Even so, the long-term relationship between corn and soybeans suggests current soybean yields remain relatively low in comparison to corn yields, which also look set to hit a new record following a good growing season throughout the Midwest, Mid-South and Northern Plains.

Indeed, the latest USDA estimates would place soy yields at their lowest relative to corn since 2009, which would go against the broad narrative told lately by yield monitor readouts of both crops across the country’s most productive regions.

Were the USDA to rectify this soybean/corn imbalance while keeping corn estimates steady, it would have to boost the soybean yield to close to 49 bushels an acre, marking a roughly 4 percent increase from its last estimate, and surpassing even the loftiest trader projections.

A more likely scenario would be for the USDA to trim its corn yield slightly, while nudging soy closer to the 48 bushel mark, although that would still likely be a bearish shock to most of the soybean market.

Uncharted territory

With both corn and soybean yields already at all-time highs, no traders, agronomists or crop forecasters are familiar with the true scale of the crops now being harvested. So we are having difficulty making a fair and sensible estimate of the likely yield per acre for each crop.

For corn, crop assessors were able to determine in July that the combination of high plant populations and hefty ear weights would set the stage for a final yield above the 170/bushel mark – a threshold never before breached.

So when the USDA lifted its corn yield projection to 171.7 in September from 167.4 in August, most market participants had already braced for it and in some regards had expected an even higher number.

That higher total emerged the following month as widespread early harvest readouts became available and confirmed that a true bumper crop was on our hands.

Yet in the weeks since that last report, it has become clear that overall corn yields are not quite as uniformly massive as projected, leaving the door open to a potential corn yield reduction come the release of the final crop balance sheet in January.

Soybean crop forecasters have had less time to assess the abundance of the 2014 crop. Widespread bean maturity was not reached until mid to late August, a full month after corn. The first time the true record-setting yield potential was incorporated into USDA crop reports was in September (46.6 bpa), just as the earliest harvest runs were taking place.

The USDA followed up with a 0.5 bushel per acre yield increase in October – the first national average above 47 bushels an acre – but a lingering sense of further potential remains as the market awaits the USDA November release.

Some of that upside potential is reflected in trader estimates ahead of Monday’s crop report, with a third of the 24 entities polled by Reuters estimating a 48.0 yield or higher. And the highest estimate recorded in the poll – 48.7 – does come close to what history suggests the soybean yield average could be if the corn yield remains unchanged from a month ago.

Yet the fact that most estimates remained below 48.0 suggests trepidation among crop forecasters about pushing yield expectations even deeper into uncharted territory.

Whether the USDA feels the same trepidation next week remains to be seen, but its own data suggests that, if its corn yield projection is correct, the soybean crop has plenty of room to surprise on the upside come the final yield assessment in January.

The author is a Reuters market analyst. The opinions expressed are his own.

The post Grain ‘trade’ at risk of low-balling U.S. soybean yields: Maguire appeared first on Alberta Farmer Express.

More than 3,600 put options were bought at the $4.80, $4.90 and $5.00 March strikes since October 15, just as March futures climbed from around $5.20 to above $5.40 and six-week highs. Concerns about the diminishing competitiveness of U.S. wheat versus other international origins, as well as against corn in the domestic feed market, have fuelled the pick-up in defensive strategies, which may intensify if wheat prices continue to edge higher.

Drifting along for the ride

While wheat traders and market commentators have pointed out wheat crop concerns in the Southern hemisphere as the main reason for wheat’s recent recovery, it is likely that wheat also borrowed strength from the rising corn and soybean markets in recent weeks. Chicago soft wheat prices have rallied roughly 11 per cent, or more than 40 cents a bushel, since October 1. This more or less matching the advances seen in both the corn and soybean markets over that period.

Corn and soybeans have gained as the U.S. harvest of both crops nears completion and end-user demand for those commodities picked up. Chicago wheat’s rally, however, came despite brisk advances in U.S. winter wheat sowings as well as a well-known global surplus of feed-grade wheat stemming from large global harvest earlier in 2014.

As such, many traders viewed the price strength with skepticism, with some establishing fresh short positions in the market on the expectation that those positions can be bought back at lower prices in due course.

Other traders, however, were reluctant to swim against bullish tide in the futures market, and instead opted to put on their bearish bets in the options arena, where the price of put options declined steadily as the underlying futures markets advanced.

Open put positions at the $5.00 March strike increased by over 56 per cent or 1,355 contracts between October 15 and November 3, while open interest at the $4.90 strike climbed by 36 per cent and 1,470 lots. Additional gains were also evident at the $4.80 strike.

Diminishing demand

The steady erosion in the projected demand for U.S. wheat has also fuelled bearish posturing in the Chicago market lately.

Since beginning its monthly balance sheet projections of U.S. wheat for the 2014-15 crop year in July, the U.S. Department of Agriculture has dropped its demand assessment by 30 million bushels on the back of heightened competition for domestic feed demand by corn and an aggressive export arena characterized by abundant supplies in both Europe and the Black Sea region.

This reduced usage tally was already more than 300 million bushels smaller than the demand total for the 2013/14 crop year, and so the extra consumption cuts seen in recent months have been viewed as additional bearish fodder for traders.

What’s more, the recent rally in low-grade U.S. wheat values is unlikely to reverse the weak demand environment, especially after the price of U.S. feed wheat for export rallied to its largest premium to Black Sea supplies since May in recent days, effectively ruling the U.S. out of any serious wheat export consideration over the near-to-medium term.

Combined with an historic tendency for Chicago March wheat to lose ground to March corn over the November-to-February period (as corn demand picks up when winter wheat enters its dormancy period), the recent diminished competitiveness of U.S. wheat has heightened trader expectations for a period of declining U.S. wheat prices later in 2014 and early 2015.

This should bode well for those players who used the recent unexpected rally to establish bearish downside protection through put options.

Gavin Maguire is a Reuters market analyst. The opinions expressed are his own

The post Put buyers bet CBOT wheat’s strength won’t last appeared first on Alberta Farmer Express.

But due to stuttering harvest progress and bottlenecks in rail capacity many options traders are rolling their bearish bets into the January 2015 contract, indicating that any meal market meltdown may now be delayed until the New Year.

Inevitable wave

The record-large soybean crop currently being harvested across the U.S. has long been viewed as an inevitable wave of fresh bean and soy product supplies destined to descend on domestic and international markets before the end of the year.

But while more than 70 per cent of the U.S. crop has now been gathered, a mix of harvest delays and a push by many farmers to store rather than sell their soy crop has meant that U.S. soy processors have not been inundated by fresh supplies to the degree or as quickly as expected.

This stall in availability has put some meal suppliers and exporters in a bind, and fueled a roughly $90 per short ton rally in front-month soymeal futures since Oct. 1 as processors stepped up competition for those cargoes that were available.

The meal market rally in turn widened December 2014 crush margins from $1 a bushel to more than $2 a bushel so far this month, triggering even more competition for spot soybean supplies.

And while the more urgent tone of buyers and higher bid prices have unearthed larger waves of fresh supplies being offered by growers, slow freight movement from the farm to the processor means there is a continuing lack of fresh soymeal supplies throughout the country.

And judging by the forward rolls of defensive options positions from December to January, traders don’t expect that tightness to be alleviated any time soon.

Finding a floor

While December soymeal prices have rallied nearly 30 per cent since the start of the October from around $300 to close to $400 a short ton, they remain off their 2014 highs as the impressive scale of the 2014 soybean harvest curbs overall market momentum.

That said, the recent advance in meal futures has given growers and suppliers of the market a chance to lift their selling price, which many seem to be doing via the options arena.

For the December time slot, savvy meal suppliers have used the recent meal strength to lift put positions from the $320-340 a ton area to the $360-370 region.

For the January time slot, buying flows have been strongest at the $330 and $340 strikes, although more than 1,600 open positions are also in place at the $350 mark.

Indeed, January put option purchases have aggressively outpaced that seen in December options lately, suggesting that a majority of participants anticipate the current spell of meal market tightness to persist for the next several weeks, before dissipating early in 2015 once processor pipelines eventually get replenished.

Gavin Maguire is a Reuters market analyst. The opinions expressed are his own.

The post Options suggest soymeal tumble postponed till Jan. appeared first on Alberta Farmer Express.

A global pickup in importer demand during late summer had allowed for a brief stint of price strength in early autumn, but the revelation — amid a strong U.S. crop harvest and massive crop plantings across South America — that global grain supplies will likely rise to record levels in 2013-14 served to yank wheat values lower again as the year wound down.

Heightened supply competition from other crops coupled with the real potential for U.S. winter wheat supplies to prove even larger than currently anticipated are likely to cap wheat values for the near term at least, and could well drive prices even lower into the new year.

From famine to feast

The chief driver of the wheat market meltdown over the past year or so has been the steep rebound in global grain supplies from the drought-stunted levels of 2012 to record abundance in 2013.

Combined U.S. grain production jumped by more than 80 million tonnes or just over 23 per cent in 2013-14 over 2012-13 levels.

Grain inventories swelled by an even greater degree over the same period, expanding by 50 per cent from around 42 million tonnes to close to 63 million tonnes.

This upswing in supplies naturally had a negative impact on grain values, with corn prices down around 45 per cent from their mid-July 2012 peak. Wheat prices have lost around 30 per cent over the same time frame as consumers and speculators alike pared back their buying interest and allowed for the waves of fresh supplies to steer prices lower.

At a global level, grain supplies have also climbed over the past year or so, though not to the aggressive extent seen in the U.S.

This U.S.-centric grain supply glut has been the main factor weighing on wheat prices lately, and stands to be the chief bar to upside progress in wheat values over the near to medium term.

More specifically, it is the large supply of corn in the U.S. lately that stands to weigh on wheat prices in the short run, as corn is expected to displace wheat in feed rations throughout the coming months and lead to a further build in domestic wheat inventories.

Crowded field

A saturated wheat export market will do little to alleviate any U.S. surplus either. Exporters in the European Union, Black Sea region, Australia and Canada are all expected to move to protect or gain market share around the world in 2014 following large crop hauls in each of those areas.

Congested ports and grain-handling facilities in Canada, France and elsewhere have pushed wheat export values higher in those regions lately, offering U.S. exporters a chance to step in to fill any resulting supply void.

But the limited U.S. export business conducted in recent weeks suggests consumers are not in too much of a hurry to compete for fresh supplies, and are potentially content to wait for the logistics backlog to clear in their preferred origins.

At the very least, the rather subdued demand pace for U.S. supplies even as export prices rose elsewhere suggests that consumers remain price sensitive even in the face of delays to shipments, and expect U.S. suppliers to offer attractive terms on sales in order to win the deal.

That said, the weakening trend in U.S. wheat export prices relative to France and other regions does indicate that grain handlers and exporters are attempting to generate additional demand. But with Canadian feed wheat trading at a more than $30-$40 per tonne discount to U.S. soft red out of the U.S. Gulf, it is clear that U.S. exporters have not yet felt compelled to aggressively slash offer prices in order to ship extra grain.

From the Manitoba Co-operator website: U.S. grains: Wheat falls on profit-taking; corn, soy firm

Big crops getting bigger

U.S. exporters may be waiting to get a better handle on the scale of the emerging U.S. winter wheat crops before they reduce wheat sale prices any further. The crops across the southern Midwest and U.S. Plains recently entered their dormancy period amid generally good health and across a large expanse of acres.

Indeed, winter wheat-planted area in the U.S. hit a four-year high in 2013, and in terms of quality entered the winter dormancy period with its highest overall rating since 2009-10.

Further, weather conditions during the critical early development phase were close to ideal in key locations such as central Kansas, where soil moisture levels climbed thanks to above-normal rainfall in September and October to provide the crop with yield-enhancing moisture reserves at the start of the growing season.

Similarly, conducive crop conditions were evident across Colorado, Oklahoma and Texas, suggesting that if the remainder of the growing season pans out amid normal conditions, the overall U.S. winter wheat crop could well surpass current projections in terms of scale and quality.

Taking cover

While the steady erosion in wheat values over the past several weeks has been the clearest indicator of bearish attitudes in the market, the recent climb in bearish option purchases has been another signal that many traders anticipate prices to weaken even further in the weeks ahead.

Just within the month of December, open positions at the $6-per-bushel strike price in March 2014 Chicago wheat puts has increased by more than 30 per cent, revealing that a growing number of traders expect March wheat prices to slump well below that level early in the new year.

Since Chicago March wheat futures have not slipped below that price since early 2012 — and then for only a very limited time — this large placement of bets that 2014 values will descend well below there is a clear warning that more weakness could well be in store for this market over the coming months.

Gavin Maguire is a Reuters columnist. The opinions expressed are his own.

The post Poor U.S. wheat markets may be in for more weakness appeared first on Alberta Farmer Express.

A global pickup in importer demand during late summer had allowed for a brief stint of price strength in early autumn, but the revelation — amid a strong U.S. crop harvest and massive crop plantings across South America — that global grain supplies will likely rise to record levels in 2013-14 served to yank wheat values lower again as the year wound down.

Heightened supply competition from other crops coupled with the real potential for U.S. winter wheat supplies to prove even larger than currently anticipated are likely to cap wheat values for the near term at least, and could well drive prices even lower into the new year.

From famine to feast

The chief driver of the wheat market meltdown over the past year or so has been the steep rebound in global grain supplies from the drought-stunted levels of 2012 to record abundance in 2013.

Combined U.S. grain production jumped by more than 80 million tonnes or just over 23 per cent in 2013-14 over 2012-13 levels.

Grain inventories swelled by an even greater degree over the same period, expanding by 50 per cent from around 42 million tonnes to close to 63 million tonnes.

This upswing in supplies naturally had a negative impact on grain values, with corn prices down around 45 per cent from their mid-July 2012 peak. Wheat prices have lost around 30 per cent over the same time frame as consumers and speculators alike pared back their buying interest and allowed for the waves of fresh supplies to steer prices lower.

At a global level, grain supplies have also climbed over the past year or so, though not to the aggressive extent seen in the U.S.

This U.S.-centric grain supply glut has been the main factor weighing on wheat prices lately, and stands to be the chief bar to upside progress in wheat values over the near to medium term.

More specifically, it is the large supply of corn in the U.S. lately that stands to weigh on wheat prices in the short run, as corn is expected to displace wheat in feed rations throughout the coming months and lead to a further build in domestic wheat inventories.

Crowded field

A saturated wheat export market will do little to alleviate any U.S. surplus either. Exporters in the European Union, Black Sea region, Australia and Canada are all expected to move to protect or gain market share around the world in 2014 following large crop hauls in each of those areas.

Congested ports and grain-handling facilities in Canada, France and elsewhere have pushed wheat export values higher in those regions lately, offering U.S. exporters a chance to step in to fill any resulting supply void.

But the limited U.S. export business conducted in recent weeks suggests consumers are not in too much of a hurry to compete for fresh supplies, and are potentially content to wait for the logistics backlog to clear in their preferred origins.

At the very least, the rather subdued demand pace for U.S. supplies even as export prices rose elsewhere suggests that consumers remain price sensitive even in the face of delays to shipments, and expect U.S. suppliers to offer attractive terms on sales in order to win the deal.

That said, the weakening trend in U.S. wheat export prices relative to France and other regions does indicate that grain handlers and exporters are attempting to generate additional demand. But with Canadian feed wheat trading at a more than $30-$40 per tonne discount to U.S. soft red out of the U.S. Gulf, it is clear that U.S. exporters have not yet felt compelled to aggressively slash offer prices in order to ship extra grain.

Big crops getting bigger

U.S. exporters may be waiting to get a better handle on the scale of the emerging U.S. winter wheat crops before they reduce wheat sale prices any further. The crops across the southern Midwest and U.S. Plains recently entered their dormancy period amid generally good health and across a large expanse of acres.

Indeed, winter wheat-planted area in the U.S. hit a four-year high in 2013, and in terms of quality entered the winter dormancy period with its highest overall rating since 2009-10.

Further, weather conditions during the critical early development phase were close to ideal in key locations such as central Kansas, where soil moisture levels climbed thanks to above-normal rainfall in September and October to provide the crop with yield-enhancing moisture reserves at the start of the growing season.

Similarly, conducive crop conditions were evident across Colorado, Oklahoma and Texas, suggesting that if the remainder of the growing season pans out amid normal conditions, the overall U.S. winter wheat crop could well surpass current projections in terms of scale and quality.

Taking cover

While the steady erosion in wheat values over the past several weeks has been the clearest indicator of bearish attitudes in the market, the recent climb in bearish option purchases has been another signal that many traders anticipate prices to weaken even further in the weeks ahead.

Just within the month of December, open positions at the $6-per-bushel strike price in March 2014 Chicago wheat puts has increased by more than 30 per cent, revealing that a growing number of traders expect March wheat prices to slump well below that level early in the new year.

Since Chicago March wheat futures have not slipped below that price since early 2012 — and then for only a very limited time — this large placement of bets that 2014 values will descend well below there is a clear warning that more weakness could well be in store for this market over the coming months.

The post Poor U.S. wheat markets may be in for more weakness appeared first on Alberta Farmer Express.

But strong import demand in such places as China and Egypt lifted EU wheat values to near a seven-month high last week in what could be a sign that the global wheat market is finally primed for a recovery as focus shifts to demand from supply.

Too much focus on U.S. factors

In recent months U.S. grain traders have been looking at an array of U.S.-centric market barometers for signs on wheat price direction.

Throughout the past summer, updates on the scope and health of U.S. spring wheat production were closely tracked alongside updates on cash price dynamics across a number of major U.S. demand locations.

In addition, changes to U.S. supply-and-demand forecasts were monitored in monthly crop updates from the U.S. Department of Agriculture.

This mix of information seemed to justify the broad downturn in wheat values for most of 2013 to date. An exception was in October, when wheat briefly bounced higher as a sudden surge in U.S. export business caught several short-biased traders by surprise.

Even the late-October pullback in prices made sense as U.S. export sales dropped off just as winter wheat sowings were completed in a timely fashion amid broadly friendly field conditions.

But the recent upturn in European wheat values reveals that traders now need to start looking further afield for guidance on wheat price potential, especially now that the U.S. supply-side story is starting to wind down and overall market focus is shifting to overall demand potential.

Europe leading the way, but…

Europe, due to its status as one of the world’s largest wheat growers, as well as its location on the doorstep of major wheat consumers in North Africa and the Middle East, has been widely expected to take centre stage in global wheat trade for the next several months.

It also has been widely expected that the relative abundance of wheat from the region — production is projected at its highest level in five years — would act as a weight on prices for the foreseeable future as traders struggled to off-load excess supplies to choosy buyers.

But instead of heading lower, European wheat values have pushed higher in recent weeks as a combination of robust importer demand and a clogged logistical supply chain throughout France and other export locations pressured buyers to lift their bids in order to secure supplies.

The result has been a widening in the price spread between benchmark European (MATIF) wheat futures and Kansas City hard red winter wheat futures to more than $25 per tonne from around $5 at the beginning of November.

This is the widest premium for MATIF wheat over Kansas wheat since the midst of the 2013 U.S. winter wheat harvest in late spring, and reveals how urgent the current consumer demand is for grain supplies.

But more importantly, this differential is now close to the cost of shipping grain from the U.S. to North Africa, and so renders U.S. prices highly competitive relative to European supplies even though E.U. exporters are located far closer to many of the world’s top end-users.

If the MATIF wheat premium relative to Kansas wheat proves to be sustainable for more than a few days, consumers will likely turn to the United States for supplies they are unable to pull out of the E.U.

And this in turn could prove to be the trigger for a more enduring rally in U.S. wheat prices than has been seen of late.

The post Analysis: Perky EU wheat prices may turn around U.S. market appeared first on Alberta Farmer Express.

That’s seen many traders putting on a long oats versus short Chicago wheat spread that is expected to press aggressively higher in the weeks ahead.

The price rally has flown in the face of market expectations as supplies of the crop are actually peaking right now, thanks to the advancing harvest across the northern U.S. and Canadian Prairies.

But even as oat inventories rise, buyers are having a tough time gaining access to them, thanks to a North American agriculture logistics system that is currently working at full capacity during a bin-busting harvest. Moreover, corn, soybeans and wheat typically get preference at rail, truck and storage depots, and forcing crops such as oats, sorghum and canola to wait in line.

And it turns out that traders expect the wait for oat shipments to extend into the winter, given that it may take several more weeks to clear the pipeline of primary crops.

For oat consumers, which include feedlots, millers and exporters, this logistical gridlock is a cause for frustration as they are forced to offer higher prices to growers and grain handlers for access to any old oat reserves as they try to keep their own supply pipeline flowing.

But for futures traders, the supply standstill offers an opportunity to establish a long grain market position at a time when harvest progress typically makes most market participants favour the short side.

It also provides small traders with a chance to put on positions contrary to what large speculators and managed money traders have been bracing for, as both those trader groups are with net short or holding only very modest long exposure in oats. As the delayed shipments of oats start to bite, those speculative traders are expected to add further lift to oat values by either buying back their short positions or adding to long exposure.

Two-sided affair

As the main driver of oat market strength is largely superficial and temporary, few traders are merely piling up long oat market exposure.

Rather, they favour matching any long stances in oats with a short position in other grain markets that are expected to see supplies swell at a faster pace than oats over the coming month or so.

The most popular short leg in this strategy is Chicago winter wheat, which is on the verge of its 2013 planting season and is projected to see a substantial climb in production versus a year ago, thanks to much-improved field conditions in top growing areas.

U.S. wheat prices are also viewed as relatively expensive currently, especially as North American wheat supplies are expected to swell considerably in the coming weeks as the U.S. spring wheat harvest wraps up and as Canadian growers gather what is potentially the largest wheat crop in that country’s history amidst worries of a rail strike.

But in time, the strike threat is expected to be alleviated, and those wheat supplies are expected to flow, which should start to apply pressure to wheat prices in the process.

This likelihood of a slide in wheat values offers traders with a chance to gain on both sides of the long oats, short wheat spread, and is why so many participants have happily piled in to that strategy in recent sessions.

It is also a reason why oats could be one of the top markets to watch over the coming months, and not a mere flash in the pan.

The post Log-jam in grain movement has created a sweet spot for long oats appeared first on Alberta Farmer Express.

But instead spring wheat’s discount to HRW has widened even further, flying in the face of expectations that the end of the spring wheat harvest would lift pressure off spring wheat values while strong winter wheat crop ratings would dent Kansas City prices.

Several traders have been losing money as a result, but will be hoping that this week’s update on trader positions from the U.S. Commodity Futures Trading Commission will reveal more bullish trading patterns in spring wheat, as well as profit taking in winter wheat that will set the stage for what many view as a long overdue spread correction.

Against the grain

Since 2006, the Minneapolis December futures contract has averaged a more than 25 cents per bushel premium over Kansas City December prices due to the broadly higher level of protein contained in spring wheat which helps it command a higher price at the wholesale and retail level.

But for more than a month, Minneapolis futures have been persistently locked at a discount relative to HRW, which is the longest stretch in negative territory for that spread since 2007.

Further, the discount has actually widened lately rather than contracted to confound wheat traders who have been compiling positions designed to pay off only when spring wheat prices resurface at a premium to HRW.

A combination of price pressure from the recent spring wheat harvest coupled with sturdy export demand for HRW wheat accounted for the unusual price development to occur near the end of September, and expectations were for that discount to quickly unravel once the spring wheat harvest wrapped up and the 2013 winter wheat growing season got fully underway amid broadly crop-friendly conditions.

However, the discount has instead continued to widen, alarming traders sitting on opposing positions and raising questions about why this breakdown in traditional price relationships has managed to persist for so long.

No news is bad news

One of the chief factors likely helping to sustain the recent unusual price pattern has been the absence of trader position data reported by the CFTC.

The U.S. government shutdown brought about a cessation in the reporting of commodity positions held by various participants. These weekly Commitments of Traders reports offered a regular update on how various traders are adjusting their exposure in the various wheat classes, which can then tracked against the price movement of the markets concerned.

In the run-up to the shutdown, large speculative traders sharply increased their long exposure to the Kansas City wheat market on the back of robust export demand for that commodity during September.

Meanwhile, after having amassed their largest net short position in Minneapolis wheat futures since 2005, demonstrated only limited interest in buying back those short positions.

This divergence in trader actions impacted prices accordingly, buoying Kansas City futures and constraining any rallies in Minneapolis wheat.

But with those reports due to resume in the weeks ahead – and offer updates on how those positions have changed since late the start of October – there is a good chance that the new data will reveal some profit taking in the Kansas City market, as well as some additional short covering in Minneapolis wheat that will suggest a change in tone among the speculative community with regard those markets.

Such actions would be in keeping with the seasonal trends of non-commercial positions in those markets: Kansas City non-commercial length has routinely been reduced over the final months of the year while Minneapolis net positions have been increased.

That behavior would also be consistent with the price action seen, as although Kansas City prices maintained a premium to Minneapolis, HRW wheat encountered notable scale-up selling interest lately that snuffed out price rallies and can often be the hallmark of a wave of profit taking from the speculative community.

If upcoming CFTC reports reveal that to be the case, those traders who are short Kansas City wheat will breathe a sigh of relief, as that would indicate a decline in buying interest for that market. At the same time, the updated CFTC data will likely reveal at least a reduction in short exposure to the Minneapolis market, as there have been signs of broad-based buying in that market in recent weeks.

For those traders sitting on the wrong side of the Minneapolis/Kansas City spread, that data release can’t come soon enough, as it could just be the impetus they need to bail out of a position that has been underwater for over a month.

Gavin Maguire is a Reuters columnist. The opinions expressed are his own.

The post Analysis: Spring/HRW wheat spread playing tricks on wheat traders appeared first on Alberta Farmer Express.

But while firm overseas demand, coupled with the conclusion of the U.S. winter wheat harvest, might well offer support to prices going forward, stiff competition from other exporters such as Canada, Australia and Ukraine will likely limit the potential for higher prices over the near to medium term.

So far, U.S. wheat exports are running at their fastest pace in years, and are on course to hit USDA’s forecast of close to 30 million tonnes for the 2013/14 crop year.

Wheat inspections data, an indicator of upcoming sales intentions, are bullish, and with China the most prominent destination in the latest inspections report, market sentiment has been buoyed further, given China’s heretofore limited interest in U.S. wheat.

Indeed, year-to-date U.S. wheat exports to China are already at their highest level in a decade, and now look set to rise further. And with the price spread between U.S. wheat and Chinese domestic wheat at three-year highs, additional Chinese imports are all but guaranteed.

Heightened competition

The problem for bullish U.S. wheat traders is that, while China might buy more wheat, the share bought from U.S. suppliers will likely decline as wheat from other origins becomes available.

Canada, Australia, Russia, Ukraine and Kazakhstan are all expected to harvest significantly larger wheat crops this year, and India has historically high domestic wheat reserves earmarked for export.

Finally, Southern hemisphere growers such as Argentina and Australia are also forecast to increase exports over last year, ensuring that a healthy dose of competition will likely define wheat exports in the coming months.

For grain-hungry importers such as China, the combination of abundant new supplies and low prices is almost irresistible, especially when domestic wheat values keep rising on brisk volume and higher open interest — trading patterns that are the hallmarks of a commercial scramble.

But the window for U.S. exclusivity will start to close in a matter of weeks as Canadian and then Australian supplies come on stream. High prices will also bring wheat from India, Europe and the Black Sea and any rally is likely to be quickly snuffed out.

The post Wheat rally lacks legs and will fizzle in the face of rising supply appeared first on Alberta Farmer Express.

But this year’s critically low levels of domestic corn supplies have forced commercial players to whittle down their physical and futures market exposure to unprecedented lows, while the prospect of a record-large haul of fresh supplies this fall has spurred speculators to build up their largest short position in over a decade.

As a result, speculators may for the first time build up an even larger short stance in corn than commercials in the widely followed ‘supplemental’ Commitments of Traders report.

MIRROR IMAGE

Since the inception of the supplemental CFTC report in 2006 the net positions of commercial and non-commercial traders have etched a mirror image of each other, with the commercial net position permanently residing on the short side of the market with non-commercial exposure typically on the long side.

But while that pleasing symmetry remains in place, non-commercial net exposure has swelled so aggressively to the short side lately that the lines charting those net positions are close to crossing for the first time, indicating a potential reversal in the typical position patterns within the corn futures and options realm.

BIG EXPECTATIONS

Broadly friendly growing conditions across the U.S. Corn Belt are fuelling expectations for a record large corn crop from U.S. farms this year, which is why speculative traders have been so keen to establish and grow short positions in corn futures in recent months.

At the same time, the relatively poor returns posted by commodities market investments relative to the equities arena over the past year or so have sparked a general reduction in long exposure to nearly all raw material markets.

The end result has been a swing in the net corn position by the non-commercial contingent from long to short – a trend that looks set to extend in the weeks ahead as long as the emerging 2013 corn crop continues to thrive amid yield-friendly growing conditions.

Meanwhile, the steady erosion in the size of the commercial trader’s net short position also looks set to continue as processors, ethanol plants and other end users continue to have difficulty sourcing sufficient quantities of physical corn.

If the pattern of both commercial and non-commercial positions is extended in the weeks ahead, it is likely the speculative crowd will end up sitting on a larger net short position in corn than the actual physical end users of that commodity, which would be a rare development indeed, having not occurred at all since the supplemental report was launched in early 2006 and only on a handful of occasions, according to other Commitment of Traders reports which measure positional exposure in a slightly different manner.

SNAP BACK?

While the establishing of a speculative net short stance in corn is not altogether unprecedented – having occurred roughly 15 percent of the time over the past 6-1/2 years – it remains an unusual situation for non-commercial traders to be in.

Further, the duration of those periods of net short speculator exposure has tended to be far shorter than the spells of net length, which tend to last for several months at a time.

Finally, the switches in non-commercial positions from short to long tend to be quite sudden and aggressive and usually bring about a reversal in the direction of the corn price as the speculative traders attempt to buy back previously sold contracts at roughly the same time.

A similar switch cannot be ruled out once again this year, as speculators are already sitting on their largest short position in years and new-crop corn futures prices are already at their lowest levels since 2010. Indeed, in order to secure any paper profits from their short exposure non-commercial traders must buy back those positions at lower prices than where they were sold, so it is inevitable that a wave of non-commercial buying will take place as that position-squaring occurs.

So it is only a matter of time before the currently net short speculative community reverses its bias in the corn market and starts to buy rather than sell – if only to secure the profits established by that short exposure.

The timing of that buying wave remains the only major unknown. But it is likely to materialize before too long as traders are fully aware of the potential risk from any early frost, which could cause substantial damage to overall crop prospects, or from any large scale end-user buying interest sparked by the prevailing low new-crop prices, which would boost overall market sentiment even if crop prospects remain historically large.

So while the speculative community may currently appear to be on course to building a net short position that overshadows that of the commercial arena, it may not remain so committed to the short side of the market for long as the risks are growing that an unexpected crop problem or end user buying spree may suddenly reverse corn prices and wipe out any potential profits those speculators may be currently sitting on.

Gavin Maguire is a Reuters market analyst. The views expressed are his own.

The post Analysis: Speculators, commercials in rare corn position tango appeared first on Alberta Farmer Express.