Breather short-lived for wheat
For once, wheat actually had a relatively quiet week, taking into consideration the wide daily price ranges at these lofty levels. Prices tested the gap levels of last week and held for several days before finding upside momentum late in the week. The soy complex has generally taken over leadership of the grain floor, with increasing bullish enthusiasm for the bean oil contract.
Trading limits retreated back to the new 60-cent limits late in the week, only to see Minneapolis close limit up on Friday, which will take the limit for Minn back to 90 cents. For the Minneapolis March contract, now that those options have expired, there are no limits.
While most traders believe that long term highs are in, there is still plenty of room for movement and volatility. Cash supplies won't get better for several months yet, but the trade appears to be switching its focus from old crop to new crop. Export sales are slowing down as buyers try to stretch supplies until new crop availability.
Export sales last week totaled 238,000 MT, another low number that illustrates the sharp drop in the sales pace recently and clearly suggests that world demand is trying to hold off until the expected sharp increase in supplies. USDA projected that world wheat production would reach 545-555 MMT in 2008, a big jump over the previous all-time high.
As the rest of the Northern Hemisphere breaks dormancy, it will only be a few short, probably volatile, months before we know if that number is achievable. We're off to a shaky start here in the US, with the western southern/central plains still very dry while the eastern half of the plains is actually quite wet.
Texas reported that their wheat was 64% poor/very poor; that was before getting a huge shot of rain in most areas east of the panhandle. Still, there is a very large region of the western plains that is breaking dormancy very soon and in a very stressed condition. The northern Plains, too, need some relief as the entire spring wheat belt is in at least some level of drought status.
USDA's Ag Outlook Forum this week offered some market chatter, but the information was received with little confidence that it would be accurate when it matters just a short time down the road. They forecast total wheat plantings at 64 million acres, down 1 million from their baseline projection just two weeks ago. Corn plantings were raised 2 million from their baseline to 90 million, and soybeans were left unchanged at 71 million.
They forecast total wheat production at 2.33 billion bushels, with ending stocks rising to a much more comfortable 538 million bushels, well above this yearâ€™s 272 million. Corn production was estimated at 12.8 billion bushels, with ending stocks falling to 1.243 billion; soybean production was estimated at 2.95 billion, with ending stocks just slightly higher at 169 million.
We'll likely see more upside momentum at least early next week, following the surge late this week. A test of the spike high is possible, but will be difficult to breach, except for Minneapolis which is in its own universe.