The weakest U.S. dollar in 15 months along with ample American wheat supplies should be spurring strong U.S. wheat exports this season. But the United States, typically the world’s largest wheat exporter every year, is seeing exports of that grain down 30 percent from a year ago as many big overseas buyers source wheat from cheaper suppliers, namely Russia, France and Germany. What’s more, nearby Chicago Board of Trade wheat futures prices have jumped nearly 25 percent since October 1, ignoring the weak exports, weak domestic cash basis and ample stocks of wheat on hand.The economics of wheat supply and demand don’t seem to be adding up. What gives? Some grain traders and analysts who study the CBOT wheat market think the latest price action in wheat may just be another symptom of the malaise grain traders have complained about with “convergence.” A chorus of protests by grain users like the National Grain and Feed Association for two years have blamed “Wall Street Index Funds” for buying grains — particularly, CBOT wheat — en masse and far beyond what is merited by basic grain market fundamentals. The price inflation has caused a persistent disconnect, they say, between CBOT wheat and real-world prices and essentially ruined CBOT as a reliable hedging market for grain firms because the inflated CBOT wheat futures prices no longer “converge” with cash markets in delivery periods. Now, some traders wonder if the same fund-driven demand for CBOT wheat contracts is pricing U.S. wheat out of the world export market at a time fundamentals should be letting it compete. Egypt’s main government wheat buyer, for example, has passed on U.S. wheat in its last six snap tenders. The most recent snub occurred this past week when it bought cheaper French, Russian and German supplies. Egypt has long been the single biggest buyer of U.S. soft red winter wheat, the CBOT par delivery grade. U.S. wheat shipped from the Gulf of Mexico this marketing season has been running roughly $25 to $35 per tonne higher than the wheat from the Black Sea region or France, exporters say. Freight is also more expensive. ”What worsened the situation in just in the last week or two is we’ve seen U.S. wheat futures escalate 60, 70, 80 cents despite a weak fundamental outlook, basically on fund buying,” said Mike Krueger, senior analyst for World Perspectives, who also runs a grain advisory service in Fargo, North Dakota. “Funds of all types, index and hedge funds whatever you want to call them, have simply been buying wheat and that drove markets sharply higher.” Weekly trader commitments data issued on Friday afternoon from the Commodity Futures Trading Commission confirmed the trend.Index funds — funds which by their nature only hold a long position — were shown to be holding almost half (47 percent) of all the total long open interest in CBOT wheat as of Tuesday, Nov. 17. Managed funds — speculators which hold both long and short positions based on daily market trends — were also buyers, reducing their net short position in CBOT wheat by 10,300 contracts in the same period. But these big players remained net sellers in the wheat market as a group. So it all adds up to what? For starters, probably a more critical eye once again from the CFTC, which has been holding public hearings since the summer under its reform-minded chairman Gary Gensler seeking a solution to the convergence issue as a way to restore the CBOT’s role as a hedging market. Few are happy with the “convergence” solutions proposed so far by the CME, including the most recent one — still under consideration — of tinkering further with wheat storage fees at elevators. CME — dependent on volume to remain the dominant market for world wheat speculators — continues to try to please all players, from Wall Street to Main Street. But it may be only a matter of time before U.S. wheat exporters as a group — all of whom are members of the influential NGFA — come to CFTC and blame Wall Street’s financial engineers for sabotaging the world’s top wheat exporter.
If this week in Chicago Board of Trade grains is anything like the last couple, traders can expect plenty of volatility — lots of sound and fury — but with prices likely to stay in recent ranges. ”This really isn’t a trending kind of market,” said senior analyst Anne Frick with Prudential Bache Commodities. Mother Nature and the dollar have had the biggest impact on grain prices this autumn. That looks set to continue. Analysts say those two uncertain and thus supportive price factors, countered by rising supplies of harvested grain, will tend to restrain “spikes” either way. Day-to-day moves on the other hand, are still seen as being more dictated by buy/sell trigger points on price charts and by speculative money flows. Despite a steady to lower close in CBOT corn and soybeans on Friday, both closed higher on the week as did wheat. So some bullish technical indicators remain in place, analysts said. Fundamentals — huge U.S. harvests now under way — should be weighing on corn and beans. But U.S. farmers are struggling to wrap up the harvest. A soggy October has put them about four weeks behind on corn and, traders say, sowed seeds of doubt in the markets’ mind about final crop yields and quality. Farmers finally saw some ideal harvest weather in November — warm, sunny days that allowed them to work all day and night to harvest and dry rain-soaked crops. But their luck may be running out. Rains are now forecast to return to the U.S. Corn Belt by Tuesday or Wednesday. That is especially bad news for corn, as only about half the projected 13-billion bushel crop is expected to be off the field by Sunday, traders said. By contrast, they estimate soy harvest will be reported 90 percent complete when weekly crop progress updates are issued by the U.S. Department of Agriculture on Monday afternoon. ARGENTINA DRYNESS STRIKES A NERVE ”No doubt for corn: weather is at the top of the list. And weather in South America for beans,” analyst Brian Basting with brokerage Advance Trading said, referring to concerns starting to surface about dryness in Argentina’s fields. The world’s No. 3 soy producer is in the midst of planting its next soybean crop. Although it is too early in the season to get excited about the dryness and potential threat to yields, traders are hyper-sensitive to conditions in Argentina after a drought last season drastically reduced that important crop. The No. 1 concern now, traders noted, is in Cordoba, a top soy region in central Argentina. Underscoring the current range-bound market mentality in grains, however, traders said any rallies in Chicago soybeans would likely be met by South American sales to price their new crop. That action was already detected on Friday. ”Once beans got above $10 in the March contract, we saw hedge sales out of South America,” said one CBOT floor broker with commercial grain clients. Also, USDA on Nov. 11, repeated its rosy outlook for South America’s coming soy crops. It boosted the estimate of Brazil’s crop by 1 million tonnes to a record 63 million and raised its Argentine soy estimate 500,000 tonnes to 53 million. The U.S. crop this year equates to 90.3 million tonnes. Aside from weather-related harvest news, the U.S. dollar will also remain a major influence on commodity prices. Generally, the two move inversely. A weak dollar lowers the price of U.S. grain exports for overseas buyers and attracts investorswho buy commodities as a hedge against inflation.In recent months on days when the U.S. dollar was weak, corn futures rose 72 percent of the time, David Hightower of the Hightower Report told a CME grains panel last week. Traders are also keeping a close eye on December corn options, which expire on Friday. Large open interest in the December $4 options is expected to act like a price magnet. Photo: Northern Illinois corn field taken Nov. 8 by Christine Stebbins
CHICAGO, Nov 11 (Reuters) – The CME Group <CME.O>, the
world’s largest derivatives exchange, said on Wednesday it
plans to implement variable storage rates beginning with its
July 2010 wheat contract, pending approval of the Commodity
Futures Trading Commission.
The move was done to improve convergence of wheat cash and
futures prices at futures expiration.
U.S. grain markets look headed for more seasonal harvest selling pressure on Monday after Midwest weather forecasts pointed to an active harvest weekend, but traders said the focus will quickly turn to the government’s next monthly crop report due a day later. A lot hinges on Tuesday’s numbers. Typically, the November report confirms the U.S. Agriculture Department’s previous estimates. But given the unusually slow 2009 harvest pace amid persistent autumn rains, this month’s report will play a bigger role than usual in trade attitudes going forward. ”We’re going to get actual harvest data. So this report becomes more important for the industry and there is that element of surprise,” said Dan Basse, president of AgResource, a Chicago-based ag consultant. Analysts polled by Reuters last week said on average they expect USDA to make a modest upward revision to its 2009 U.S. soy output forecast — up about 12 million bushels to 3.262 billion, surpassing the current record of 3.197 billion. Soybean demand is strong, but the supply number will matter. ”If those numbers get significantly larger, you’re going to see some pressure in beans,” said Dan Cekander, an analyst with Newedge USA in Chicago. For corn, most analysts expect to see a downward revision due to the delayed harvest — down 78 million bushels to 12.94 billion. However, there were also a handful of analysts who said USDA could boost its forecast to approach the all-time high of 13.038 billion bushels harvested in 2007. DOLLAR BULLS VERSUS HARVEST BEARS While the weak dollar was key to the moves in commodities early last week, with grain prices rising as the dollar fell, it was all about harvest supplies the remainder of the week. The net effect was corn for December delivery <CZ9> closing basically unchanged for the week at $3.67 a bushel. November soybeans <SX9> fell 3 percent to $9.48, and December wheat <WZ9> was down just a fraction at $4.97-1/4. Traders said on Friday that unless U.S. economic fundamentals trigger a collapse in the dollar or crude oil rallies, breaking out of its $75-$80 a barrel range, a lower trend in grains was likely ahead of USDA report on Tuesday. U.S. cash grain markets weakened across the Midwest on Friday as farmers worked around the clock to harvest crops. There were reports of farmers waiting hours in truck lines to dump freshly harvested corn and soybeans, and many country elevators were only taking grain every other day, as the magnitude of the harvest logjam created logistical nightmares. That meant a pickup in harvest hedge sales on Friday, which will likely surface again when CBOT markets open Sunday night given the near-perfect weather forecast for the weekend. USDA will issue its weekly crop progress data on Monday. As of late Friday, traders were expecting the government to report a huge advance with roughly 75 percent of the soy harvest complete, compared with 51 percent the previous week, and 40 percent of corn off the field, versus 25 percent a week ago. ”We have made some very good progress this week and heavy grain movement. One good thing about this pattern is we are going to fill the pipeline quickly,” Basse said.Photo: It was an active harvest weekend across the U.S. Midwest. Illinois corn field taken Nov 8 by Christine Stebbins.
Veteran traders say U.S. grains feel “toppy” after last week’s rally to multimonth highs, but many remained hesitant to pick a direction for the coming week given the outside storms rattling the markets. What they would agree on is that the two main factors which have directed the markets for the past month — U.S. harvest weather and the dollar — will remain center stage this week. Typically, Chicago Board of Trade corn and soybean prices slump during October, the traditional prime time for harvesting U.S. grains, as more supplies flood into country elevators, grain processors and other marketing channels. But Mother Nature has not cooperated this autumn. Persistent rains and cool temperatures have put the 2009 harvest off to the slowest start in more than two decades. Corn, the biggest row crop, was only 17 percent harvested on Oct. 18, versus the usual 46 percent. Soybeans were 30 percent harvested, versus the usual 72 percent. The delays increase the chances of quality problems for both jumbo crops this year, and boost costs for drying and grain handling. It also makes it tough for U.S. exporters to meet their sales commitments, especially in soybeans given the record sales for the start of the 2009/2010 marketing season. ”This spring you couldn’t get the crop in and now you can’t get it out. So you’re seeing a lot of premium built into the market,” said Dax Wedemeyer, an analyst at brokerage U.S. Commodities in Iowa. “Everybody knows it’s wet — eventually it will dry out and you will be able to harvest this crop.” The question is when, analysts say. Forecasters on Monday are calling for more rain this week across the Midwest but it will be warmer and slightly drier than last week. So the U.S. Department of Agriculture’s harvest progress report at 2 p.m. EDT (1800 GMT) on Monday will keep the attention of traders. CBOT traders are guessing USDA would report the soy harvest about half done. Corn harvest was seen at only 25 percent as farmers focus on soybeans, which are seen as more vulnerable to damage from rain and cold temps. EYES ALSO ON THE WEAK DOLLAR ”There is definitely macro money coming into grains because of the dollar,” said analyst Charlie Sernatinger with brokerage Fortis Clearing Americas. A weak dollar is a buy signal for dollar-based commodities, making U.S. grains more attractive to overseas buyers. Last week was a classic example. The Reuters-Jefferies CRB index <.CRB> of 19 commodity futures hit a one-year peak of 285 as the dollar fell to a 14-month low against a basket of key currencies. The dollar has been under pressure as the global growth outlook improves more than that of the battered U.S. economy and with financial markets anticipating record low U.S. interest rates staying in place well into next year. ”The money that is flowing in here is not flowing in based on any kind of expectation of return. It’s flowing into commodities because of fear the basement of the currency,” Sernatinger said. “That makes it awfully difficult to predict — what the next flow is going to be.” Weekly commitments of trader data issued late on Friday by the U.S. regulator, the Commodity Futures Trading Commission, confirmed a big flow of speculative money into CBOT grains last week, traders and analysts noted. The end result was a surprise buoyancy in grains last week. CBOT corn for December delivery <CZ9> rose 7 percent to $3.97-3/4 a bushel for the week. Chicago December wheat <WZ9> climbed 10 percent to $5.47-3/4 and November soybeans <SX9> rose 3 percent to $10.06.Photo: Iowa corn field taken in late September by Christine Stebbins.
CHICAGO, Oct 20 (Reuters) – Frustrated wheat traders who
say the Chicago Board of Trade soft red winter wheat contract
is no longer an effective hedging tool appear to be testing the
waters in a new market — the Minneapolis Grain Exchange.
Open interest in the MGE’s long-dormant, cash-settled Soft
Red Winter Wheat Index (SRWI) futures has exploded over the
last three weeks — jumping from zero on Sept. 25 to 1,258
contracts as of Oct. 16.