Market Matters Blog
Katie Micik DTN Markets Editor

Friday 11/30/12

Error Emphasizes Lack of SRW Demand

CME Group announced on Friday that it issued an erroneous report on wheat available for physical settlement of futures contracts. At 4 p.m. on Thursday, CME said there were 146 shipping certificates registered, but at 5:46 p.m. corrected the report to reflect another 2,000 shipping certificates from the Andersons' Conant (Maumee, Ohio) and Illinois facilities.

That error is the equivalent of five Panamax ships of soft red winter wheat, roughly 10 million bushels, and traders that used the initial data to place trades got burned by the revision.

"And the spread's getting pulverized today because of it," said Tregg Cronin, a market analyst for CHS Hedging Inc. "The December-to-March Chicago wheat calendar spread is just getting -- I mean it's down 25% on the day."

CME said in a press release it will assume responsibility for the trading losses associated with the reporting error, however, it's unclear what those may be.

The bigger factor in the spread's price action, however, is likely the decreasing water levels on the Mississippi River, Cronin said. Barge supplies are tight as the grain terminals on the Mississippi River rush to send everything downriver before water levels become prohibitively low.

"That's had a big effect, and I would argue a majority of the reason why we've seen deliveries," Cronin said. "If the river were operational and everything, there'd be demand for owning those receipts and I don’t think you would have seen it blow out quite as bad as it was. Whether or not any of that was tied to the Andersons and the misreporting, it's hard to say, but that's why it's taken on so much focus because the river is in such rough shape."

DTN Senior Analyst Darin Newsom agrees the bigger picture is the large number of delivery registrations, reflective of the overall lack of demand that prompted commercial owners to move supplies into storage.

"Why the lack of demand? A couple of different reasons: U.S. wheat is still too high priced on world export market, particularly with the recent strength of the U.S. dollar. And second, low river levels are making it difficult to move grain to Gulf ports. Is the boo-boo affecting trade in Chicago wheat Friday? Maybe a little as the Dec-to-March carry continues to strengthen. Does it change the long-term fundamental outlook of the market? No, not really. The old-crop outlook has been neutral to bearish for some time now, and this doesn’t change that," Newsom said.

Posted at 3:33PM CST 11/30/12 by Katie Micik
Post a Blog Comment:
Your Comment:
DTN reserves the right to delete comments posted to any of our blogs and forums, for reasons including profanity, libel, irrelevant personal attacks and advertisements.
Blog Home Pages
November  2015
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30               
Subscribe to Market Matters Blog RSS
Recent Blog Posts
  • STB Seeks More Information on Proposed Rules for Weekly Rail Performance Reports
  • How the CME Makes Money
  • Minnesota Expected to Produce Record Corn Crop
  • Ag Groups Disappointed; Will Continue to Advocate for SAFE
  • DDG Exports to China Ahead of Last Year
  • Shutdowns Threatened by Class 1 Railroads Averted
  • High Marks for 2015 HRS Wheat
  • How Big Should Big Rigs Be?
  • Legislation Introduced to Extend PTC Deadline
  • CFTC Fines Two Grain Trading Operations
  • Low Water, Lock Repairs Cause Shipping Delays
  • Perspective on China's Big Soybean Buy
  • Possible Rail Shutdown Threatened if Safety Law Extension Not Granted
  • FSA Acreage Debacle
  • Heavier Loads on the Roads?
  • Railroads Respond to STB Requests to Provide Service Outlook
  • 2014-15 Crop Year Ends For Corn, Soybeans, Spring Wheat Basis
  • STB Needs to Make Timely Decision on Revenue Adequacy, Grain Rates
  • A Windshield Tour
  • Mr. Market Lives In China Too