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| Now That the Dust has Settled |
| 7/12/2010 |
Darin Newsom DTN Senior Analyst
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The machinations of the markets are not always clear while they are in motion. Sometimes observers have to sit back and wait for the dust to settle. I couldn't help but think of this as we waited for the release of USDA's July Supply and Demand and Crop Production numbers. Given the fireworks of recent sessions in the grain markets, it seemed inevitable that Friday's session would also be explosive, the only question being in what direction. Now that the dust has begun to settle on the third and final "storm" (the June USDA reports, followed by the June 30 Quarterly Stocks and Acreage reports, followed by Friday's July numbers) we may finally be able to catch a glimpse of what is really going on in the markets.
The fact the wheat market is not limit down Friday continues to indicate there is something screwy going on, or times have certainly changed. Where to start when discussing the bearish implications of Friday's numbers? Was it that 2010-2011 ending stocks are projected at 1.093 bb, the largest since the 1987-1988 marketing year, putting ending-stocks-to-use a just a whisker under 50 percent (the largest since the 1986-1987 marketing year)? And this depends on wheat export demand INCREASING in 2010-2011 despite the fact it is overpriced, at least at this time. Or is it that all wheat production is now expected to equal that seen in 2009-2010 despite an expected 1.6 million fewer harvested acres?
Almost line for line, number for number these reports were bearish for wheat yet the market continues to hang on to some unseen means of support. As discussed a couple of weeks ago in this same space, unless something dramatic occurs in the HRW futures (dramatic meaning a sharp sell-off) the basis market shouldn't get much stronger, nor will the carry in the spreads weaken appreciably.
For now, we know what we know and can sit back and watch the markets work until the next storm (USDA report) blows through. That doesn't mean things will be dull, not with a potential weather market looming in both corn and soybeans, but at least we have a bit clearer view now that the summer reports are out mostly out of the way.
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