August 17, 2010
China eclipsed Japan as the second largest economy in the world. The result: U.S. consumer statistics reporting weak demand had less effect on cotton and grain prices.
Chinese industrial growth has slowed to 13.5 percent, but compare that with less than 3 percent in the United States. Our trade deficit is bearish at $50 billion.
Bearish news: Russia exported grain already in the transportation pipeline which included 700,000 tons of grain. The Black Sea region in Asia has 300,000 tons of wheat in export locations.
Traders open interest is on the sell side of the wheat market. Higher wheat prices reduce export sales.
Importing nations average a six month supply of wheat in storage. World wheat supplies are adequate for the coming year. India has large supplies of wheat and rice in storage. Their wheat supply is estimated at 21 million tons which is far above the 9 million ton average.
Bullish news: Asian grain exporting nations face the potential of importing feed grain as livestock herds in Asia increase. Estimated wheat production in Russia is down more than twenty percent.
Bullish news: Export sales are surging in the wake of Russia’s ban on grain exports. The ban is expected to last through the remainder of this year. Importing nations are stockpiling feed grains. Corn is now inexpensive compared to wheat in feed rations.
Chinese corn supply maybe running low. The government offered only 400,000 tons for sale into domestic markets.
Carryover estimates have pulled back due to higher than expected exports. The current estimate is slightly below 1.5 billion bushels. Corn export inspections were up 23 percent this week.
Corn exports estimates are growing at nearly 2 billion bushels. Corn exports this week were 918,000 tons. This number was near the 1 million mark anticipated.
A University of Illinois study estimates corn yields at 158 bushels per acre. That would mean extremely tight corn supplies.
Bearish news: Corn yield estimates remain high, 163 bushels per acre. Production estimates are near 13.5 billion bushels. The crop condition rating of seventy-one percent is well above average.
Bearish news: The soybean crop rating is 7 percent above the 59 percent average. Yield estimates of 43 bushels per acre will produce nearly 13.5 billion bushels of soybeans.
Bullish news: China bought 5 million tons in July, down from 6 million in June. Ending supply estimates for soybeans have been reduced 40 million bushels to 320 million. Greater than anticipated exports are the reason. Export sales this week 2.6 million tons were far above all estimates. World soybean supply will decline.
Traders hold open interest of 130,000 buy contracts remaining on the long side of the soybean market.
Bearish news: Vietnamese exports remain inexpensive compared with U.S. exports. Thailand has large quantities of rice in storage. Rice export sales were disappointing at only 13,000 tons.
The U.S. crop production potential is heavy and could set a new record. Harvest pressure will have a major effect on prices. The current conundrum with world wheat supply represents a selling opportunity.
Bullish news: Rice markets continue to follow wheat markets. As prices increase rice will substitute for wheat for human consumption. Growing Asian economies will demand more rice. Rice export sales are increasing and should surpass the weak number posted last week.
Bullish news: Cotton quality and yield estimates have declined recently but both remain above average. Cotton supplies registered for delivery have dropped to 25,000 bales. Weekly export sales of 342,000 bales were above anticipation.
A flood in Pakistan has reduced cotton production by 2 million bales. Grain production was also affected. It remains to be seen if Pakistan will export grain or cotton.
Open interest in cotton is increasing. Traders hold a net 199,000 buy contracts.
Bearish news: China has sold 600,000 tons (2.75 million bales) of cotton into domestic markets to hold prices down.
Ten percent of U.S. cotton has open bolls already. A record 84 percent of bolls are set. That is an early crop. The condition rating of 65 percent remains higher than average.
Production estimates predict the third largest crop in history. U.S. production estimates are over 18 million bales.
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