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With March Bonds making another new low for the move in the face of weak data in the prior trading session, it is clear that the path of least resistance in prices remains down. In fact, we are not even sure if a rather sharp slide in the US 4th quarter GDP reading this morning will be worth even a modest bounce in Treasuries. In fact, after seeing some weak international economic readings overnight, US Treasuries were simply uninspired again and that could mean that even a clean sweep of weak US data this morning will have a limited impact on prices. We have to wonder if talk from Congress about a 4% mortgage offering from the government directly to quality borrowers hasn’t actually discouraged buyers of long term futures instruments, as a plan to offer low mortgage rates to the public would seem to play down the need to buy Treasuries to force down interest rates. It is really surprising that this market hasn’t seen the slightest bit of support from what was an extremely active flow of announced US layoffs this week and that would in turn seem to suggest that the fix is in for the bear camp in Treasuries. In fact, if the Treasury market is unable to turn high off a decline in GDP well in excess of 5% then it is clear that the standard or classical fundamental track in the market has been disrupted. From a purely technical perspective, one could see little in the way of solid support on the charts until the 125-00 level in March Bonds, with similar downside support in March Notes not seen until the 122-00 level. Perhaps the markets will find solid support after another downside adjustment in prices today, especially since a very long list of layoff announcements have been flowing for the last two weeks and that in turn could result in extremely weak data due out 1 week from today in the ultra critical monthly US payroll report. Given the pattern and posture of Treasury prices over the last two weeks, we aren’t even sure that a massive decline in US Non farm payroll data will serve to turn the trend back up in Treasury prices. In short, the fear of supply and or a simple demand for a higher yield from US Treasuries seems to leave the bias in prices pointing downward for now. As we suggested early this week, unless there is something very surprising like fresh outright buying of long dated Treasuries by the Fed, one has to assume that the path of least resistance is pointing downward. In the end, we get the feeling that the term structure of interest rates is reasserting itself and long rates are simply unwilling and perhaps unable to fall to extremely low levels like the short end of the market.
Wheat Market Commentary – 2009.01.30
by Terry Roggensack on January 30, 2009
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Wheat traded sharply lower yesterday following very poor numbers for wheat on this week’s Export Sales Report. Prices continued lower in the overnight session, but the March contract remained in a narrow range just above yesterday’s lows. Traders said that the higher dollar put pressure on wheat overnight as that market remains very sensitive to currency moves. A combination of a lower dollar and lower wheat prices earlier this week has taken US soft wheat prices into a competitive position versus the competition in Europe and the Black Sea and this was reflected in a much stronger sales total for soft red wheat on this week’s report despite the dismal overall wheat number. Egypt’s main grain-buying agency, GASC, is tendering for 55,000 to 60,000 tonnes of wheat that may include US soft red, hard red winter or soft white. They are also looking for an addition 30,000 to 60,000 tonnes, mainly from the Black Sea region. The US has picked up a piece of the last two tenders by Egypt. However, a South Korean feed maker passed on a tender for up to 130,000 tonnes of wheat. Net weekly export sales for wheat came in at a miniscule 23,500 tonnes for the current marketing year and -80,000 for next year for a total of -56,500 tonnes. This was far below trade expectations. Sales of 264,000 tonnes are needed each week to reach the USDA forecast. This week’s sales total included big net cancellations for hard red wheat by Nigeria in both old and new crop. However, soft red sales rose by 71,700 tonnes which accelerates the improvement in sales that we saw starting last week. This week’s report covers through January 22nd when soft red wheat was just starting to become more price-competitive on the world market. Over the past week, that competitive position has actually improved even more. The International Grains Council issued one of the industry’s first production numbers for 2009/10. It came in at 650 million tonnes versus 687 million in 2008/09.
CASH NEWS AND TENDERS: Egypt’s main grain-buying agency, GASC, is tendering for 55,000 to 60,000 tonnes of wheat that may include US soft red, hard red winter or soft white. They are also looking for an addition 30,000 to 60,000 tonnes, mainly from the Black Sea region. Sources report that Iraq plans to tender for 50,000 tonnes of wheat after Saturday, 1/31. Bangladesh is in the market for 100,000 tonnes of wheat. Syria is tendering for 200,000 tonnes of wheat after passing on that same amount two weeks ago. Pakistan issued a tender on December 29th for 250,000 tonnes of US white wheat. They issued another tender for 150,000 optional origin wheat on January 12th.
WEATHER: There is still no sign of significant rain for the next 7 days in the southern plains and the dryness is becoming a bigger concern.
TODAY’S GUIDANCE: With a higher dollar overnight, we would look for this to keep wheat under pressure. And with a new crop supply looming on the horizon in the US, it is unlikely the market will allow soft wheat to get seriously overpriced again. That may make the dollar the strongest price factor in wheat going forward into February.