The wheat complex tried to stage a rally this week on fears of Argentine frost scares, and also on the technical support from the 100-day moving average. But the rally was anemic, short-lived and met with a host of selling on Friday that promptly took prices back to the swing low.
Even after a $2 break from the all-time high and despite cash basis continuing to show impressive strength, particularly for quality hard wheat, the futures have been unable to maintain even the slightest upward momentum. Most likely, from here forward for old crop, rallies will come from the cash markets as futures are well entrenched in the bear attitude.
The market expects plenty of export competition in the near term as Argentina progresses with harvest and quickly moves their wheat into the world pipeline. They are expected to be the cheapest wheat for the next several weeks, even usurping the Black Sea region.
And obviously, we can't forget that the Black Sea will be around for some time, even if Russia does increase the export tariff this winter. They may be displaced temporarily, but they will still likely have wheat to export as the US tries to make another stand at the end of the marketing year just before new crop supplies become available.
We also can't forget about the EU. It appears that most feed users/manufacturers have made the switch to corn in their rations, freeing up enough wheat stocks that exporters are suggesting the EU may have enough for significant exports yet this marketing year.
Most major producing regions of the world are seeing their winter wheat go into dormancy in good condition- all except for a growing region of the US west central Plains where rains have failed to materialize and the crop is poorly established. Cold weather is pushing the crop into dormancy, making it very vulnerable to extreme winter weather and keeping things interesting for the marketplace.
New crop futures are certainly responding to these issues, as they've held their trading range values very well. It is quite possible that they will continue to chop around in their trading range until the market is comfortable with new crop prospects, which is well into March/April.
However, the market will be watching other 'new crops' much earlier. Indiaâ€™s growing season starts in January; they, along with Pakistan, Iraq and others in the region will be closely watched for early signs of potential demand. While India is still slated to import another 1 MMT this marketing year, 350 TMT of which have already been tendered, their increase in planted acres could quickly replenish domestic stocks and remove them from the market.
There is still the potential for more fireworks in the wheat complex, much of which will be in the hands of Mother Nature. However, if we donâ€™t have any major problems develop, then we could be in for a 'wall of wheat' coming at us just around the corner. There are way too many variables for new crop to make projections for those futures contracts, which have found a balance within their trading range â€“ at least for the short term.