The USDA reported on the World Ag Supply/Demand today. Highlights included a 2.5% lower projection for global wheat inventories due large to lower output from Former Soviet Union producers that was as expected and a very high yield estimate for the USA's current domestic production which was also expected. The wheat futures generally opened and closed down a dime--off 2% after a 20% rally in 8 sessions.
Our spreads didn't move much. CBOT calendar spreads were at a slightly steeper contango after the report; intermarket spreads fluctuated around yesterday's levels.
We weren't really expecting a miracle today in terms of great news to drive our positions, and we didn't get one. The past couple of weeks have been a useful case study in how markets make opinions: news blurbs now are pointing to hot weather spots and wet patches and rain-delayed harvestings, gone are the discussions of the surplus inventories in India so large that all proper storage is full and wheat is being stored out in the open air in piles.
Clearly, wheat inventories remain very large and the current production is relatively high. It's certainly possible that trend-followers will embrace wheat after these strong moves higher--driving the nearby CBOT to higher levels vs other alternatives. We will have to wait and see. But given the volume of wheat in storage, physical buyers can afford to be choosy; hard to see why they would choose low-protein, soft wheat at levels close to hard wheat. Also hard to see how speculators benefit from holding a commodity where storage is running at over 20% annualized and may get even more dear.
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