Big day up gets no follow-through
After a three-day weekend, the wheat complex began the week trading with a big rally as hedge funds decided again that they liked the commodity space and would rather be generally long. And after the Commitment of Traders' Report showed the large funds to already be at a record net short position in wheat, they decided to do some short covering.
Fearful that they might all head for the door at once, they began a short covering run that last all of one day. Satisfied that the weak shorts were out, the rest of the week was spent with the market pushing its way back down, more than negating the strong Tuesday rally.
As we head into the last half of February, the seasonal tendency is for wheat to carve out a low and start to build a spring time rally. Weather usually asserts itself as a market mover sometime before mid-May, after which the market already turns its focus to wheat harvest. But you can't harvest what you don't plant, and the extremely low winter wheat plantings certainly set the stage for some fireworks, if we get any kind of adverse weather.
The very cold temps and vast amount of snowfall in the northern Plains suggest that we'll likely not see early spring plantings, with the market particularly watchful for another year of delayed plantings, especially in the Midwest.
UDSA's outlook forum projected total wheat acres at 55.0 million, down 4.1 million from last year. They project that spring wheat plantings will be up about 1 million acres. They also project that total wheat production will be 1.945 billion bushels, down 271 million bushels. That still leaves a comfortable ending stocks figure - if we donâ€™t get weather problems.
We're about to start the world's 2010 harvest season, with India slated to begin in just a week or two. They've spent the last few weeks continually ratcheting up their production estimates, which now sit at a record 82 MMT and their 4th record crop in a row. Government stocks are already bursting at the seams as they scramble to find room for another bin buster. The Indian government is set to remove the ban on exports but they are not even close to being competitive in the export market, so they have suggested that they will do direct deals with other governments. While this will likely take away some export business from the world market, it will likely be minimal.
And speaking of export business, Egypt passed over the US again with a large purchase of 300 TMT, with 240 TMT going to Russia and the other 60 TMT going to France. This is an old story that, frankly, will not go away any time soon as both the Europeans and the Russians have enough wheat to export to the end of their marketing years, with good crop prospects for 2010 so far. In addition, Australia is quickly making its presence known in the export market after a good crop is finally making its way into the pipeline.
I continue to look for wheat to carve out a low sometime before the end of February, and we could well see a significant rally into the spring. We should at least test the November highs and possibly much more if weather is a factor.