There's mixed signals coming from the wheat markets these days. Thursday morning, the United Nation's monthly AMIS Market Monitor increased its estimate for global wheat production by 1 million metric tons from last month to 736 mmt, or 3 mmt higher than 2014/15. This compares to the most recent International Grain's Council's estimate of 726 mmt and USDA's October estimate of 733 mmt. Despite usage expected to grow by 2% from last year, ending stocks are pegged at 207 mmt or 4 mmt higher than last year. This remains below the USDA's October estimate at 228.5 mmt, while the average of pre-report estimates ahead of next week's November report is suggesting ending stocks to be reduced slightly to 227.9 mmt.
North American export data continues to disappoint. Thursday's U.S. export data showed cumulative U.S. wheat sales to be 17% behind last year while actual shipments are reported to be 18% behind last year. The Canadian Grain Commission's most recent week 12 data show cumulative exports through licensed elevators to be 7.4% below last year, aided by the weakness in the Canadian dollar against the U.S. dollar.
Despite bearish fundamental news, the most active Chicago wheat future for December delivery closed unchanged today despite a sell-off in other ag markets, holding above its 200-day moving average for the second straight day, the first time since July 17 and also holding near the contract's highest levels reached in almost 15 weeks.
Pondering these market moves, Senior DTN Analyst Darin Newsom sums up his thoughts with DTN Analyst Todd Hultman, stating "of course, the dollar is up, exports are in the tank, and it's going to rain. What's the prob(lem)?", as if to say the wheat market is defying all logic.
Interesting signs also exist in the MGEX Hard Red Spring market. Wednesday's high on the December contract reached a 14-day high of $5.28 1/4/bushel, only to fall back to a close of $5.24 1/4. Thursday's trade saw the same contract fall back below the support of the contract's 20-day and 50-day moving average for the second time this week, while remaining within the 20-cent range traded during the past nine days. The close was 8 cents lower at $5.16 1/4/bu.
Despite what appears to be ample world stocks, commercial buying interest is the supportive feature in the wheat market. The December/March SRW spread closed at minus 3/4 cents today, on the verge of moving into a bullish, inverted market given the recent trend. The December HRS spread closed at a 9 1/4 cent carry this session, after trading as narrow as an 8 3/4 cent carry intra-day, as seen on the third study of the attached chart. This is the narrowest this spread has traded since mid-February and a sign of a less-bearish sentiment held by commercial traders, or those with a vested interest in the physical commodity. Looking back, the same spread closed at minus 12 cents on this day in 2014 and minus 10 3/4 cents in 2013. Are commercial traders discarding gloomy fundamental data?
Cash basis in U.S. spring wheat is firming, another sign of commercial demand, with Wednesday's DTN National Average Basis (difference between the December MGEX future and DTN's National Spring Wheat Index) at 24 cents under the December, the narrowest spot basis reported since early July. Today's average prairie CWRS basis was calculated at $1.12 over the December, supported by Canadian dollar weakness.
The lower study shows two histograms which represents the net-futures positions held by non-commercial traders or investors (blue bars) and commercial traders (red bars), indicating the two classes of traders at odds. As of the most recent CFTC data as of Oct. 29, investors were net-short 6,140 contracts. Next to the net-short of 6,279 contracts held on Sept. 10, this is the largest net-short or in other words the largest bearish position held by this group since May 2005.
The blue bars on this study show commercial traders holding a net-long futures position of 6,727 contracts as of Oct. 29. This compares to the 7,074 net-long reported as of Sept. 3 and the 7,496 contract net-long held as of Sept. 10, with these three weeks reporting the highest net-long position (bullish position) held by commercials since April 2005.
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Cliff Jamieson can be reached at email@example.com
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