Market Perspective

By PEARSON BURKE

During the government shutdown the USDA did not release any reports including the October Crop Production Report. Last Friday the USDA did release its November Crop Production Report. Traders were anticipating a reduction in U.S. wheat carryovers from the September report due to an increase in export sales and a slight reduction in production. Traders were also looking for corn production to top 14 billion bu due to higher yields and as a result, for corn carryovers next fall to come in at over 2 billion bu.

Well the report actually increased wheat carryovers slightly from the September report. U.S. wheat production was left unchanged but more surprisingly wheat exports were left unchanged despite the very aggressive sales pace to date. Corn production, on the other hand, did not reach the 14 billion bu level, as lower harvested acres almost offset the higher yields and as a result ending stocks came in at only 1.887 billion bu not the 2 billion bu that had been expected.

Heading into the report, speculative funds had taken on a record short position in corn and a sizeable short position in wheat. Once the report was released, the markets acted accordingly. Corn, which had been trading at 38 month lows, turned quickly and traded sharply higher, as did soybeans. Wheat, which also started lower, moved higher in sympathy with corn and soybeans. However, unlike corn, the wheat rally failed to continue and wheat closed lower for the week.

On Monday there was more follow thru with corn closing strongly higher again and wheat closing slightly lower. Export sales have slowed for wheat the past month as foreign buyers focus on new crop corn and soybean purchases. Over the last month weekly sales for wheat have averaged 16 million bu. While slower than earlier sales, that pace is still much faster than the pace needed to reach USDA's projections. Actual shipments for wheat have also slowed due to the big soybean and corn programs. Export shipments for soybeans have averaged over 80 million bu the last three weeks. Corn shipments have averaged over 25 million bu. Wheat shipments have averaged less than 10 million. Long term wheat sales still look positive but they will have to wait for the export programs for both corn and soybeans to slow down.

Wheat harvest in Australia and Argentina has just started. Early yields in Australia are good, not so good in Argentina, as expected. Australia will put some pressure on U.S. wheat exports for the rest of the calendar year. China remains a wild card but still appears to be in the buying mode. There should be an adjustment in USDA's export sales for wheat in later reports but we are talking about USDA, so you never know. Even with the recent rally in corn, the fundamentals for wheat still look better than corn and while next year's wheat crop is in good shape so far, the market still has to kill the crop a couple of times before its harvested. There should be better selling opportunities in the future, especially for spring.