The market has run cash basis values to such high levels that shippers are starting to take notice as fall harvests finish and buyers are saying at these values we’ll wait to see if there is more selling in the new calendar year. The function of the market was to take some cash carry out of the market, which had to come first in the cash basis, before the calendar spreads would move. We’ve seen both of these occur and today the cash carry isn’t as wide, the interior cash basis has exploded as well, so shippers/warehousemen should be considering taking some profits as they have time to turn their attention to wheat again.
The bloom is off the HRW cash basis at the end of the week as buyers ask themselves just how high do they need to push this basis and shippers are looking up from fall harvests and asking themselves why they’re not locking in some of this basis appreciation. There is still some cash carry in the market, but the 5 to 6+ ct/bu per month carry is now into 2-3 ct/bu per month carry. If you were a shipper looking at 50 ct/bu basis appreciation plus capturing the KCBT carry since July, wouldn’t you be thinking about putting some money in the bank?
Global wheat headlines:
• Tunisia purchased 100 kmt of soft wheat in four 25 kmt consignments at $206.93-$208.72/mt c&f. It also bought four 25 kmt consignments of durum wheat at $287.66-$291.71/mt c&f.
• Algeria bought 210 kmt of wheat at $210.50-$211.75/mt c&f for December shipment.
Nov. 17: Turkey tenders for 230 kmt of EU milling wheat.
Nov. 28: Ethiopia tenders for 200 kmt of optional-origin wheat.
U.S. wheat futures saw follow-through buying after yesterday’s USDA report, with Chicago finishing the day up 2.50 cents and Kansas City up 4.25 cents. Minneapolis eased back amid choppy trade and profit taking, with the December contract closing down 0.50 cents. For the week, Chicago settled 5.75 cents higher, KC ended up 6.50 cents higher, and Minneapolis completed the week a whopping 22.75 cents higher. Calendar spreads have seen supported from strong cash markets and the index roll this week. The WZ/WH spread gave back 1.50 cents today, closing at -17.50 (47.9% of full carry). There are just nine days remaining in the VSR calculation period, requiring the spread to settle inside an average of 45.49% of full carry, about a 16.62 cent carry, in order to reduce the maximum allowable storage rate to eight cents per bushel per month. It’s certainly mathematically possible to get a reversal and there are arguments both for and against it. The cash markets are not any weaker, per say, but there seems to be less urgency to buy today.