For wheat futures, “buy the rumor and sell the fact” seemed to be the rule this past week. Much talk and news has been released about the ongoing drought in the Ukraine, Russia, FSU, and Kazakhstan. Tuesday’s request by a representative from Glencore for a 6-8 week ban on exports of Russian wheat became reality on Wednesday when Premier Putin put an export embargo of exports of wheat, corn, rye, barley and flour. Wheat futures had been on a rampage to the upside on anticipation. Russia called upon the Ukraine and Kazakhstan to join in on the embargo. The Ukraine appears to be obliging but Kazakhstan has said they see no reason to ban grain exports this season, despite an impending request by Russia to do so along with Belarus which are part of a trade union with Russia. The Russian concern is that it’s grain may be exported via the two countries. While Belarus will be lucky to feed themselves, Kazakhstan has estimated exports of grain in 2010/11 at 8 mmt. The CBOT wheat futures rallied from the close of last week $1.7425 to a high of 868 basis the Dec contract. From June 9th to August 6th, Dec wheat rallied a dynamic $3.9375 from the low. Guess this is what can happen when everyone is so bearish and all the news is known. The market was loaded with bears and a major ETF (for whatever reason) sold wheat futures and bought corn right into the harvest lows. This plus the realization that there were serious issues for Russia and parts of eastern Europe gave funds reasons to expand the past 7 years estimated fund length to the long side (previous 50,000 contracts) to over 77,000 contracts. Now, through the course of the impulsive rally, futures surpassed a major wave count but not for long. Wheat is the first market since 2008 to reach this type of wave count to the upside. There have been several to the downside. They are crude oil, cattle, hogs, sugar, and the Euro. All put in lows. Now, does this mean that wheat is topped out? For now, I would expect so. Perhaps even into the year end. What the market’s behavior does indicate is that higher highs are probably coming for next year. After the huge rally and the tightest wheat acres since 1913 for SRW, producers are already talking about expanding acreage. Can’t blame them. Wheat futures reversed during Thursday’s night session and followed suit to move limit down on Friday. Trading limits will expand on Sunday night and Monday’s session to 90 cents. This market can do most anything. It may try to rally back to $8, but, I would anticipate that the rallies won’t hold for now. Now, what will we do this coming week, take last week’s high out or this past week’s low? I guess I will put my money on the low and that would be 689 basis the electronic Dec contract. On Friday, Russia’s first deputy prime minister said the country will honor all existing grain export contracts despite the looming export embargo. How does that work? The minister said Russia may adjust exports to this year’s crop size. He went on to say that grain must stay inside Russia until the government decides otherwise. Russia’s rail authority will halt transportation of grain to export points as of Saturday. There are currently 1,600 cargo trains loaded with 200,000 mt of grain headed for the Black Sea ports. The Russian Grain Union says 700,000 mt of grain awaits export, of which 500,000 mt is stored at Novorossiysk. The government said it is increasing security around grain state reserves due to the drought. Meanwhile, at time of writing, it appears that there is no end in sight for the drought. Heat is forecast well into this coming week with temps in the mid 90’s to as high as 104 degrees. Now, what is interesting is that the news out of China is sooooooo quiet. China may actually be a bigger deal than Russia. China’s growing season started in the northern provinces with too much heat and dryness. Farmers opted for shorter growing season varieties of corn and soybeans. Then, came the rain and floods. Major producing provinces Jilin, Heilongjiang, and Liaoning, have all dealt with way too much rain. The central producing regions slightly to the north is again hot and dry while consuming provinces to the south are way too wet. Weather sources continue to indicate that growing conditions are favorable for crops? How? China has had a huge appetite for new crop soybeans. Last year’s pace was a record and already they have surpassed that this season which starts on September 1st. This week seen sales to China for new crop soybeans of 455 tmt and 366 tmt along with smaller purchases. China also was a buyer of new crop corn. I think no one is paying attention. Guess the long term should be bullish for corn and soybean prices not too mention wheat for next year’s markets.
