US Wheat issues

[fjlip]

What do you make of this CME comment yesterday...

"The expected bonanza could become a bust, at least for farmers, who aren't receiving cash prices equal to futures prices because investors won't execute their contracts. Investors are content to roll their contracts forward to the December contract for a few extra cents of profit. The result: Farmers are receiving prices for wheat about $1 below futures prices across the Plains States.

Elevators, which store and market grain, are reluctant to take delivery because if the grain goes into storage and it is committed to futures then they have tied up capacity that won't be free for months. In response, operators are offering farmers cash prices of only $6 to $6.50 to discourage deliveries.

For example, on Aug. 31, elevators in Salina, Abilene and Wichita, all of which are in Kansas, took delivery on 471 futures contracts covering about 2.3 million bushels of wheat for September delivery, according to Kansas City Board of Trade delivery data. The contracts were held on behalf of customers by six firms: ADM Investor Services, Country Hedging Inc., JP Morgan Futures, MF Global Inc., Newedge USA LLC, and Penson GH Co.

The next day, all 471 contracts were "re-intentioned," meaning the contracts were resold on the futures market. The grain, now in storage in Salina and elsewhere, will stay there until those contracts expire, which won't be before December."

[parsley]

http://www.mfglobalfutures.com/resources/getquotes.cfm?page=default&section=grains

[bucket]

Question.

Does this mean the price of wheat is going up?

[charliep]

Can't say from this information. Just says the US elevator system is full and trying to signal to slow deliveries/store on farm. Suspect this will resolve itself as the world importers head to the US to replace eastern European and Canadian exports.

[bucket]

US farmers get paid for storage by higher prices usually.

When they need the grain to fill Canada's share will they narrow the basis?

Too bad a guy won't be able to haul to the states to fill the Canadian order the cwb has to pass on.

[charliep]

Likely.

Need to recognize the US will be harvesting record or close to corn and soybean crops over the next 2 months. In 2011, there will be enough demand side to consume these record crops but given the US farmer doesn't have the same on farm storage we do, there is lots of pressure on the system for the last 3 months of 2010. An elevator owner doesn't want something in the system that doesn't move in and out quickly (they make money on elevation - not storage). The non moving stored grain includes the speculator/others who take physical ownership of wheat inventory and sit on it for carry in the futures market (ownership of physical stocks is not a bad thing in this market).

[charliep]

I should note that wheat, corn and soybeans are not 100 % grown in exactly the same places in US. Real competition will be at the Gulf and having grain in exportable position.

[stubblejumper]

Bucket most US producers don't store grain because they have no or very little storage.

[samhill]

The info that a large bird feeder in Russia is looking to
import 400K MT of feed wheat should help to move
some, no matter where they buy from. Also, USDA
export inspections show that wheat is being exported
much faster than last year.
Is there any way to find out how many contracts the
CWB sells on the MGEX, and when those sales are
made?

[charliep]

NO way of knowing the CWB futures position except in a general sense by looking at speculative versus commercial position. No official way of knowing who is trading/their overall position due to confidentiality. There is a limit on the amount any one organization can hold on futures contract (somehow 10 % sticks in my mind) and I suspect the CWB would hold close to this level of the MGEX open interest - an important customer of MGEX.

I would note the CWB uses MGEX and the other exchanges as a risk management tool. Managing pool risk around the producer payment options, the CWB overall sales pace model, specific customer requirements to manage their risk (basis contracts), etc. I am likely misinterpreting but would highlight that their futures postion don't relate directly to their cash trading activities except as maybe related to their sales pace model.

[bucket]

stubble

The US farmer doesn't store grain but then again they don't wait a year and a half for their money. Or are forced into a lower price pool year like durum.

6 bucks off the combine beats 1.50 initial and waiting for the rest.

AND I know about the FPC that is currently running 50 cents behind the US elevator price.

[Fransisco]

And even if they do sell everything off the combine that doesn't necessarily mean that they're out of the market. Once you've got that cheque it's real easy to buy back the crop on paper and keep going along for the ride if you think it's going higher.

[bucket]

Unfortunately, we have to pay a bunch of leeches in winnipeg first.

[mustardman]

Francisco and the reason You don't cash your cheque and buy the crop back on paper is?

[bucket]

With what? the initials go to pay bills as much as it can.

Moron. The initial price from the cwb is an embarassment. Really, how do you guys continue to support it when the world is hungry for good quality grain.