Download Cash Wheat Market The cash market continues the weak tone as

Date: January 24, 2014
Date: May 13, 2014
Cash Wheat Market
The cash market continues the weak tone as exporters question the amount of 1 st quarter
export demand they’ll have & domestic mills ponder how much additional switching they can
do between HRW & DNS, plus the Canadian wheat is always hanging over the market. Bottomline the drop in rail freight rates is or has taken the old / new crop inverse out of the market.
Plus shippers who were carrying old crop wheat now want to ship it in May. Traders are looking
at big crops in the north & lack of demand offsetting any concerns about supply in the south.
US deliverable stocks are down in all three markets from last week. KCBT (-1,795 bu), CBOT (833 bu), and MGEX (-136 bu).
The delivery stocks keep dropping as they should & they down 30% from last year, but the
market is still carrying 83 mbu of wheat into new crop positions. There are 8+ weeks left before
those warehousemen will see new crop bushels & start to build stocks.
Hard Red Winter
The old crop / new crop inverse has collapsed with the collapse in rail freight & harvest starting
in South Texas. The protein premium is collapsing as well with a someone willing to swap at
train of 13%+ protein for 12.0% protein train at 5 ct/bu premium on the 13.0%. The rail freight
market has gone to a discount in the nearby, so anyone with old crop stocks should want to
move their wheat in May.
Traders & warehousemen should be asking themselves how they will make money in Hrw this
year. The cash basis is starting out at near record values & the cash carry is barely covering
interest costs.
If they sell their wheat at harvest they’re left with an empty elevator & no way to make money
the balance of the year. Yet they cannot expect to get much basis appreciation at current
values since the market isn’t paying enough carry. I’d suggest the best way for everyone to
make money is for each of the delivery warehouses to deliver 5 mbu wheat against the KWN4 &
force the KWN4-KWZ4 to 80% plus of full carry. Full storage is 45 ct/bu & we’ll add 6 ct/bu for
interest making full carry 51 ct/bu. 80% full carry would be 41 ct/bu vs. tonight’s close 15.5
ct/bu. Will they make this play with cash basis today above DVE for the shuttle shipper?
The gulf market isn’t well defined but warehousemen should expect a high protein harvest this
year compared to the 11.0% average last year (tributary to the delivery market). Assume 130
KWN4 for Hrw 11.5% protein backs off +25 KWN4 for the shuttle shipper vs. delivery 6 under +
8 ct/bu load out equal +2 ct/bu KWN4 Wichita. This may be a looser today but if the stopper
cannot move the wheat since his freight rate is 135+ ct/bu, the warehousemen can earn the 45
ct/bu storage rate KWN-KWZ vs. the 15 ct/bu closing spread. The widening of the calendar
spread earns cash carry for all of their inventory & will earn them basis appreciation for all of
their hedged stocks.+130 KWN4 is +89 KWZ4 (KWN-KWZ spread goes to 41 ct/bu), now they
can expect some basis appreciation as well the calendar spread carry. If warehousemen choose
to make this play everyone can make money in Hrw this year & if they don’t it will be a tough
year for everyone. Who will take on the DB Index roll KWN4-KWN5 at today’s 40 ct/bu spread
vs 87 ct/bu annual storage costs?
I’ve talked about the spread between the gulf & PNW export bids for Hrw. A PNW exporter
sold the gulf Hrw 11.5% protein for Aug/Sep at +120 KWU4 (13 ct/bu below the 12% protein
bid). This is 50-60 ct/bu premium to the PNW bids & after some investigating I found the BNSF
has a rate from Montana to the Texas gulf which ranges from 48-63 ct/bu premium to the PNW
export rate. Is the gulf basis too high or the PNW basis too low? The increased production in
Montana (up 21 mbu) will keep pressure on gulf premiums & when added to the increase in
ND/SD/NE/CO production is up 121 mbu compared to the decrease in KS/OK/TX of 110 mbu.
The 48-63 ct/bu rail freight spread ($18-$23/mt) is cheaper than the ocean freight spread,
allowing the PNW to take all of the West Coast Latin American business & threaten some of the
East Coast LAM business. It would appear to me the PNW basis is too low, but they are
competing against those Canadians (another story). Perhaps the real lesson here is KCBT &
HRW cash are just too expensive at both coasts.
Gulf Hrw 12% protein basis is not well defined but best guess: May 145/150, Jun 140/145, Jul
138/145, A/S 130/135, O/N/D 1401/No.
The domestic market has been weak on the spot market but today there is a cash carry to J/A/S
which is bid/offer 105/115 KWU4 basis Kansas City & 90/100 basis Chicago gateway.
KC spot market unchanged.
ord
11.00
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Premium
105 to 115
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110 to 120
110 to 120
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Premium
110 to 120
110 to 120
105 to 115
105 to 115
105 to 115
105 to 115
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110 to 120
Change
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Soft Red Winter
This market is dead but traders are trying to figure out how to solve the SRW b/s which has a
carryout forecast doubling in 2014-15 to 225-250 mbu as best estimate. I talked about how the
HRW warehousemen can make money this year, the SRW warehousemen have a much larger
problem. It should be easy if the market will deliver wheat against the WN, WU, WZ, WH &
force the trigger of the VSR not once, but twice or 3 times. This sounds easy but will they do it &
does the VSR trigger before the cash wheat basis collapses at interior points? I don’t’ see how
we can trigger a VSR without a huge break in cash basis & some deliveries on the WN4. The
market needs a shock of deliveries against the WN4 to assure a trigger on the WU/WZ/WH. The
cash market is not paying enough cash carry on the river today.
The SRW b/s would suggest a need to feed wheat but unless there is a big quality problem with
the harvest in the southeast, the wheat/corn spread will not allow this to happen. If we cannot
feed SRW & cannot compete in the export market, the market must carry the wheat until they
find another demand source. Will warehousemen carry 240 mbu of wheat into next year at 40
ct/bu? A SRW feed model would suggest 50 mbu feed/residual at today’s WN4-CN4 spread.
Barge bid/offer: FH May +62/NO WN, J/J +38/45 WN, Aug +35/42 WU, A/S +38/50 WU, Sep
+41/NO WU, OND +55/NO WZ.
Hard Red Spring
There is some big differences in HRS b/s for 2013-14 & 2014-15 crop year. USDA will soon help
us with their June 1 stocks estimate released the June 30th. We may not agree with it, but we’ll
trade. As you can see in my balance sheets (above), I’m expecting a good crop to keep the c/o
unchanged from this year. Some folks have large c/I, larger imports, & large production & they
have carryout building next year. I’ve already assumed 10 mbu more spring wheat domestic
milling to replace similar amounts of Hrw since this past year. (Assuming USDA confirms). My
export forecast is down from this past year (230 mbu vs. 250 mbu this past year). We’ll wait to
see what USDA gives us, but I suggest the risk premium needs to shift to MGEX & away from
KCBT or CME. We’ve seen MGEX scream against CME, but its buying demand from KCBT & HRS
planting pace is slow & DNS has the entire growing season in front of it.
There were 20 singles & 4 trains for sale today. Premiums were unchanged to +10-15 ct/bu.
Single cars of 13% protein traded +100-110N. Single cars of 14.0%+ protein traded +120-140N.
The trains traded 14.02% protein +120N, 14.63% protein traded +130N, a train TQ train of
13.1% protein was bid/offer 60/80N & 50 cars of Manitoba wheat had not traded at the close,
after being carried over from yesterday.
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hereby notified that any retention, dissemination, distribution, or copying of this communication is strictly prohibited. Please reply to the sender that you have received the message in
error, and then delete it. This data and these comments are provided for information purposes only and are not intended to be used for specific trading strategies. Although all
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PNW
Taiwan purchased 2 July cargos last night; July 2-16 shipment DNS 14.5% protein $354.89/mt
(28.7 kmt), 12.5% Hrw $343.74/mt (12.6 kmt) & SW $295.75/mt (13.5 kmt). The second cargo
was shipment July 19-Aug 2, NS 14.0% protein $341.95/mt (33.7 kmt), and NS 13.0% protein
$336.28/mt (21.85 kmt).
Japan tendered to buy 97,780 tons of US and Australian wheat which closes on Thursday. The
following table lists the quantity and type of wheat sought.
The PNW market keeps backing away from the old crop wheat as they cover the last of any
shorts needed to cover May/Jun/Jul positions (old crop PNW). The new crop bids would pay up
to buy some DNS since exporters have built a good short position & the spring wheat hasn’t
been planted yet. Exporters have quality risk, protein risk & production risk ahead of them &
the sales prices have been 30-50 ct/bu above today’s track bids. The Hrw is a different story
where the Montana crop is in excellent shape & production will be 20-30 mbu greater than last
year. Montana is typically locked into the PNW export market & the domestic market in LA or
inter-mountain markets. The short crop in TX/OK/KS may result in the gulf market pulling
wheat from MT/ND/SD markets that would normally go to the PNW or Chicago gateway
markets. The exporter bids of +60-70 KWU4 for new crop Hrw are too cheap in my opinion &
will be supported by the Texas gulf market which may be too high, but will find support against
the KCBT delivery market & widening KCBT calendar spreads.
The track/barge bid for May/Jun/Jul: DNS 14% protein 120/110/100, HRW 11.5% 85/80/70,
SWW 70/70/50. New crop A/S bids: DNS 14% 95/85U, Hrw 11.5% +70/75 U, SWW +40/40U.
World Wheat News
Syria's state grains agency has made no sale in a tender which closed May 7th to sell 100 kmt of
soft wheat and 100 kmt of durum wheat for export to Iraq.
Egypt’s Finance Ministry’s office reports that it will increase the price it pays to local farmers for
their wheat to 500 Egyptian pounds ($70.87) per ardeb from the previous 420 pounds.
($1 = 7.0550 Egyptian Pounds)
Romanian-origin wheat was the lowest offer in the Lebanon tender for 30 kmt of milling wheat.
The price was $307.43/mt c&f for immediate shipment and arrival by June 28.
Australia
Flat price for June APW 10.5% protein is $322/mt and ASW is $310/mt.
Flat price for July APW 10.5% protein is $330/mt and ASW is $318/mt.
Canada
CWB analyst, Mr. Burnett reports that Western Canada winter wheat is in good condition.
There are only isolated areas that report winterkill. The late arrival of spring has pushed
harvest dates back and planting delays for spring wheat however this wasn’t too concerning as
there is still time to plant wheat.
South America
Traders are shocked the Argentine exporters are not aggressively offering the last 500 kmt
allowed for export by the Argentine government. I’m told they want USD 400/mt depending
upon port, as they try to capture the full export tax, flat price rally & basis appreciation from
the wheat they’ve carried since harvest.
The official Argentine price was increased to $375/mt which is used for the 23% export tax.
Origin
Argentine Bahia Blanca
Argentine Necochea
Uruguayan
$1 USD= AR $8.00 Pesos
Month
May
July
May
Quality/
12% Protein
12% Protein
12% Protein
Bid/Offer ($USD/MT)
Unspoken
NO/$400
NO/NO
$1 USD= R $2.22 Reales
Current export tax 23%
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Black Sea and Europe
The May Matiff closed down €5.00 at €202.25. Over the weekend Europe received a lot of rains
and more this coming week.
June FOB values: Russian 12.5% protein $288/mt, Ukraine $283/mt, France 11% protein
$282.98/mt, and German 12% protein $291.60/mt.
New crop FOB values are Russian 12.0% protein $270-273/mt, French 11.0% protein $279/mt and
German $292/mt.
Ukraine’s 2013-14 total grain exports as of May 13th are 30.4 mmt for 2013-14 marketing year.
Of that amount wheat accounts for 8.632 mmt, barley is 2.296 mmt, and maize is 19.09 mmt.
Pending Tenders
May 14: Japan issues a SBS tender for 320 kmt of feed wheat and barley
May 14: Jordan tenders for 100 kmt of optional-origin milling wheat
May 15: Japan tenders to buy 97,780 tons of US and Australian wheat
May 23: Iraq tenders for 50 kmt of wheat from the US, Canada, Aust., Ukraine/Russia.
May 29: Maldives tenders for 6 kmt of wheat flour
May 29: Ethiopia tenders for 70 kmt of milling wheat
Futures Market
The fundamentals are starting to impact prices after
USDA’s WASDE report confirmed there is no shortage of
wheat in the world & no shortage of feed grains are
forecast for the 2014-15 crop year. The HRW balance
sheet cannot support world prices of even US prices at
current levels. USDA’s June 30th stocks report will also
be important & some traders believe we can see a
negative feed/residual in Hrw due to the 5%+ of SRW
blended into Hrw exports over most of this year. This
could help the SRW b/s but the total would be 20+ mbu
if every bushel exported had 5% SRW. An extra 20 mbu of Hrw stocks on June 30 th & an extra
20+ mbu less Hrw exported next year will make a big difference to the HRW b/s but it doesn’t
do a lot to help the 225-240+ mbu SRW c/o.
The function of the US wheat market should be to lower flat price, narrow the wheat/corn
spread & put more carrying charges in the calendar spreads & cash spreads as we approach
harvest.
Best regards, Al & Emily