Choppy trade ends 2008
Wheat markets were choppy in very light volume trading as we wrapped up the holiday season, with prices managing to hold onto earlier gains but still unable to break beyond the key resistance at the upper end of the trading range.
Wheat managed to brush off disappointing export news with Iraq purchasing 500 TMT from the Black Sea and Canada, once again bypassing the US as they continue to expand their supply base. There was good news in the export arena, however, as export sales last week were 418 TMT, above the range of estimates and finally getting above the 300 TMT level that it hadnâ€™t been able to breach for four straight weeks.
China announced that they will allow export licenses of 500 TMT each for wheat and corn, saying that they are trying to make room for their record grain harvest and also to support domestic prices. It is unlikely that they will sell milling quality wheat stocks; they usually sell lower grade wheat to the southeast Asia feed grain market.
There are also reports from China about wheat growing regions experiencing unusual dryness. Both winter wheat and spring wheat regions were reported seeing significant reductions in moisture for the month of December. It is too early to surmise that their winter wheat crop is in danger, however, particularly since it was planted into good moisture conditions and has had very little winter stress to date.
Argentina is reported to be more than 92% finished with their harvest, and has further reduced their production estimates to 9.3 MMT. That figure is .5 less than their most recent estimate and 1.2 MMT lower than USDA's last estimate. The Argentine government has suggested that they may once again cut off wheat exports due to this year's low production. This could force Brazil into the open world market again to fill their import needs that normally would have been bought from Argentina. The US has a freight advantage for the Brazilian market, and we certainly have the quality they would want as well.
Australia is also reported mostly finished with their harvest, ending a very disappointing year where the best growing regions had to fight persistent rains during harvest that deteriorated wheat quality to mostly feed grain status. They are not expected to export their feed wheat, thus total wheat exports out of Australia will likely drop from earlier estimates.
Technically, wheat has maintained the price rally to the top of its trading range, and while struggling to move above that key resistance the sellers have not been able to turn it back down. The US dollar has rallied off of its lows and will certainly continue to be an influence on wheat's price action. As we get into full swing of the New Year, we can also expect that funds will be adjusting portfolios. With their generally short position in wheat already, adjustments will likely lead to some buying in wheat and selling in corn.
It is also worth noting the tight spread between the Chicago and Kansas City wheat markets, particularly in the deferred months. The spread is nearing long term support levels, but it would be wise to wait until after the January 12 plantings report before getting aggressive buying KC and selling Chicago.