the
crop be equal. Traders are saying to themselves we will ignore the condition
for now and just focus on the harvest that's getting underway and that'll
tell the whole story. Harvest is beginning in the southern delta and in southern
and central Illinois and Indiana. Early reports are that the yields are coming
in lower than expected but it's still too early to have the government respond
as they dont have enough harvest at this point to get a feel for what the
crop condition really should be. Soybean condition came in at 64% good to
excellent condition unchanged from the week prior, lowest of the year and
under last years 69% good to excellent condition. So even though it was unchanged
on the week traders had expected to be even lower by two or three percentage
points . The reason for that is the sudden death disease that is showing
up in Iowa, Northern Illinois and Indiana. This was expected to come
in and have the government lower the quality levels as a result but keep
in mind we haven't started harvest in northern Illinois Indiana or Iowa yet,
so we haven't gotten the worst of the soybeans. I'm sure these conditions
will come down from here. Spring wheat is now 69% harvested and that's the
end of that story and what traders will be looking for next on the wheat
is the planting of this year's winter wheat crop. The last five weeks we
have seen corn soybeans and wheat finish at the high prices for the week
or at least near the highs, followed by higher Sunday night opening. Reason
being is there's no crop reports out over the weekend so the Sunday opening
trade is always dictated by the charts from Friday's close. We also
had five consecutive higher Monday openings followed by selling off the Monday
highs and then lower trade on Tuesday. We saw that again today. Today we
saw a sharply lower prices for beans and wheat on the close. The point is,
the market is on this pattern of finding its lows early in the week on Tuesday
or Wednesday followed by a late week rally, higher openings to start the
week and then profit-taking again into Tuesday or Wednesday. This pattern
might change a little bit as there was a little stronger break today because
this was the month-end. Were facing a three day weekend where the market
is closed due to the Labor Day holiday on Monday. Markets re- open
on Tuesday. Traders might be reluctant to add too many positions
long where they can't get in and out of their trades for three days.
They may wait until they return on Tuesday. That in mind, next Tuesday after
we open there is only going to be three days for the funds and traders
to get position for the Friday, September 10 report as it comes out prior
Fridays opening. No one's going to want to be short going into that report
and speculators will want to by long. The market trades fear before
fact. The fear is the report will sharply increase export projections
and possibly sharply lower our ending stocks on this report. The fear
comes from several fronts .Weekly export sales reports have shown a very
aggressive record pace for corn and soybeans the last month and now you're
starting to see the same on wheat so demand is clearly stronger than what
the government had been talking about several months prior. Additionally,
we had crop problems in the European Community , severe in Russia and the
Ukraine. The wheat plantings being down in Canada problems now in northern
Australia, lends to a lot of thinking that if the wheat crop suffered
then everything from peas to soybeans and corn certainly suffered
in these countries as well and this may be why demand is picking up and looks
to continue. So there is a theory that the government will raise project
exports and lower our ending stocks. So what we're looking for now is is
a low this week that gives a buy lead ahead of the report. December
corn has support down at the 4.26 to 4.28 area. Should corn get down there
any day this week I would look at being a buyer or I would buy on a close
over 4.45. That carries a lot of risk, I'd much rather be a buyer off support
ahead of Tuesday's opening. Soybeans basis November has support Wednesday
at 1004 Thursday at 1006. Anything down to that support line should be bought
or a closing price over 1032 this week. You want to try and find a point
to get long ahead of this report in hopes we can at least get a dead cat
bounce going into Friday and have a cushion before the market opens on Tuesday.
Conservative traders may want to wait untill Tuesday before they do anything.
December wheat has support at 680 and could take it out making next support
6.64. or a closing price over 714
August 31, 2010
Tim Hannagan,
PFGBest
thannagan@pfgbest.com
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